Safe Custody and Nominee Services: Holding Assets Securely Across Borders

When you buy shares, bonds, or funds through a bank or broker, you rarely hold the underlying assets directly. Instead, they are typically held by a custodian bank in a nominee account — a legal arrangement in which the custodian holds assets in its own name on your behalf as the beneficial owner. This structure is the backbone of modern securities markets, but it is also widely misunderstood. For internationally mobile HNW individuals, understanding custody arrangements is important both for asset protection and for navigating the increasingly complex regulatory reporting environment.

What Is a Custodian Bank?

A custodian bank (or custody bank) is a financial institution that holds client assets in safekeeping, processes corporate actions (dividends, rights issues, coupon payments), settles securities transactions, and provides record-keeping and reporting services.

Major global custodians — BNY Mellon, State Street, Citibank, HSBC, J.P. Morgan — hold trillions of dollars in client assets. Sub-custodians in individual markets act as local agents for the global custodians. Private banks typically offer custody services either through their own infrastructure or through third-party custody arrangements.

For individual clients, the custody relationship most commonly arises through:

• A private bank discretionary or advisory mandate: the bank holds assets in a custody account as part of the investment management relationship.
• A stockbroker or online investment platform: platforms like Hargreaves Lansdown, Interactive Brokers, or Saxo hold your securities in nominee accounts.
• A direct custody account: arranging custody at a major bank independently, without a linked advisory or discretionary service.

Nominee Accounts: Legal Title vs Beneficial Ownership

In a nominee arrangement, the custodian (or its nominee company) holds legal title to your assets — i.e., the shares are registered in the custodian's name on the share register. You are the beneficial owner: you receive dividends, bear the risk, and are entitled to the economic value of the assets. The custodian maintains an internal register that identifies your beneficial interest.

This is important for several reasons:

Corporate actions: As beneficial owner, you should receive dividends, vote at AGMs, and participate in rights issues — but the mechanism for doing this runs through the custodian. If you want to attend an AGM personally or vote on a resolution, you must instruct the custodian in advance. Not all custodians pass voting rights efficiently to beneficial owners, particularly for small holdings.

Disclosure: For UK-listed companies, substantial beneficial shareholdings (typically above 3%) must be disclosed under the Disclosure and Transparency Rules, even if the shares are held through a nominee. Custodians vary in how effectively they assist with these disclosure obligations.

Insolvency protection: This is the critical point. In most jurisdictions, assets held in a nominee/custody account are segregated from the custodian's own assets — they are not available to the custodian's creditors if it becomes insolvent. This was tested during the Lehman Brothers collapse in 2008, when client assets held in Lehman Prime Brokerage were subject to prolonged disputes because the segregation was imperfect. Well-regulated custody arrangements — under FCA CASS (Client Assets Sourcebook) rules, MiFID II, or equivalent — require robust segregation.

Always confirm that your custodian holds client assets under the relevant CASS or equivalent regime and that segregation is not contingent on any "title transfer collateral arrangement" (which would transfer beneficial ownership to the custodian as security for margin — a very different arrangement).

Safe Custody of Physical Assets

Beyond securities, safe custody extends to physical assets:

Gold and precious metals: Physical gold held in allocated storage means specific bars are registered to you — your gold is not pooled with other clients' gold. Unallocated gold (common in some bank "gold accounts") means you are an unsecured creditor for the value of the gold, not the holder of a physical asset. For HNW clients holding gold as a store of value, allocated custody is strongly preferable. Providers include The Royal Mint (UK), Brinks, Malca-Amit, and private bank vault services.

Art, jewellery, and collectibles: Specialist fine art storage firms (Crozier, Crown Fine Art) and bank vault facilities offer physical custody for high-value items, with independent valuations, insurance, and access control.

Document custody: Custody of legal documents — original wills, trust deeds, property titles — is offered by some solicitors and private banks. For internationally mobile individuals, knowing where original documents are held is practically important for estate administration.

Sub-Custody Chains and Emerging Market Risk

For international portfolios containing securities in emerging markets, the custody chain may be multi-layered: your private bank uses a global custodian, which uses a sub-custodian in the local market. The quality of local sub-custody varies significantly.

In well-regulated markets (US, UK, EU, Singapore, Hong Kong, Australia), sub-custody is tightly regulated and risks are low. In markets with less developed legal frameworks or less rigorous regulatory oversight, sub-custody risks are higher — including risk of fraud, inadequate segregation, and difficulty recovering assets in the event of a sub-custodian failure. This is relevant for investors in certain African, South Asian, and frontier markets.

When assessing a private bank's custody offering for an international portfolio, ask specifically about sub-custody arrangements in markets where you hold significant assets.

Costs of Custody Services

Custody fees vary by institution and scale:

• Private bank custody: Often bundled into the overall management fee, but may be disclosed separately as a custody or safekeeping fee of 0.05–0.25% per annum on assets held.
• Direct custody at a major bank: For custody-only (no advisory) arrangements, expect fees of 0.1–0.3% per annum, plus transaction costs.
• Platform custody (Hargreaves Lansdown, AJ Bell, Interactive Brokers): Fees range from 0% to 0.45% per annum depending on the platform and asset size; larger balances often attract tiered discounts.

For very large portfolios (£10m+), negotiating bespoke custody terms is possible. Scale genuinely drives down custody costs for institutional-level relationships.

Regulatory Reporting: Custody and CRS/FATCA

Custodians are "financial institutions" for FATCA and CRS purposes. This means they are required to identify the account holders (beneficial owners) and report their account information — values, income, proceeds — to the relevant tax authority.

For UK residents holding assets through a foreign custodian (e.g., a Swiss or Singapore private bank), that custodian reports your account information to the Swiss or Singaporean tax authority under CRS, which then exchanges it with HMRC. For US persons, the custodian reports to the IRS via the Swiss FTA or equivalent under FATCA.

The implication: there is no meaningful distinction between "onshore" and "offshore" custody from a reporting perspective. All accounts above de minimis thresholds are reported, automatically, to your home tax authority. The documentation you provide to the custodian (W-8BEN, self-certification of tax residency) is the basis for determining where your information is reported.

Power of Attorney for Custody Accounts

For custody accounts, especially those held at foreign institutions, establishing an appropriate Power of Attorney (POA) arrangement before you need it is wise. If you become incapacitated or temporarily unavailable, a registered attorney needs to be able to manage the account.

Most private banks will accept a broad financial power of attorney complying with the law of the account jurisdiction. For UK accounts, a Lasting Power of Attorney (LPA) registered with the Office of the Public Guardian is the appropriate document. For foreign accounts, the local equivalent is required — and a foreign LPA may need to be apostilled or notarised to be accepted.

Custody and nominee arrangements are subject to the regulatory framework of the jurisdiction where the custodian is licensed. Rules vary and are subject to change. This guide is for general information only; specific custody arrangements should be assessed with the assistance of qualified legal and financial advisers.

How Global Investments Can Help

Global Investments regularly assists HNW clients in reviewing their custody arrangements as part of broader wealth structuring conversations. Whether you are assessing the adequacy of your current custody structure, evaluating a new private banking relationship, or planning multi-jurisdiction asset transfers, our team can provide introductions to appropriate providers and impartial guidance on selecting the right custody arrangement for your portfolio. Contact us to discuss your requirements.