INDUSTRY UPDATE - THOMAS MURRAY

Transcription

1 VI. GENERAL ASSEMBLY OF ACSDA INDUSTRY UPDATE - THOMAS MURRAY Derek Duggan, Thomas Murray Caesar Park Hotel, Buenos Aires, Argentina 28 April 2004 Page 1

2 Agenda Thomas Murray Update Depository Service Update Data Sharing Initiative Update Capital Market Infrastructure Risk Ratings Page 2

3 Core Risk Exposures Assessed by Thomas Murray Institutions Negotiable Direct Investor Exposure Pension Fund Asset Manager Sub- Custodian CCP Global Custodian Sub- Custodian Sub- Custodian Capital Market Infrastructure CSD Risks being assessed Financial Asset Safety Asset Servicing Operational Risks being assessed Asset Commitment Liquidity Counterparty Asset Servicing Financial Operational Funds need to understand the risks that they are exposed to through the use (directly or indirectly) of global custodians, agent banks and CSDs Page 3

4 - Global Custody Ratings Report October 2003 Clients Covered: UK This global custody rating and evaluation has been primarily conducted with UK clients as the audience. Private Domestic Agent Bank Rating Report National Australia Bank Limited (NAB) is is the largest financial services institution by market capitalisation Private listed Domestic on for the Bank Australian Of Agent Bermuda Stock Bank Rating Report Exchange. NAB acts as as both the operating bank in in Australia and the holding company of of the NAB Group. NAB provides for custody Bank Of Bermuda services through its National Custodian Services division (NCS). NCS in in the UK and Europe (NCS Europe) operates through a subsidiary, Clydesdale Bank PLC (Clydesdale). Overall, assets under custody in in the NAB Group have more than doubled from USD 93 billion as as at at September 1998 to to USD billion as as at at March 2003, of of which NCS Europe assets were USD billion. The custody business is is managed on a global basis, with 158 people employed Outlook: Stable Thomas in Murray in the UK Private by NCS Europe Domestic and Agent a further 540 Bank with Rating NAB in in Australia and New Zealand. NAB is is now the contracting party for custody services offered to to clients by NCS Europe. Domestic Outlook: Custody Rating: A+ Stable NCS Europe demonstrates a very strong global custody offering and Thomas has been Murray upgraded Private from A+ Domestic to to AA- overall Agent by Thomas Bank Murray Rating as a Domestic Custody Rating: A+ result Danske Bank is is the largest bank in in Denmark and the the second largest the the Nordic Region. It It demonstrates a strong local custody service. Its Its dominant market share within of of the improvements made over the last year. The strategy at atncs Europe in in recent years has been to to reinvigorate the business the Danish market illustrates this. Danske Bank has a comprehensive service but but some limitations, which it itis is currently upgrading to to further support international clients. Its by Its the infusion of of senior staff from Australia and to to extend immediate the Danske Bank is is the largest bank in Denmark and the the second largest in in the the Nordic Region. It It demonstrates a strong local custody service. Its Its dominant market share within product priority is offering is to to maintain from its its dominant the core Danish trustee domestic custodian market share. product, Currently to to UK it it has sub- no no viable alternative for for clients looking for for a regional custody solution at at a time custody and master custody (including investment accounting/reporting when the Danish market illustrates this. Danske Bank has a comprehensive service but but some limitations, which it itis is currently upgrading to to further support international clients. Its the the competitive and situation fund accounting within the capital services), market infrastructure by the implementation of of the Nordic region of of a new as as a whole remains confused. The rating of of the bank exceeds the the minimum Its investment immediate priority to to maintain its its dominant Danish domestic market share. Currently it has no no viable alternative for for clients looking for for a regional custody solution at at a time accounting system, Eagle. There has also been recommended significant level emphasis when the the competitive for for the country on situation automation based on on Thomas and within the capital Murray s STP. assessment of of underlying capital market infrastructure risk exposures. market infrastructure of of the Nordic region as as a whole remains confused. The rating of of the bank exceeds the the minimum NCS Europe offers all all the core global and UK domestic custody Service recommended levels services. provided level Outside by by for for the the the Bank the country are UK, are generally based NCS on on good Europe Thomas although Murray s holds there client assessment are are some assets areas of in of underlying omnibus about which capital Thomas market Murray infrastructure has has concerns. risk exposures. The The cash cash and and securities areas are are