Are your Invested Assets Safe? How to get the best out of your Custodian

This article describes how custody is not a risk-less activity and is critical to the proper functioning of funds, including pension schemes. Although custody is of great importance to the safety of invested assets, many investors do not fully understand the role of the custodian and the related risks that their fund and assets may be exposed to. Those funds that actively engage with their custodians, including the regular monitoring of their performance and costs, typically enjoy better value for money and are exposed to less operational risk than their peers.

This article was first published in the July edition of PMI News, the Pensions Management Institute's newsletter. Although the article refers mainly to pension funds, the issues discussed are equally relevant to other asset owners including insurance companies, sovereign wealth funds, investments trusts, mutual funds and other investors.

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The events in global financial markets in the last four years have highlighted the importance of assuring that systemically important entities are sound and stable. Indeed, the crisis following the collapse of Lehman Brothers could have been far worse if key participants of the financial industry had defaulted as a result of the market developments. In this sense, the CPSS-IOSCO paper on “Principles for Financial Market Infrastructures” published in March 2011 (http://www.bis.org/publ/cpss94.pdf) is a prudent step to ensure that the industry is safeguarded against another potential future crisis, especially as financial markets are not yet stable and there continues to be a clear and present danger to market stability across the world.

Capital Markets Infrastructure Risk Ratings: Middle East and Africa

Thomas Murray analyse capital markets infrastructure risk in the Middle East and Africa and review changes to regulation and market infrastructure within these region.

The capital market infrastructure risk rating (CMIRR) is a weighted average of six risk components which are asset commitment risk, liquidity risk, counterparty risk, financial risk, operational risk and asset servicing risk. The ratings are assigned to the market infrastructure as a whole, including all central securities depositories in the market, arrangements for settlement of physical securities, payment systems, and local regulations.

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