Third Party Custody Agreement Template for England and Wales

A Third Party Custody Agreement is a critical legal document that governs the relationship between a custodian holding assets and a third party with rights or interests in those assets under England and Wales law. This arrangement provides legal clarity when multiple parties need defined rights over assets held by a professional custodian, ensuring compliance with stringent regulatory requirements while protecting all parties' interests.

When do you need this document?

You need a Third Party Custody Agreement when establishing secured lending arrangements where collateral assets are held by an independent custodian. Investment management scenarios frequently require these agreements when fund assets are held by a custodian but subject to third party rights, such as security interests or beneficial ownership claims. Corporate restructuring situations often involve custody arrangements where assets are held pending completion of transactions, with various parties holding different rights. Private equity and venture capital transactions commonly use these agreements when assets are held in escrow or subject to investor protection rights.

Key legal considerations

The agreement must clearly define the scope of the custodian's authority and duties, including specific obligations for asset safekeeping, record-keeping, and reporting to all parties. Asset segregation provisions are crucial, requiring the custodian to maintain clear separation between different clients' assets and proper identification of third party interests. The document should address liability allocation between parties, including limitations on custodian liability and indemnification provisions. Fee structures and payment obligations must be clearly established, covering custody charges, transaction fees, and responsibility for costs. Termination procedures require careful drafting to protect all parties' rights upon ending the custody arrangement, including asset return protocols and final accounting requirements.

Legal requirements in England and Wales

Under the Financial Services and Markets Act 2000, custodians providing regulated custody services must obtain proper FCA authorization and comply with comprehensive regulatory requirements. The FCA Client Assets Sourcebook (CASS) imposes detailed obligations for client asset segregation, requiring daily reconciliation of assets and strict compliance with trust arrangements. Custodians must maintain adequate professional indemnity insurance and implement robust systems and controls under FCA/PRA handbook requirements. The Companies Act 2006 governs record-keeping obligations for corporate custodians, requiring proper maintenance of registers and compliance with disclosure requirements. The agreement must ensure all parties understand their rights under English trust law principles, particularly regarding beneficial ownership and equitable interests in custody assets. Regular reporting obligations to the FCA may apply depending on the nature and scale of the custody services provided.