still still not not accounts with its sub-custodians, separate from both NCS integrated Europe s the for to all on the Service and whilst and levels provided the custody the sub-custodian s by area takes responsibility own by the the Bank are are generally proprietary for good client cash assets, accounts although there they unless are are some are unable the areas about to answer all client queries on the cash accounts. Additionally, the bank which Thomas Murray has has concerns. The The cash cash and and securities areas are are still still not country s cannot sweep not integrated balances and whilst higher the rate the custody accounts area or takes or make responsibility market placements for on for client cash on behalf accounts of of clients they in are unable in order to to to utilise to answer idle cash all all client balances. queries Additionally, on on the Danske the cash accounts. Bank Additionally, does not regulations or or laws require segregated accounts. The breakdown to to client level is is in inncs Europe s records. In In the UK, client the monitor bank and and report on outstanding payments and and receipts, which is is a function that that is is offered by by some of of the the Bank s peers. A securities lending service is is currently being securities are held by a nominee company, with a client designation. developed. cannot sweep Contractual balances to to Settlement higher rate accounts Date Accounting or or make market is is offered placements in in on 69 on behalf markets of of clients in in order to to utilise idle cash balances. Additionally, Danske Bank does not (with 33 currently utilised), providing the trades are received within monitor the and and deadlines. report on on outstanding Contractual payments income and and receipts, is is offered which in in is is 48 a function markets that that (with is is offered 22 by by some of of the the Bank s peers. A securities lending service is is currently being Financial, developed. asset servicing and and asset safety risks remain low. Danske Bank maintains strong capital adequacy ratios and enjoys the best credit rating of of any bank in in the currently the utilised), based upon the client s traded position. Corporate region. actions Securities are are are segregated notified to by by client to the clients at at the within the VP and 24 in in the hours of the Bank s own of NCS Europe books. Operational risk exposure appears to to be be moderate based on on management receiving the information, with sub-custodians having 24 hours representations. Financial, to asset servicing and and asset safety risks remain low. Danske Bank maintains strong capital adequacy ratios and enjoys the best credit rating of of any bank in in the to inform Danske NCS Bank Europe has experienced from the time some of of major the announcement system problems over in in the market. the last months. The most recent incident occurred in in March 2003 and resulted in in a the The critical region. Securities are are segregated by by client at at the the VP and in in the the Bank s own books. Operational risk exposure appears to to be be moderate based on on management deadline for client decisions on discretionary corporate actions operational is is 2 days situation before which the brought market down deadline. the the bank s An central active systems proxy for for voting one week. service The consequences were significant for for Danske Bank s customers, particularly involving representations. Danske Bank has experienced some major system problems over the last months. The most recent incident occurred in March 2003 and resulted in in a is payments and the the trading and settlement of of currencies and securities. Major steps have been taken to to improve the the systems contingency including the the development is provided by NCS Europe to to clients using ICS Europe (ADP) as of critical the provider. operational Information situation is which brought is supplied to down the to clients the bank s by central ADP within systems 6 for for one hours week. The consequences were significant for for Danske Bank s customers, particularly of a new data centre. This is is a major concern for for the bank and clients which has led led to to very close scrutiny. The bank has been pro-active in in meeting clients and providing of of receipt, utilising the ADP ProxyEdgeLite web interface. Client reassurance involving deadlines payments for and the the trading and settlement of of currencies and securities. Major steps have been taken to to improve the the systems contingency including the the development and explanation voting instructions of of improved are contingencies. 