ASIC sees custodians as gatekeepers to information on investment money flows and has called for a greater level of reporting on suspicious transactions.
"Custodians are important gatekeepers in that they have access to information, including real-time data on the flow of money through investment products, unavailable to ordinary investors," ASIC commissioner Greg Tanzer said yesterday following the publication of a report on the role of custodians.
"Custodians and their compliance personnel must continue to recognise their gatekeeping role and the opportunities for misconduct associated with this role."
Custodians have the obligation to have adequate arrangements in place to manage risks that arise from the opportunity for misconduct, ASIC said.
"Appropriate steps that custodians should consider include: maintaining a proper instruction procedure and only allowing payments from or to previously designated accounts and payees, implementing daily reconciliations, and operating dual checks on activities carried out," the regulator said.
The corporate watch dog also said it expected custodians to report suspicious matters, even where the current anti-money laundering regulations do not require it.
"We encourage custodians to raise issues with ASIC and rely on the whistleblower protections...of the Corporations Act," ASIC said.
In May this year, the Parliamentary Joint Committee on Corporations and Financial Services (PJC) released its findings into the collapse of Trio Capital.
The report highlighted an 'expectation gap' between the custodian's obligations and the public's expectation of them.
The PJC suggested custodians should be called 'manager's payment agent' to better reflect their activities. ASIC did not support this course of action, but said a greater level of disclosure was required.
"We consider that it may be appropriate for responsible entities (REs) and other financial product issuers to provide clearer disclosure about the role of custodians in retail marketing material, including PDSs [product disclosure statements]. We propose to consult on this issue," the regulator said.
Custodians have pointed out in submissions to the PJC that they merely execute orders, and as such are not responsible for the nature of the transactions. This duty lies with a fund's RE, they said.
The Australian Custodial Services Association said yesterday it needed more time to review the regulators conclusions.
However, some custody executives said the proposals looked great on paper, but would not work in the real world.
"[Their] suggestions for best practice are not really practicable in the real world," one executive said.
