Custody and investment: never the twain shall meet
28 September 2016 Geneva
Image: Shutterstock
The blurring of custody and investment business lines among global systemically important banks (G-SIBs) can create a “high level of risk with regard to asset safety”, according to respondents of an independent survey commissioned by SIX Securities Services.
Almost two thirds (64 percent) of financial institutions surveyed admitted to harbouring concerns around the fact their agent banks have both custody and investment business lines.
This fear was particularly acute for G-SIBs, with 80 percent of respondents acknowledging it as an issue for market stability.
Collateral shortfall also emerged as a concern, with half of those questioned suggesting that the transparency requirements around assets, imposed by regulations such as the Dodd-Frank Act and the European Markets Infrastructure Regulation, are actually contributing to a collateral shortfall.
The survey revealed that 32 percent of respondents believe that the pressure to ensure and prove asset safety comes primarily from ‘own balance sheet liability’, followed by 26 percent who point to the regulators and 26 percent who point to institutional investors.
The remaining 16 percent see pressure coming from the clients of these investors, such as pension funds and insurance companies.
Thomas Zeeb, division CEO SIX Securities Services, commented: “These results are a clear representation of how seriously our industry is taking asset safety—clients are conflicted by the need to reduce costs, possibly through outsourcing services, with questions being raised around the prudence of being so reliant on service providers.”
“As a financial market infrastructure, it is our role to address these issues and provide safe, secure and robust solutions to our clients.”
Almost two thirds (64 percent) of financial institutions surveyed admitted to harbouring concerns around the fact their agent banks have both custody and investment business lines.
This fear was particularly acute for G-SIBs, with 80 percent of respondents acknowledging it as an issue for market stability.
Collateral shortfall also emerged as a concern, with half of those questioned suggesting that the transparency requirements around assets, imposed by regulations such as the Dodd-Frank Act and the European Markets Infrastructure Regulation, are actually contributing to a collateral shortfall.
The survey revealed that 32 percent of respondents believe that the pressure to ensure and prove asset safety comes primarily from ‘own balance sheet liability’, followed by 26 percent who point to the regulators and 26 percent who point to institutional investors.
The remaining 16 percent see pressure coming from the clients of these investors, such as pension funds and insurance companies.
Thomas Zeeb, division CEO SIX Securities Services, commented: “These results are a clear representation of how seriously our industry is taking asset safety—clients are conflicted by the need to reduce costs, possibly through outsourcing services, with questions being raised around the prudence of being so reliant on service providers.”
“As a financial market infrastructure, it is our role to address these issues and provide safe, secure and robust solutions to our clients.”
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