Link between agent bank custody and investment lines raises asset safety concerns
New research from SIX Securities Services reveals that 50% of financial institutions face increasing client requests for asset segregation
London / Geneva 28 September 2016: Independent research commissioned by
SIX Securities Services, has revealed that that over two thirds (64%) of financial institutions are concerned that agent banks have both custody and investment business lines. An inability to separate these two business activities introduce a potentially high level of risk with regard to asset safety. This fear is particularly prevalent amongst global systemically important banks – 80% of such organisations highlight this as an issue, underscoring the systemic incompatibility of these two business lines.
32% of respondents argue that the pressure to ensure and prove asset safety comes primarily from ‘own balance sheet liability’, followed by 26% who point to the regulators and 26% who point to institutional investors. 16% see pressure coming from the clients of these investors, such as pension funds and insurance companies.
Respondents identified the following major concerns
- Counterparty risk of Agent Banks
- Location and security of proprietary and client data
- IT security of providers
- Risk profile of providers (credit, operational, risk management)
- Collateral management
Despite increasingly granular due diligence questionnaires, 28% of respondents don’t feel they are able to accurately assess the risk profile – including creditworthiness, operational procedures, risk management models and security policies – of agent banks.
Collateral shortfall also emerges as a concern. 50% of those questioned believe that the transparency requirements around assets, imposed by regulations such as Dodd-Frank and EMIR are actually contributing to a collateral shortfall.
Thomas Zeeb, Division CEO SIX Securities Services comments: “These results are a clear representation of how seriously our industry is taking asset safety – 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. As a Financial Market Infrastructure, it is our role to address these issues and provide safe, secure and robust solutions to our clients.”
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SIX Securities Services
SIX Securities Services is one of Europe’s best performing post-trade service providers. SIX Securities Services offers comprehensive clearing, settlement, custody, collateral management and repo trading services for Switzerland and for clients in 65 markets around the world. In addition, as a key part of the Swiss Financial Market infrastructure, SIX Securities Services operates the platform for the electronic processing of land registration and mortgage transactions, the trading platform for the money market transactions of the Swiss National Bank and the platform for the settlement of interbank payments. Furthermore, SIX Securities Services offers fiduciary management of registered mortgage notes, as well as e-bills and direct debits.
SIX operates the infrastructure underpinning the Swiss financial sector and offers a comprehensive range of services around the world in the fields of securities trading and settlement, financial information and payment transactions. The company is owned by its users (approximately 140 banks of various orientation and size). Its workforce of over 4,000 employees and presence in 25 countries throughout the world generated operating income of CHF 1.8 billion and a Group net profit of CHF 713.7 million in 2015.