Template:Delegate vs subcontractor: Difference between revisions

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 Being ''[[Delegation|delegated]]'' a [[custody]] function — agreeing to act, as {{t|AIFMD}} puts it “at 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, the delegate itself, and not the depositary, will be “at the first level of the [[custody chain]]”. The delegate may have to report everything 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 books will be what count.
-*'''Subcontractor''': A [[subcustodian]], by contrast, 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. If the main custodian were not obliged to tell you about its sub-custodians, you would not even know they were there. A [[sub-custodian]] holds assets for the main [[custodian]], only ''sees'' the [[main custodian]], and won’t know who its individual clients even are, let alone which assets it holds for the main custodian belong to which clients, much less have a direct interpersonal or contractual relationship with those clients. Since it doesn’t know to whom they belong, a sub-custodian won’t be in a position to take security over or [[rehypothecate]] any assets it holds<ref>Except to cover its own direct custody costs.</ref> — hence it ought to be happy enough signing a [[no lien letter]].
+*'''Subcontractor''': A [[subcustodian]], by contrast, 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. If the main custodian were not obliged to tell you about its sub-custodians, you would not even know they were there. A [[sub-custodian]] holds assets for the main [[custodian]], only ''sees'' the [[main custodian]], and won’t know who its individual clients even are, let alone which assets it holds for the main custodian belong to which clients, much less have a direct interpersonal or contractual relationship with those clients. Since it doesn’t know to whom they belong, a sub-custodian won’t be in a position to take security over or [[rehypothecate]] any assets it holds<ref>Except to cover its own direct custody costs.</ref> — hence it ought to be happy enough signing a [[no lien letter]].
 '''Careful though''': Both CASS  and {{tag|AIFMD}}/{{tag|UCITS}} are a little sloppy in their use of the word “[[delegation]]”, using it on occasion to mean something that is probably meant to refer to a [[subcontract]]ing arrangement<ref>See, for example {{tag|CASS}} {{cassprov|6.3.4}}, and the flush text after {{tag|AIFMD}} Article {{aifmdprov|21(11)}}(d).</ref>. {{tag|CASS}} only really talks about [[subcontract]]s, though {{tag|AIFMD}} and {{tag|UCITS}} deal with true [[delegation]] ''and'' [[subcontract]]s.