Custody Expert Witness

Custody Expert Witness

The Role of a Custodian

The Madoff Ponzi scheme also brought in to the spotlight the role of custodians in looking after the assets of institutions and private clients. Although this is not a new area and banks have been looking after not only the money but also the assets of their customers for hundreds of years, the responsibilities of custodian banks has been codified much better in recent years and the duties of all parties been defined such that when serious losses are made it is possible to attribute roles to particular parties. The responsibilities of custodian banks has been codified much better in recent years and the duties of all parties been defined such that when serious losses are made it is possible to attribute roles to particular parties.

The whole custody area has also become considerably more complicated with a multitude of different types of asset, derivatives, and complex dealing strategies requiring a large number of parties involved. When it goes wrong it can result in substantial losses.

Dealing on Client Assets

Expert Evidence has advised a number of cases where there are accusations that assets have been mislaid and where deals have not been completed correctly. We believe we are one of the only companies able to help the courts through this minefield and advise on the responsibilities of the parties involved.

Failure of a Sub-Custodian

In the wake of the Madoff and Lehman collapses, the rules under which custodian banks operate were tightened as the spotlight on the safe-keeping of assets and the need for transparency and security intensified. As a result, scrutiny around the choice of a sub-custodian also increased. Historically sub-custodian risk monitoring and assessment was conducted remotely, through passive means such as surveys or online communication, and FSA regulations demanded nothing further. Since the financial crisis, however, European regulation has changed which is forcing custodians to take direct ownership for the sub-custodians they choose to operate with. Global custodians seek to verify information in person and due diligence has become much tighter and more hands-on so that risk can be assessed up-front and much more accurately, and clients’ assets can, as a result, be better protected.

In the case of sub-custodian failure, there is still however often complex legal wrangling around the jurisdiction of the sub-custodian and indemnity around the relevant custodian’s resulting loss of assets.

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