AIFMD (UCITS V) Global Custodian Monitoring

Many depositary banks will utilise a global custodian(s), ICSD(s) and/or other securities settlement intermediary to support all or part of their chosen markets of investment. Thomas Murray Data Services’ delivers the following services as part of its Global Custodian Monitoring Service:

The Global Custodian Risk Assessments will provide TMDS’s opinion of the risks associated with client’s global custody arrangements, together with an overview of the each group’s operational capabilities.

The risk assessment uses the familiar “AAA”, “AA”, “A” etc. nomenclature used by two of the major rating agencies. The ratings are based on information obtained directly from each group (each bank is regularly issued with a request for information (“RFI”), from meetings between Thomas Murray and a bank’s management and operational staff and from public sources.

The analysis consists of two parts – The Global Custodian Risk Assessment (“GCRA”). The GCRA is updated continuously, with financial news flashes sent to clients on a quarterly basis, and additional flashes sent periodically, where the risk rating may have been impacted by a significant event related to the bank’s business. In addition, the GCRA take into account the following major components:

  • Credentials, defined as the custodian’s experience in, and commitment to, deliver global custody services together with their management of the business;
  • Core operations and internal functions, which includes an assessment of the custodian’s IT and communications systems, its operational reporting, the network management function of the custodian, as well as its client relationship management capabilities;
  • Risk, which assesses the position of the custodian on financial, asset safety, asset servicing and operational (procedures and controls) risks.
    • Financial. The financial viability and stability of the custodian and its ability to support long term investment in its business and withstand operational losses. Factors considered include the (long term) credit ratings, balance sheet, insurance coverage and the regulatory capital ratios.
    • Asset Safety. This is made up of two parts, securities risk and cash risk.
      • Securities risk: this is the risk that, in the event of default by the custodian, client securities are treated as being part of the assets of the bank which has gone into default, and therefore available to its creditors, rather than belonging to clients. The rating looks for appropriate segregation and registration of securities and recording in the books of the sub-custodian and global custodian.
      • Cash risk: this is the risk that, in the event of default by the custodian, clients are exposed to losses of cash placed with the bank.
    • Asset Servicing. This is the risk that the client is exposed to a loss due to weaknesses in the custodian’s operational infrastructure to which the client assets are vulnerable. There is also the level of responsibility taken by the custodian for information provision on asset servicing events generally, whether the service or information provision is in-house or outsourced. There is the level of responsibility accepted by the custodian for carrying out correctly all client instructions given within deadline.
    • Operational. This is the risk that deficiencies in information systems or internal controls, human failures or management errors will result in unexpected losses. Essentially, this is the risk of client loss due to breakdowns or weaknesses in internal controls or procedures at the custodian. Factors to be considered include the level of internal audit, compliance, external audit, external regulatory activity, coverage of the custody operations, and the level of IT disaster recovery and business continuity planning.

Secondly, a Service Capability assessment, which consists of analysis of the global custodian’s core service activities, including settlements, safekeeping, income, corporate actions, corporate governance, cash/FX management, active cash management, taxation and securities lending. Together with analysis of the main contractual terms that are in place between the client and the global custodian, which could impact the asset safety and asset servicing risk exposures is also included as part of the service. The service revealed by the breadth and quality of the nine core services offered, as well as the custodian’s technical ability to deliver the services to a high standard, while minimising risk to the client in providing the services.

Download the AIFMD and UCITS V brochure.


If you would like to purchase this service, or find out more about it, please contact Derek Duggan at dduggan@ds.thomasmurray.com or telephone him on +44 (0) 20 8600 2300.