HSBC aims for US market with custody and clearing launch

HSBC Bank USA has launched its US Direct Custody and Clearing offering.

The initiative will enable improved asset safety for its institutional investor clients with exposure to US capital markets, HSBC said. It will also reduce counterparty and operational risk, while bolstering end to end efficiency for clients. The launch supports the increased cross-border investments from clients in Europe, Middle East, Africa (EMEA) and Asia-Pacific (APAC) into the US market.

“HSBC is sub-custodian in 39 markets and the US is obviously a market that needs to be in our network. The client base will predominantly be Europe, Middle East and APAC institutional investors, such as Central Banks, asset managers, sovereign wealth funds, pension funds and insurance companies,” said John Van Verre, global head of custody and treasury at HSBC Securities Services.

Regulation is also a major driver behind the scheme. The Alternative Investment Fund Managers Directive (AIFMD) and UCITS V subjects depositary banks – usually global custodians – to strict liability for any financial instruments lost in sub-custody.
AIFMD does allow the depositaries to discharge liability to sub-custodians or indemnify themselves against losses under certain circumstances. However, UCITS V is widely interpreted to explicitly prohibit any discharge of liability by depositaries to sub-custodians including market infrastructures such as Central Securities Depositories (CSDs).

The launch of US Direct Custody and Clearing means that asset safekeeping is internalised and under greater control. Furthermore, the cash is held on HSBC’s balance sheet, while securities are segregated from the bank’s proprietary assets and in accounts with the Depository Trust & Clearing Corporation (DTCC) and Federal Reserve.

“Regulation is a significant component of the new offering. AIFMD and UCITS V have introduced tougher liability standards, and it is critical for clients and service providers to have control over the end-to-end processes around asset safekeeping. Having the assets within HSBC’s sub-custody network provides greater control,” commented Van Verre.