On 10 October 2014, the International Organization of Securities Commissions (IOSCO) published a consultation report on a set of nine principles relating to the custody of collective investment scheme (CIS) assets. The nine principles (listed below) are aimed at identifying the core issues that should be kept under review by the regulatory framework.
Principle 1: The regulatory regime should make appropriate provisions for the custodial arrangements of the CIS.
Principle 2: CIS assets should be segregated from:
- the assets of the responsible entity, its related entities and other schemes;
- the assets of the custodian / sub-custodian throughout the custody chain; and
- the assets of other clients of the custodian throughout the custody chain (unless CIS assets are held in a permissible omnibus account).
Principle 3: CIS assets should be entrusted to a third party custodian. In limited circumstances where the regulatory regime permits self-custody of CIS assets, additional safeguards should be put in place to ensure proper segregation and protection of CIS assets.
Principle 4: The custodian should be functionally independent from the responsible entity.
Principle 5: The responsible entity should seek to ensure that the custody arrangements in place are disclosed appropriately to investors in the CIS offering documents or otherwise made transparent to investors.
Principle 6: The responsible entity should use appropriate care, skill and diligence when appointing a custodian to safe keep CIS assets.
Principle 7: The responsible entity should, at a minimum, consider a custodian's legal / regulatory status, financial resources and organisational capabilities during the due diligence process.
Principle 8: The responsible entity should formally document its relationship with the custodian and the agreement should seek to include provisions about the scope of the custodian's responsibility and liability.
Principle 9: Custody arrangements should be monitored on an ongoing basis for compliance with the terms of the custody agreement.
The consultation closes on 10 December 2014.