2 days The before rating the for for internal event, both operations in has in been lowered until we we are reassured that the the contingency steps taken are are the UK and overseas. NCS Europe will accept standing instructions sufficient. of of a new data centre. This is is a major concern for for the bank and clients which has led led to to very close scrutiny. The bank has been pro-active in in meeting clients and providing The for reassurance The Bank both is and is externally corporate explanation audited actions annually. and of of improved proxy It contingencies. It does voting. not not provide NCS The any Europe rating any SAS70/FRAG21 offers for for internal an style operations style report, has but been lowered but does issue until an we an audit we are opinion reassured letter, that although the an the contingency an audit by steps by the taken the FX DFSA are execution service based on a panel of of banks quoting rates in in to to 2002 achieve revealed the no no most material competitive issues with the the rates custody for operation. its clients. It It offers short term are sufficient. The The Bank is is externally audited annually. It It does not not provide any any SAS70/FRAG21 style style report, but but does issue an an audit opinion letter, although an an audit by by the investment the funds in in USD, EUR and GBP from Aim Global Advisers to DFSA Thomas in in 2002 todiversify client revealed Murray no credit no material risk. Custody issues Tax & with Settlement the reclaims the custody are operation. processed on the GOAL Infrastructure Outlook: Stable system, with monthly reporting on outstanding reclaims. Financial, operational, asset safety and asset servicing risk exposures Risk Thomas Ranking are low. Murray Clydesdale Developed Custody in in Market the & Settlement UK is is regulated Infrastructure by the Financial Global Outlook: Ranking 15 Stable Services Authority, and in in Australia, NAB is is regulated by the Australian Risk Securities Ranking and Developed Investment Commission. Market There have been no Global Ranking 15 material issues reported as raised by the regulators. The external auditors are KPMG, who conduct Private an Domestic annual statutory Custody Rating audit and Danske Bank, Denmark provide an annual FRAG 21 report, albeit with limited testing of ofthe control environment. Thomas Murray Credentials due diligence found a strong control Private Domestic Custody Rating Danske Core Bank, Services Denmark culture at at NCS Europe. NCS Europe accepts operational losses arising from its own or its sub-custodians default, bad faith, fraud or or negligence. Securities positions are reconciled to to sub-custodians, vaults or or depositories, where Credentials there is is a direct relationship, Core Services on a weekly or or fortnightly basis. Cash is is reconciled daily. NAB has had strong and stable credit ratings for the last five years, with S&P and Fitch both at at AA long term and Moody s at at Aa3. The Tier 1 regulatory capital ratio of of the group was 7.5%, and the total capital ratio was 9.2% as at at 31 March The net assets of of NAB are significant, at at USD 14.4 billion as at at 31 March Global Custody Rating Ratings NCS Europe Scale Core Services Ratings AAA Scale Value Added Services AA+ AAA AA AA+ AA- AA A+ AA- A A+ A- A AA- AA- AA- AA AA AA- AA- A BBB BBBA- AA- A AA- AA- AA- BB BBB B BB Direction of B - Copyright 2003 Thomas Murray Service Direction of Page 1 - Current Service year Rating based upon submitted KEY Current Calculated ABMQ. This could move pending Previous Current year year due diligence Rating based and confirmation upon submitted KEY Current Calculated ABMQ. This could move pending Previous year due diligence and confirmation Copyright 2004 Thomas Murray Network Management Ltd Copyright 2004 Thomas Murray Network Management Ltd Outlook: Stable Watch Global Custody Rating: AA- Upward movement in the year Downward movement in the year Upward movement in the year Downward movement in the year - - Represents Thomas Murray s minimum recommended rating for agent banks in developed Represents markets Thomas Murray s minimum recommended rating for agent banks in developed markets Page 1 Page 1 Thomas Murray DEVELOPMENT DRIVERS: Regulatory Developments - SEC 17f-7 (USA); FSA N2 Regulations (UK); CPSS/IOSCO; Basle II Investor Demand - Simple metrics; Set hurdle criteria; On-going tracking Thomas Murray 10 Years Old 2000 Depository Risk Assessments Capital Market Infrastructure Risk Ratings 1999 Custody Bank Ratings National Custodian Services Europe 1994 Securities Market Data 1997 CSD Data CSD CENTRALS ECURITIESD EPOSITORIES Overall Rating Credentials Settlements Safekeeping Income Collection Corporate Actions Overall Assessment Danske Bank, Denmark Danske Bank, Denmark Corporate Governance Cash/FX Management Strategic Cash Mgmt Taxation Overall Rating Overall Rating Securities Lending Internal Operations Status/Experience Status/Experience Internal Operations Risks Internal Operations Risk Representations Risk Representations Investment Accounting Settlements Settlements Safekeeping Safekeeping Income Collection Corporate Actions Corporate Governance Cash/FX Management January 2004 January 2004 Taxation Securities Lending Income Collection Corporate Actions Corporate Governance Cash/FX Management Taxation Securities Lending SERVICE NOT CURRENTLY OFFERED SERVICE NOT CURRENTLY OFFERED Page 4

