Question Four — What Happens If You Go Under?

If a custodian fails, allocated and segregated metal held as a bailment is your property and is identifiable as yours. An unallocated claim is a claim against a failed company, ranking with other creditors. The two arrangements look identical right up until the moment they do not.

The question is uncomfortable to ask and it is the one that most reliably distinguishes arrangements. A provider that has thought about it will have a clear answer involving the legal status of the metal. One that treats the question as impolite has told you how much thought has gone into it.

• Is the metal held as a bailment — my property, in your custody?
• Is it identifiable as mine, by serial or by segregation?
• Is it ever pledged, lent or used as collateral by you?
• Does the agreement say what happens on insolvency?
• Is there any financing secured against client metal?

If the metal is your property held in custody, it is not available to the provider's creditors. If it is a claim against a pool, its standing depends on the terms and on the circumstances, and that is a materially different position.

This is a question for your own attorney rather than for the facility, and it is worth asking before entering an arrangement rather than while trying to exit one.

1. 01Metal is held as your property in our custody, not as our asset.
2. 02It is not lent, leased, pledged or rehypothecated.
3. 03Allocated and segregated, so it is identifiable as yours.
4. 04The agreement says so, rather than the website.

Ask specifically whether client metal is ever used as collateral for the custodian's own financing. It is a direct question, it is answerable in one word, and it is the mechanism behind most of the failures worth learning from.

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