Australian regulator sets sights on local custodians

Regulator accuses custodians in Australia of failing to adhere to new rules.
By Joe Parsons

Australia’s financial regulator has criticised local and smaller-sized custodians for falling short of complying with rules on safeguarding assets.

The Australian Securities & Investments Commission (ASIC) recently published its review of Regulatory Guide 133 (RG 133), which set out standards for custodians and depository service providers.

It found that several banks “did not appear to have revised their custody agreements to comply with the new RG 133 requirements”, the regulator stated.

ASIC also deemed “some entities with a dual responsible entity and custodial function were unable to demonstrate adequate functional separation,” and that some were inadequately resourced in terms of compliance capacity.

“Without appropriate safeguards by the asset holder, either a responsible entity or a custodian, there is a potential threat to investors’ assets. Adequate resources and an appropriate risk management framework are therefore necessary for asset holders, to ensure that their safekeeping and related functions are properly performed,” said AISC commissioner John Price.

Australia has the fourth largest pension fund assets in the world, with over $1.5 trillion of assets invested in superannuation funds, as of the end of 2016.

ASIC has called on custodians to amend and update their custody agreements, as well as their risk management arrangements in order to comply with the regulation.

In its review, it stated: “Two entities remain the subject of high-intensity, broad-based surveillance at the time of this report, and we have required two entities to address specific concerns identified through the review.

Regulators around the word have increased their scrutiny of custodians, including the UK Financial Conduct Authority (FCA) which outlined its plans for the custody industry in its 2017/18 business plan.

The FCA has reemphasised its worries over bundled services, a lack of competition, and raised concerns over the adoption of new technologies and resiliency to cyber-attacks.

The article was updated on Wednesday 27th June.