Custodians face greater ASIC scrutiny

The Australian Securities and Investments Commission (ASIC) has made moves to clarify the role of custodians and increase custodian responsibilities to investors in its 'good practice' recommendations for custodians and responsible entities released today.

The measures address ASIC's concerns regarding the safety of investment assets that custodians hold, their duty of care, and whether custodians have internal controls ensuring the safety of assets held for others - particularly in light of recent collapses in the financial services industry, including Trio Capital.

ASIC has highlighted 'good practice' issues for custodians to consider, including the unauthorised debiting of omnibus accounts, the stability and safety of their IT systems, operational risks created by manual and disparate systems, and their whistleblowing culture and framework.

Custodians are also asked to consider their role in reporting suspicious third party valuations, breach reporting related to custodial and investment administration services, and the risks of corporate actions such as share buy-backs and rights issues. 

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"Custodians are important gatekeepers, in that they have access to information - including real-time data on the flow of money through investment products - unavailable to ordinary investors," ASIC commissioner Greg Tanzer said.

"However, there are concerns about an expectation gap between what is legally required of custodians and what investors expect the custodian to be doing to safeguard their investment," he said.

Tanzer said greater clarity around the role of the custodian was needed to improve investor confidence and promote transparency.

ASIC also alluded to a change of title for custodians in line with the Parliamentary Joint Committee recommendations.

ASIC said investor assets held by custodians (currently amounting to $1.8 trillion) were expected to more than triple over the next 15 years to $6.4 trillion.