FCA: buy side should question custodians 04 November 2013London Reporter: Mark Dugdale
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Asset managers must continue to hold custodian banks to account to ensure that they are getting the services they expect at the correct price, according to the UK Financial Conduct Authority’s (FCA) director of supervision.
Clive Adamson spoke at the FCA Asset Management Conference in London on 30 October, explaining that the authority is looking at custody banks’ ancillary services.
The FCA has assessed the importance of these services to custodians’ business models in the UK and whether their reliance on them and “an apparent lack of transparency” might lead to inappropriate behaviour.
Adamson explained: “This is important, given that for some of these banks, ancillary services represent some 40 percent of their revenues, without which it is likely that their core offering of custody and fund administration would be unsustainable at current prices.”
He said that the FCA did not find inappropriate behaviour taking place, concluding that standards and transparency across the industry have improved over the past few years.
“This has been primarily driven by competitive pressures leading to improvements in services, and by clients being better informed about the potential risks and having better data.”
But he warned the asset managers in attendance that they need to continue asking questions if custody banks leave them unsatisfied, despite improvements in service levels and the introduction of more transparent products.
“You need to continue to hold the custody banks to account to ensure you are getting the services expected at the correct price, just as you would do for any third party provider.”
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