5 questions you should ask your custodian about outsourcing

April 3, 2024

In an environment where many banks are exiting the custody business, it’s fairly common for providers to outsource day-to-day securities processing work to external vendors – both domestically and overseas. Since this can introduce both risks and benefits, here are five due-diligence questions you should ask when considering potential custody providers.

Question 1

What work do you outsource?

Outsourcing, or contracting work to an outside party, can be done for a variety of reasons. It becomes problematic if communications gaps emerge – which may lead to errors, delays or a decline in quality. However, it can also present some potential advantages:

  • Expense reduction
  • Gains in productivity
  • Labor flexibility
  • Greater specialization
  • Increased capacity
  • Skillset-specific efficiencies and more

Question 2

How much outsourced work is offshored?

Offshoring, or outsourcing work to a vendor in another (usually less-expensive) country, can be done for similar reasons – but usually cost cutting is the primary driver. When a service partner offshores key functions, additional risks emerge. Complications to consider include:

  • Communications gaps
  • Disaster recovery preparedness
  • Time zone delays
  • Increased turnaround times
  • Cultural and language differences
  • Political turmoil
  • Misaligned holidays and office closures

Question 3

How will your outsourcing/offshoring impact my day-to-day activities?

Work that’s outsourced – and specifically offshored – can often add disruptions to the course of daily operations. The best partners prioritize proactiveness, responsiveness and flexibility to ensure you’re able to get what you need when you need it. Ask these questions to assess compatibility:

  • What are your turnaround times?
  • What are your response times?
  • What’s your client service approach?
  • What’s your ability to accommodate urgent requests?
  • How do you accommodate time zone difference?
  • What’s your location strategy today and into the future?

Question 4

How do you maintain regulatory compliance?

A great wealth of experience, expertise and technology often resides in a custody provider like U.S. Bank. Relying on the centralized resources of a knowledgeable partner can be a key step toward staying in sync with regulators and best practices.

Compliance becomes more difficult when a provider adds additional links to the outsourcing chain. Keeping vendors in check requires diligent oversight, so you should confirm that your custody provider has a framework in place to ensure governance, manage risk and maintain business continuity.

Question 5

Do the potential cost savings outweigh the potential financial and reputational risks?

Every situation is unique, so it’s crucial to find the right custody provider that’s best suited to your specific needs. It’s important to assess your short- and long-term goals to determine the best balance of potential cost savings to potential risk. The client-provider relationship often suffers when a provider starts offshoring too many essential functions, which can in turn reduce the control of the client and custodian.

If your provider is outsourcing tasks and you feel it’s impacting their level of service, that’s a clear sign it’s time to reassess. And, when looking for the right custodian, outsourcing is one of many points to consider. To make an informed decision, it’s crucial to weigh the following factors that can vary depending on the custodian:

  • Fee structures
  • Asset safety standards
  • Flexibility around trade execution products and providers 
  • Quality and quantity of resources dedicated to supporting your organization
  • Response times

At U.S. Bank, we remain committed to the custody business, we don’t use domestic sub-custodians, and we maintain direct depository relationships with domestic clearing organizations, including but not limited to the DTC, FED and NSCC. Our dedicated team takes the time to understand the needs of your organization and offer tailored and dependable support, flexible custody solutions and a smooth transition process.

To learn how U.S. Bank can help you with your custody needs, contact us or visit our website

Related content

The ongoing evolution of custody: Tips for renewing your custody contract

Bank vs. brokerage custody

Ask an expert Q&A: 3 US ETF trends and their impact in Europe

5 questions you should ask your custodian about outsourcing

Employee benefit plan management: trustee vs. custodian

Delivering powerful results with SWIFT messaging and services

Alternative investments: How to track returns and meet your goals

Protecting cash balances with sweep vehicles

Preparing for your custodian conversion

How RIAs can embrace technology to enhance personal touch

Look to your custodian in times of change

Manufacturing: 6 supply chain optimization strategies

The role of a custodian

Custody or safekeeping: What’s the right solution for government investments?

Case study: U.S. asset manager expands to Europe

Refining your search for an insurance custodian

What is CSDR, and how will you be affected?

For small business growth, consider the international market

Programme debt clients want reliable service – no matter where they’re based

Emerging trends in Europe: An outlook from multiple perspectives

Why Know Your Customer (KYC) — for organizations

Avoiding the pitfalls of warehouse lending

Proactive ways to fight vendor fraud

Middle-market direct lending: Obstacles and opportunities

The unsung heroes of exchange-traded funds

Luxembourg's thriving private debt market

The benefits of bundling services for Luxembourg regulated funds

Luxembourg funds: 5 indicators of efficient onboarding

High-yield bond issuance: how to avoid 5 common pain points

ESG-focused investing: A closer look at the disclosure regulation

4 reasons your Luxembourg fund needs an in-market administrator

Combined strength: Luxembourg and your fund administrator

Trends in economics, immigration and mobility policy

European outlook: Trustee experience more important than ever

Rethinking European ETFs: Strategy wrappers and a means to an end

Healthcare marketing: How to promote your medical practice

Small business growth: 6 strategies for scaling your business

How to improve your business network security

Alternative assets: Advice for advisors

The reciprocal benefits of a custodial partnership: A case study

3 tips to maintain flexibility in supply chain management

The password: Enhancing security and usability

BEC: Recognize a scam

Fraud prevention checklist

Risk management strategies for foreign exchange hedging

Hospitals face cybersecurity risks in surprising new ways

Key considerations for launching an ILP

10 ways a global custodian can support your growth

Administrator accountability: 5 questions to evaluate outsourcing risks

The benefits of a full-service warehouse custodian

Depositary services: A brief overview

Liquidity management: A renewed focus for European funds

3 innovative approaches to ESG investing in Europe

Crack the SWIFT code for sending international wires

Webinar: Robotic process automation

Webinar: CRE Digital Transformation – Balancing Digitization with cybersecurity risk

Hospitals face cybersecurity risks in surprising new ways

Webinar: CRE Digital Transformation – Balancing Digitization with cybersecurity risk

Programme debt Q&A: U.S. issuers entering the European market

Ask an expert Q&A: 3 US ETF trends and their impact in Europe

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Visit usbank.com to learn more about U.S. Bank products and services. Mortgage, home equity and credit products offered by U.S. Bank National Association and subject to credit approval. Deposit products offered by U.S. Bank National Association. Member FDIC.