Special sub-custodians: Overview, definition, and example
What is special sub-custodians?
Special sub-custodians are third-party institutions that are appointed to hold or manage specific assets on behalf of a main custodian, but only in limited or special situations—usually when the primary custodian doesn’t have access or authority in a particular country or market.
In simple terms, when the main custodian can’t do the job directly, they bring in a trusted local expert to help handle the assets securely and properly.
Why is special sub-custodians important?
In global investing or cross-border asset management, it’s not always possible for a primary custodian (like a big U.S. bank) to directly manage or safeguard assets in every country. That’s where special sub-custodians come in—they fill the gap and make sure the client’s assets are still held securely, even in places the main custodian doesn’t operate.
This setup helps maintain compliance with local laws, reduces operational risk, and ensures that investors’ holdings are properly tracked and protected around the world. It’s especially important for funds or businesses with international investments.
Understanding special sub-custodians through an example
Let’s say your company has a retirement fund that invests in stocks listed on a small foreign exchange. Your main custodian handles your U.S. and European holdings, but it doesn’t have a license to operate in the country where the new stocks are located.
To solve this, the main custodian appoints a special sub-custodian—a qualified local bank—to hold and manage the securities in that market. This ensures your assets are still safely held, reported, and governed under the proper rules.
Without a special sub-custodian, the fund might be unable to invest in that market—or would take on much higher risk.
An example of a special sub-custodians clause
Here’s how this clause might appear in a custodian agreement:
“In jurisdictions where the Custodian is not authorized to act directly, it may appoint one or more Special Sub-custodians to hold and safeguard assets. The appointment of any Special Sub-custodian shall be subject to reasonable care and due diligence, and the Custodian shall not be liable for the acts or omissions of such Special Sub-custodians unless arising from the Custodian’s own negligence or misconduct.”
Conclusion
Special sub-custodians play a behind-the-scenes but critical role in managing global investments. They ensure your assets are properly handled in countries where your main custodian doesn’t have reach or authority.
For businesses or funds with international exposure, this structure helps maintain trust, legal compliance, and operational efficiency—so your assets stay safe, even far from home.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.