Service Provider Risk Analysis

Although most asset owners routinely analyse and monitor the risks and performance of their investment portfolios and managers, they rarely repeat this for their global custodian bank and their global custodian bank’s operational performance (that may have an impact on operational risks that a client is exposed to). The Global Custodian Bank Rating fills this void and provides a client with Thomas Murray IDS’s updated opinion of the risks and operational capabilities associated with an investor’s custody arrangements.

The rating uses the familiar “AAA”, “AA”, “A” etc. nomenclature used by two of the major rating agencies. The ratings are based on information obtained directly from each bank (each bank is regularly issued with a request for information (“RFI”), from meetings between Thomas Murray IDS and a bank’s management and operational staff and from public sources.

The first rating is based on an analysis of the custodians core custody offering and the related elements that this consists of (settlements, safekeeping, income collection, corporate actions, corporate governance (proxy voting), cash management, foreign exchange capabilities, taxation and securities lending). The resulting rating is Thomas Murray IDS’s opinion of the custodian’s service capabilities together with a rating outlook. 

The second rating examines four key risks associated with a client’s custody arrangements:

  • Asset servicing
  • Asset safety
  • Operational
  • Financial

The rating is client-specific as it factors in any risk mitigants that are present in the custody contract between client and custodian and feedback from clients about the service that they have received. It is therefore possible that two clients with the same custodian each receive a different rating.

The rating is produced once a year after the publication of a global custodian’s annual report. A rating update is produced for the first three quarters of the year (semi-annually if the bank does not publish quarterly reports e.g. Australian custodians). 

The Quarterly Rating Outlook focuses on the financial performance of a bank and any material developments that may impact its service capability. The risk and service capabilities may be raised or lowered or the outlook amended at this time.

Select the links below to learn more about each module: