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There are numerous decisions that will shape the future of your business. Among them, choosing the right custodian holds immense significance.

Your chosen custodian should offer a level of service that is at least equal to the high standards of that which you provide to your clients. Comprehensive due diligence is needed to find the perfect custodian to partner with your firm and drive it forward. Here are just some of the questions you should ask your custodian.

1.    How transparent are you about your fees? 

Analysing a custodian’s invoices can often be a significant burden. Make sure your custodian is providing timely, accurate invoices for the services you subscribe to. Can your custodian demonstrate transparency in the charging structure, and provide examples of specific scenarios that might create additional charges? 

2.    What environmental, social and governance (ESG) standards do you have, and how do you meet them?

Sustainability is a key focus for many asset owners, asset managers and market participants, so it is important to ensure material service providers are aligned with your own sustainability goals. 

As one of the key material service providers, you must ask your custodian how it integrates corporate governance and ethical considerations into its daily operations. Get them to provide you with specific examples of how these principles guide its decision-making processes and influence its interactions with clients.

3.    How will you help me to meet my long-term strategic goals?

You should know your custodian’s long-term strategy, and they should know yours. When it comes to outsourcing, this should include knowing about your custodian’s present and future location strategies. The custodian should be able to tell you if it is planning any material changes to its operational locations across its asset servicing products and, if so, what is driving the change.

Custodians are no longer differentiating themselves on the utility of safekeeping and settlement. It is therefore important to go beyond questions about basic custody services. Can your custodian highlight any innovative tools, technologies, or additional services it offers that will enhance your ability to monitor, manage, and optimise the assets, processes and, ultimately, returns? On that point, you should also ask:

4.    How do you keep pace with technology?

A client-focused custodian will try to continuously improve its service, and that includes harnessing digital capabilities. What operational or technological enhancements has the custodian adopted/is planning to adopt, that will improve your client experience? Can the custodian clearly explain to you what tangible benefits you’ll receive?

Has your custodian advised you about these forthcoming changes? In terms of transaction processing technology, can it explain how its infrastructure ensures, not only reliability and timeliness, but also compliance with industry standards, and if there have been recent updates to enhance these capabilities?

5.    How are you coping with the move to T+1 settlement?

While quizzing your custodian about technology, use the opportunity to gain insights into how the custodian is handling the forthcoming move to T+1 settlement in the US, Canada and Mexico. This has potential implications for related FX and securities lending processes, especially for clients investing from different time zones into these markets.

6.    How do you monitor and stay abreast of tax reclaims processes?

Does the custodian know how many of your market tax reclaims are due to be paid, and have actually been lodged with the local market tax authority? Or are some aged reclaims still being prepared/pending submission?

7.    How do you monitor and stay abreast of regulatory changes?

How is the custodian preparing for upcoming regulatory changes that will impact the operating model for asset servicing products?

8.    How do you ensure the safety of our assets? What cyber security measures do you have in place? 

What kind of cyber insurance does the custodian have? What is its incident response plan? Does it have specific protocols for data recovery? How does it continuously monitor its threat environment?

In safeguarding assets against cyber threats and fraud, can your custodian elaborate on the multi-layered security measures in place, including encryption protocols, intrusion detection systems, and any recent enhancements made to mitigate evolving risks?

Any kind of financial organisation, of any size, is a magnet for cyber criminals and nation-backed threat actors. Considerations in this area are wide-ranging and constantly evolving – to determine if the responses are satisfactory, you may need to bring in a cyber security expert to interrogate the custodian on your behalf. 

9.    What are your business continuity and disaster recovery plans?

Cyber risk is the most prominent general threat, but there are other inherent risks that also must be planned for and mitigated against – from natural disasters to geopolitical crises. How quickly can it resume normal operations after an incident?

Find out about your custodian’s contingency arrangements should a sub-custodian be unable to operate in one of your markets of investment – Thomas Murray would expect your custodian to have those arrangements in place.

10.    What are your communication standards?

With varying client service models, it is important to understand your custodian’s approach to client service, queries, and escalation. What communication channels does it have for addressing concerns or inquiries about your account? How will the custodian ensure prompt and effective responses, especially during critical situations? Ensure your custodian has a crisis communication plan.

As part of good communication, the custodian should be able to provide a client with a “whole portfolio view” that combines public and private assets.