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Shackling the custodians

The Maxwell and Baring scandals turned the spotlight on the relative freedoms enjoyed in the UK by global custodians. Now tighter regulation is in prospect, heralding a further contraction in the industry as compliance costs bite. Nick Kochan reports

Global custodians are becoming nervous. For the last six months they have been making representations to the UK Securities & Investments Board about its demands for tougher regulation following the Barings and Maxwell affairs. Now they must await the SIB's findings to discover the form of regulation likely to be demanded.

The industry accepts that some form of regulation is virtually inevitable. "The odds are better than even that we will become a regulated industry," says Mike Devine, director of securities services at Royal Bank of Scotland (RBS). "I am convinced it will happen," agrees James Economides, custody director at Citibank. "But we support it. We have decent internal controls and we are regulated by every authority round the world, so it is very unlikely someone is going to come to us and say that more controls are needed."

As part of its initial guidelines for regulation, the SIB indicated three categories where tougher rules might apply. First, it proposed to enhance regulatory standards for custody providers; second, it flew a kite for tighter segregation of customer investments from those of the firm; third, it expressed a "provisional view" that the law should be changed to require custodians to be authorized.

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