October 2026 edition
The global custodian's name is on the agreement. In most markets, the assets sit with an agent bank, and in some with a depository participant one link further down; the cash is a deposit on an operating bank whose rating is not the one the questionnaire recorded; and the clause that decides who bears the loss when the agent fails was accepted by someone who was not bearing it. The annual assessment exists to read those facts together.
The Annual Custodian Review is an implementation checklist for that assessment, built for the asset owner and the investment manager. Nine workstreams carry it from the perimeter to the committee minute, from the custody chain and the operating entity's own financial strength through the contract, control assurance, cash and resilience to the exit position. Every item is one verifiable action with the failure mode that makes it worth doing, the artifact that proves it was done and the test that says when; the checklist is evergreen, reissued ahead of each review season.
Sample Items
Record the standard of care the custodian owes for its own acts and the standard it owes for the acts of its agents and depositories, and establish whether the second falls short of liability for the agent's failure.
Watch out. A standard of "reasonable care in the selection and monitoring" of agents reads as a diligence obligation and operates as a liability exclusion: it moves the loss to the client the moment the agent fails, however careful the selection was. Look also for the clause that excludes depository failure altogether; it is common, and it means the firm, not the custodian, is the depository's creditor.
Classify every balance in the chain as a custody asset held off the holder's balance sheet or a claim on the holder, and name the entity against which each claim runs.
Watch out. Sweep arrangements move the answer without moving the reporting line. A balance that was a money-fund position last quarter may be a deposit this quarter because the sweep was changed, suspended or capped, and the statement format does not change when the legal character does. Ask what the sweep does, not what the statement says.
Compile the findings log from every gap recorded in WS 02 through WS 08, with a severity, a firm-side owner, a remediation action and a date for each.
Watch out. Findings assigned to the custodian have no owner inside the firm and therefore no date. Every finding needs a firm-side owner even where the remediation is the custodian's to perform.
Subscribers to the Journal may download the full checklist, including all 76 items across 9 workstreams, with the Excel working register.