5 Depository Service Update Americas' Country Scores Brazil - CBLC Canada - CDS Mexico - Indeval United States - DTC Brazil -SELIC Brazil - CETIP Chile - DCV Costa Rica - CEVAL Panama - Latinclear Peru - CAVALI South Africa - STRATE Argentina- CVSA Colombia - DECEVAL El Salvador - CEDEVAL Guatemala - BVN Nicaragua - CENIVAL Track 31 CSDs in the Americas Daily Surveillance on all CSDs All CSDs have Editor access to their respective data and Depository Assessment on Depository Assessments moved to HTML format Asset Servicing Risk completed for all ACSDA members Overall Depository Risk Low Low/Medium Medium Medium/High High Page 5

6 Data Sharing Initiative Update ACSDA V Thomas Murray Discussions - Promote and facilitate the cross sharing of information amongst members Letter from ACSDA Executive Committee in March 2004 recommending member acceptance Proposal: A. Thomas Murray will create a White Label Site of our information website. B. Branded according to the existing ACSDA website members can access the following Thomas Murray Depository Service output via Full access to ACSDA members data held by Thomas Murray Access to ACSDA members summary risk assessments Full Editor access to your own Depository data and assessments Page 6

7 Capital Market Infrastructure Risk Ratings Over two years in development launched in 2004 A definitive rating of risk exposures within local capital market infrastructures Tracking 89 markets using the standard AAA through C rating notations. Daily notification of changes and how they impact risk exposures Page 7

8 Capital Market Infrastructure Risk Ratings Methodology Depository view Physical view Other market factors Sovereign adjustment % market cap dematerialised / immobilised Initial rating Rating Policy Board Final rating Page 8

9 Capital Market Infrastructure Risk Ratings versus Sovereign Ratings AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C N/A Canada United States Chile Mexico South Africa Colombia Costa Rica Panama Peru Bolivia Brazil Ecuador Argentina TM S&P Page 9

10 Benefits Example CalPERS commissioned an investment adviser to design a new model for investing in emerging markets creating a new permissible countries review process Settlement proficiency was one component of the review On the basis of the results CalPERS announced it was pulling out of the Philippines It was only a year ago that the fund announced a decision to withdraw investments from the Philippines, based on the adviser s determination of that nation s stock market efficacy - only to reverse that stance a few months later after a CalPERS review determined that the Philippine stock exchange could, in fact, settle stock exchange transactions within three days of the trade date (see Philippines back on the CalPERS list). However, this time the adviser said it has "no new information that has caused any of our sources to change their evaluation of the Philippines. Plansponsor Page 10

11 Thank You Thomas Murray 179 Piccadilly, London, W1J 9FA Page 11