• Wednesday, July 24, 2024
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Custody services … a compass for a complex world

Custody services … a compass for a complex world

In a world where complexity is now the norm, a trusted partner is needed to help you navigate financial services, whether you’re doing business locally or internationally. Custody services are part of a suite of offerings that aim to help you settle securities trades, invest cash, collect income on portfolio investments, price securities, process corporate actions and provide recordkeeping and reporting services.  Financial transactions can be both complicated and costly, especially if they are across borders and include multiple counterparties. Financial assets that may be held in custody include equities, bonds, Treasury bills, Eurobonds, commercial papers, promissory notes,
depository receipts and cash.

As they are responsible for the safety of assets and securities that may be worth hundreds of millions or even billions of dollars, custodians generally tend to be large and reputable firms. A custodian is sometimes referred to as a "custodian bank." Custodial services were first offered in Nigeria in 1994 and as our economy continues to modernise and expand, there is now growing demand for such services. RMB’s team has the advantage of decades of proven experience, a network across the continent and deep roots in South Africa, enabling our experts to provide the kind of custody services that safeguard your investments. Our clients have recognised our unwavering commitment to constantly improving our services by voting us the market outperformer every year since 2016 in Global Custodian’s Surveys for Agent Banks in Emerging Markets.

The ability to gather assets, effectively employ technology, and efficiently process huge volumes of transactions is essential in the custody business. With the growth of the global investment industry over the past two decades, particularly in the mutual fund arena, the volume of assets under custody has increased significantly. Competition for custody of those assets has been fierce, causing profit margins to shrink. At the same time, the industry
has focused on using technology to improve efficiency. As a result, a handful of large banks now dominate the custody services industry, a trend that is reflected locally, where international banks lead the field.

Read also: Technology takes centre stage in financial transaction as Mobile App tops Nigerians’ choice

In addition to holding securities for safekeeping, most custodians also offer other services, such as account administration, transaction settlements, collection of dividends, interest payments and maturity proceeds, proxy voting services, market information dissemination, tax support, and foreign exchange processing.
The fees charged by custodians vary, depending on the services provided. Most custodians in Nigeria charge monthly custody fees that are ad valorem, based on the aggregate value of a client’s portfolio investments in their custody – that is generally referred to as Assets under Custody (AUC) or flat fees.

At RMB Nigeria Custody Services we distinguish ourselves by providing an efficient, sustainable product and platform ecosystem, and market access. Through our approach of offering solutionist thinking, we do not just provide traditional custody services, but ensure
that we are nimble enough to tailor bespoke offerings that meet our client’s individual needs at competitive pricing.
Settlements and the safekeeping of clients’ assets are two key aspects of custody services.

Settling trades after a securities transaction has been consummated, paying and receiving cash related to a settlement and inward or outward fund transfers are central to custody services. Banks offer this service so as to minimise counterparty risk when the simultaneous exchange of cash and securities is needed. Foreign exchange, credit facilities and the need to reduce manual intervention in transactions are other reasons for employing custody
services. Safekeeping of assets is another tenet of custody services. This involves the holding of assets for investors, servicing of those assets, reporting on the portfolio and providing market information on time. Complying with regulations is at the heart of this service. In addition to satisfying regulatory requirements, banks ensure that they meet the minimum capital and operating requirements in order to be able to act as a custodian. For clients,
trustworthiness and market experience are generally the deciding factors.

At RMB, we share market information that is detailed and timely. Furthermore, impact analysis is a critical component of our offering and encompasses relevant assessments of both current and upcoming market developments, ensuring that our clients, armed with the necessary information, are able to be proactive when taking steps to protect their assets.
With our deep experience and exposure to multiple markets, we are a key market influencer.
This we do by engaging with regulators, market infrastructures and other market participants on initiatives that are aimed at improving the experience of our clients.