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17-193MR ASIC seeks better compliance with asset-holding requirements in funds management and custodial services
ASIC today released a report entitled 'Review of compliance with asset holding requirements'. The report outlines ASIC's findings following an extensive review of compliance by custodians and responsible entities of managed investment schemes with the asset holding requirements imposed by ASIC Regulatory Guide 133 Managed investments and custodial or depository services: Holding assets (RG 133).
In 2013, ASIC released a revised version of RG 133, which sets out our policy in relation to the holding of assets, as well as two related class orders which set out the legal requirements for asset holding, Class Order 13/1409 Holding assets: Standards for responsible entities and Class Order 13/1410 Holding assets: Standards for providers of custodial and depository services.
In late 2016 and early 2017, ASIC reviewed compliance by the industry with RG 133 and the class orders, identifying 21 entities for the review - both responsible entities and custodians.
In some areas compliance with RG 133 fell short of expectations, with a generally poor level of understanding of the relevant requirements. Several entities did not appear to have revised their custody agreements to comply with the new RG 133 requirements. More fundamentally, some entities with a dual responsible entity and custodial function were unable to demonstrate adequate functional separation. In addition, some entities were inadequately resourced in terms of compliance capacity, including that they did give the appropriate level of commitment and priority to the selection and monitoring of custodians.
As a result of the review, ASIC has required a significant number of the entities to undertake corrective action to address these concerns. Furthermore several entities reviewed will now be subject to separate surveillance.
ASIC intends that compliance by the financial services industry with RG 133 and the class orders will remain a priority. ASIC Commissioner John Price said, 'Responsible entities and custodians play a crucial role in ensuring the overall health of our financial system. Their conduct influences levels of investor trust and confidence.
'The custody - or safekeeping - of assets is a critical function. Without appropriate safeguards by the asset holder, either a responsible entity or a custodian, there is a potential threat to investors' assets. Adequate resources and an appropriate risk management framework are therefore necessary for asset holders, to ensure that their safekeeping and related functions are properly performed.'
ASIC acknowledges the cooperative approach taken by the entities selected for the review.