Concerns raised over ‘Chinese walls’

Institutions are concerned about the link between custody and investment businesses at banks.
By Hayley McDowell
Over two thirds of financial institutions are concerned that banks with both custody and investment operations are increasing risks to asset safety.

Research published by SIX Securities Services also found that half of institutions are facing increasing client requests for asset segregation.

Thomas Zeeb, division CEO at SIX Securities Services said the research is a “clear representation of how seriously our industry is taking asset safety.”

He added: “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.”

Pressure to ensure and prove asset safety comes primarily from ‘own balance sheet liability’, according to 32% of institutions, although 26% point to regulators.

Furthermore, 28% don’t feel they are able to accurately assess risk profiles of agent banks.

Half of respondents also stated transparency requirements from regulations like Dodd-Frank and EMIR, are leading to collateral shortfall.

SIX Securities Services’ Zeeb concluded: “As a financial market infrastructure, it is our role to address these issues and provide safe, secure and robust solutions to our clients.”