Network managers reducing DDQ questions for sub-custodians

The DDQ was at risk of becoming unstuck as network managers pumped the document with their own proprietary questions.

By Charles Gubert

The number of supplementary questions being tagged onto the AFME (Association for Financial Markets in Europe) Due Diligence Questionnaire (DDQ) by network managers is gradually receding in what is likely to further streamline the reporting exercise for sub-custodians and facilitate efficiencies during the overall due diligence process.

“The feedback I am receiving now is that network managers are asking fewer additional questions than what they once were. I think this decline is mainly because network managers have realised that many of the auxiliary questions they were asking were actually covered in the AFME DDQ already,” said Alan Cameron, head of market strategy-brokers, at BNP Paribas Securities Services and chair of the AFME DDQ Task Force.

The DDQ, whose origins can be traced back to NEMA Athens in June 2015, was at risk of becoming unstuck as network managers pumped the document with their own proprietary questions, which ran counter to the entire initiative’s standardisation objective. An executive at one sub-custodian provider – speaking at The Network Forum in Cape Town in March 2018, said there had been an 80% increase in the number of questions being asked in the DDQ, according to his estimates.

A handful of sub-custodians – frustrated at the extra effort involved in fielding all of these superfluous inquiries – even touted the idea of charging global custodian and broker-dealer clients for completing the expanded AFME DDQ. This suggestion was predictably snuffed out by customers who highlighted the sub-custodian market was very saturated, stating firmly that remuneration for filling out the DDQ would not be forthcoming.

Nonetheless, AFME is soliciting industry feedback about whether to integrate more questions into the 2019 version of the DDQ. “In our first review of the DDQ in 2017, we reviewed hundreds of additional questions that network managers had asked in addition to the standard ones. In the end, we added or amended only a few. The view of the team of network managers undertaking the review was that most of the additional questions were already covered in the questionnaire or were not genuine DDQ questions. This year, we are planning to review only questions specifically requested by users,” said Cameron.

Despite this, enhancements to the DDQ will be made. Cameron said questions covering client money, compliance with anti-slavery regulations and cyber-security policies would be introduced into the 2019 DDQ. “The present AFME DDQ is a bit light on cyber-security. There is debate as to whether we should extend that particular section. Some think that cyber-security questions are too new and sometimes too specific to the institutions involved to allow for much standardisation,” he said.