The International Organization of Securities Commissions (IOSCO) on Tuesday published a report that aims to enhance its guidance on the measures that regulators should adopt to ensure that assets held in collective investment schemes, such as investment funds, are kept safe for clients.
The IOSCO report sets out eight standards that regulators should adhere to in order to ensure that investors’ assets are effectively protected.
IOSCO is stepping up guidance in this area in response to a number of market events in recents years, including the failures of Lehman Brothers and MF Global, and the massive Madoff fraud, all of which focused attention on asset custody regimes, the regulator says in a statement.
In addition, fund managers are investing more in complex instruments these days, they are more actively managing assets; and there have been changes to accounting and bookkeeping practices that have created new challenges and risks in this area, IOSCO adds.
IOSCO’s proposed standards stress the importance of regulators requiring suitable custodial arrangements, establishing clear segregation requirements, mandating independence, and they also deal with the appointment and ongoing monitoring of custodians.
The IOSCO report also identifies some of the key risks associated with asset custody, such as operational risk, the misuse of assets, and the risks of fraud, theft, and information technology risk.