Reading a Terms of Service for the Clause That Matters
Six searches through a terms document that take ten minutes and tell you more than any review.
Nobody reads terms of service. You can read the six clauses that matter in ten minutes using the search function.
Search one: title
Look for whether title to assets transfers to the firm on deposit. If it does, you are a creditor by agreement and everything else in the document is secondary.
Search two: segregat
Look for a statement that client assets are held separately from the firm’s own. Note whether it says will or may.
May is not a commitment.
Search three: lend, pledge, rehypothecat
Any permission to use client assets. This is the clause that preceded several failures and it is always disclosed.
Its presence is not proof of misuse. Its presence combined with no regulator is a different matter.
Search four: suspend
What circumstances permit suspending withdrawals, and whether notice is required. Every venue reserves this right; the breadth varies enormously.
A clause permitting suspension at sole discretion for any reason is doing a lot of work.
Search five: liabilit
The cap on the firm’s liability to you. Frequently limited to fees paid, which on a custody relationship is close to nothing.
Search six: govern
Governing law and jurisdiction for disputes. A dispute resolved in a jurisdiction you cannot practically litigate in is a dispute you will not pursue.
Combined with an entity incorporated in that place, this determines whether any remedy exists in practice.
What the six tell you together
Whether assets are yours, whether they can be used, whether you can be stopped from leaving, what you can recover, and where you would have to go to try.
That is the whole custody relationship in six paragraphs.
What to do with the answers
Keep a note with the date and the version. Terms change, usually with an email nobody reads, and the version you agreed to is the one that applied when you deposited.
The shortcut
A venue under a regulator that imposes client asset rules has had these clauses constrained by someone other than its own lawyers. A platform under a named regulator is bound by rules that outrank its own terms.
Collect & Exchange, which is licensed in Cyprus, publishes both the terms and the framework, and a venue with segregated client accounts is making a statement its supervisor can test.