Template:Delegate vs subcontractor: Difference between revisions

Being ''[[Delegation|delegated]]'' a [[custody]] function — agreeing to act, as {{t|AIFMD}} puts it “as the first level of a [[custody]] chain”, as main [[custodian]] to a [[fund]] ''[[on behalf of]]'' the [[depositary]] whom the [[fund]] has appointed to carry out that function is, in our view, a quite different thing from being appointed by the depositary as a [[sub-custodian]].

*'''Delegate''': A delegating [[depositary]] won't hold the assets ''at all'': it will pass that responsibility to the [[delegate]] — usually a [[prime broker]] with designs on a spot of [[rehypothecation]] — who will record the end-client’s interests in the custody assets directly in its books and records — that is, it will be “at the first level of the [[custody chain]]”. The delegate may well have to report this all to the [[depositary]], but the [[depositary]] will not carry the “golden source” record of the client’s assets in its own books and records. It might copy the delegate’s report, but the delegate’s records are what count.

*'''Subcontractor''': A [[subcustodian]] stands behind the “first level” custodian and holds the [[custodian]]’s client assets in a single [[omnibus]] account, in the [[custodian]]’s name but marked as "client assets" and therefore unavailable for the [[main custodian]]’s creditors. A [[sub-custodian]] won’t know who the custodian’s individual clients even are, let alone which assets in its omnibus account are attributable to which of those clients, much less have a direct interpersonal or contractual relationship with those clients. A subcustodian won’t be in a position to [[rehypothecate]] any assets it holds — hence it ought to be happy enough signing a [[no lien letter]].