Subcustodian

A subcustodian is a financial institution appointed by a custodian bank or other primary custodian to hold and administer securities on behalf of clients in jurisdictions where the custodian does not have a direct local presence. Subcustodians operate in local markets, maintaining custody accounts, clearing and settling trades, and performing related activities such as income collection, corporate actions processing, and the maintenance of ownership records.

The client typically contracts with the primary custodian, not the subcustodian. The primary custodian retains responsibility for safekeeping, settlement, reporting, and regulatory compliance to the client, while the subcustodian carries out day-to-day custody tasks under an agreement with the custodian. Subcustodian networks help global custodians offer access to multiple markets, leveraging local market expertise, depositories, and infrastructure.

Regulatory and risk considerations are central to subcustodian arrangements. Subcustodians operate under local securities laws and market infrastructure rules, and custodians perform due diligence, ongoing monitoring, and risk management to address operational, settlement, legal, and counterparty risks. Failures in a subcustodian’s operations can affect asset safekeeping, corporate actions, or income collection, so clear governance, contingency planning, and transparent fee structures are important.

Benefits and limitations: Subcustodians enable cross-border investment, enhance market access, and support efficient settlement and regulatory compliance. They can introduce opacity in some cases, making due diligence and ongoing oversight essential. Overall, subcustodian arrangements are a common component of global custody models, balancing local expertise with centralized governance.