Professional Documents
Culture Documents
The custodian must know at all times how and where the assets are deposited
and how they are available.
Where the deposit has been placed with a sub-custodian, the custodian must
monitor the sub-custodian namely, from the outset and during the entire
duration of the agreement the custodian must monitor the repute,
qualifications and solvency of the sub custodian with the due care and
diligence expected from a reasonably competent and circumspect
professional placed in the same circumstances.
Are these three obligations equally enforceable in all types of situations or is there
different degrees of enforceability. Can some of them be subject to the bilateral
agreement of the two parties
How do these obligations apply in some concrete cases of the day to day life of the
business, where for example:
A fund invest in a market where cash and securities can only be held in accounts
which are in the name of the final beneficial owner (i.e. the fund) and not in the
name of the custodian (India, China, etc...)?
Obligation of means vs
Obligation of results
Obligation of Means
Custodian only undertakes to comply with its obligation on a normal effort basis, no specific
result targeted
Custodian must use diligence and care expected from a reasonably competent and
prudent professional placed in the same circumstances
=> Claimant has to prove the fault of the custodian : burden of proof lies on claimant
Obligation of Result
=> Custodian has to prove force majeure to be exonerated: the burden of proof lies on it
obligation of means vs
obligation of results
Obligation to monitor the assets : Custodian is liable unless it can prove that the
damage or loss of the deposit is not a result of its negligence or fault in the
selection and monitoring of the sub custodian. => Obligation of Means
Obligation to return the deposited assets to the depositor: the custodian is liable
for its failure to return assets where such assets were deposited with a subcustodian. Defense is limited to force majeure. With respect to force majeure,
the insolvency of a sub-custodian could, as the case may be constitute a force
majeure event. => Obligation of Result
Possible Mitigations
Obligation to monitor the assets : the obligations to monitor the assets and the
sub-custodian cannot be delegated to a third party and it is not possible to
contractually limit the liability of the custodian.
Segregation of assets
Re-use of assets
Obligations of sub-custodians
=> Custodian should not be the insurer of the fund whether UCITs or non UCITs