Risks and Countermeasures of Asset Custody in Commercial Banks

Risks and Countermeasures of Asset Custody in Commercial Banks

Properly handle the relationship between business development and risk prevention and control, and all custody business behaviors should adhere to the bottom line of risk compliance, which is the premise and condition for the development of custody business and the lifeline of custody business of commercial banks. It is necessary to strengthen basic management and implement it under the framework of custody business management system. All institutions of the custodian bank need to clarify the responsibilities of departments and posts, use scientific and effective business processes, manage people with systems and manage affairs with processes, and further improve their risk management and control capabilities.

Abstract: Under the trend of financial disintermediation, the growth mode of commercial banks has gradually changed from capital dependence to low capital consumption. Asset custody business occupies less capital. In addition to stable custody fee income, it also increased stable capital precipitation, created intermediate income, and created joint benefits such as settlement and sale of foreign exchange. The business synergy effect is remarkable, and it has become the preferred strategic intermediary business for banks, and its comprehensive contribution has been continuously improved. Asset custody business of commercial banks (hereinafter referred to as? Trusteeship business? ) Since 1998, the scale of business is getting bigger and bigger, the scope of services is getting wider and wider, the types of customers are getting more and more, and the market participation is getting deeper and deeper, all of which put forward new requirements for risk management and control of custody business. This paper analyzes some risk points in custody business and tries to put forward relevant countermeasures, hoping to help the steady development of custody business.

Keywords: bank; Custody business; Risk; Stay alert

I. Introduction of Custody Business

(1) What is the custody business?

? Commercial bank custody business? It refers to the behavior of the custodian bank to perform the duties of asset custody, handle fund settlement and other agreed services and collect related fees based on legal provisions and contractual agreements. According to laws, regulations and contracts, the services provided by custodian banks can also include accounting and valuation, investment supervision, performance evaluation, investment management, comprehensive financial services and other asset services. As an important part of modern financial industry, asset custody industry has introduced custody mechanism into multi-level capital market, which has played an irreplaceable role in eliminating market information asymmetry, improving asset management and transaction efficiency, ensuring investors' asset safety and promoting the healthy development of the market. For commercial banks, the income from custody business is stable and does not occupy economic capital. In particular, due to regulatory requirements, the custody assets need to keep a certain proportion of cash assets to cope with various situations. Such assets often exist in the form of demand deposits, which have become rare stable and large-scale high-quality deposits in the interest rate marketization environment. In addition, the custody business department can also establish a linkage mechanism to fully integrate internal capital, channels and projects to provide customers with a package of comprehensive financial services. China's economic development? New normal? Facing the new market competition pattern, commercial banks have seen the advantages of custody business. Capital saving? We spare no effort to strengthen investment, enhance the strategic position of custody business, and promote the transformation of business structure to light assets. By the end of June, the scale of asset custody in China's banking industry exceeded one trillion yuan for the first time, reaching 103.5 trillion yuan, a year-on-year increase of 53.6%. Since 20 12, the growth rate of asset custody in China's banking industry has always been above 50%, and it is on the rise year by year. While the scale of the industry continues to grow rapidly, the market participants are also expanding. At present, there are 27 domestic commercial banks with Public Offering of Fund custody qualification, among which the asset custody scale of ICBC, which ranks first, has reached 13 trillion yuan.

Second, the main points of custody business

Asset custody business mainly serves the asset management industry, and it is an important platform and link to connect the main players in the investment and financing market. Its key point mainly lies in the diversity of customers. In recent years, the rapid development of asset management industry has brought increasingly rich and diverse resources to clients, from the initial single fund management company to insurance companies, brokers, QFII (qualified foreign investors), enterprises that have established enterprise annuities and so on. There are many types of services. Custody business mainly provides five basic services: asset custody, fund settlement, accounting, asset valuation and investment supervision. It can also provide value-added services, such as foreign exchange transactions, corporate behavior, risk performance, accounting outsourcing and so on. This often becomes the focus of the custodian bank's competition for customers. Covers a wide range. Custody business involves almost all kinds of investments in the capital market, covering domestic and foreign markets. It needs to face all the regulatory authorities of China's financial industry, from the People's Bank of China, the China Insurance Regulatory Commission, the China Banking Regulatory Commission to the SAFE, and even the Ministry of Labor and Social Affairs. Complexity of operation. Custody business is characterized by a large amount of data, a variety of reports, complex market rules, a large number of customer orders, and high requirements for accuracy and timeliness.

Second, the risk points of custody business

With the deepening of reform and the steady development of the capital market, the custody business has also ushered in broad development opportunities, but it also faces risks, with some potential problems and weak links:

Business system risk

At present, most custodian banks are using outsourcing custody business system. Due to historical reasons, centralized system management and data sharing cannot be carried out, and the degree of automation and batch processing ability are low. Under the background of rapid market growth, the system has been difficult to support and overwhelmed, and has been plagued by various patches accumulated gradually, which has become the bottleneck of business development. Can not meet the requirements of various emerging innovative products, greatly affecting business efficiency and quality, while increasing business risks. Due to the inherent system architecture limitation of outsourcing system, some personalized requirements cannot be realized, and customers often turn to other banks because the custodian bank cannot provide some functional services.

（2）

Operational risk refers to the risk of operational errors or violation of operational procedures caused by defects in internal control or human factors during the operation of each link of custody business. For example, because I am not familiar with the business system functions and process requirements, I operated before the data was ready, resulting in data errors; The input data is wrong, but the examiner didn't check it out, and the operation is based on the wrong input data, which leads to the error; When the data is complete and correct, the wrong rule is assigned and the wrong function is called, which leads to the wrong calculation result; The business system is shut down and cannot be used normally; Wrong classification, wrong classification in the absence of uniform standards.

(C) System construction risks

With the rapid development of the capital market, it is easy to have a vacuum zone. The management system and operating procedures have not yet formed a full coverage of the management products and processes, and the management system of individual new products needs to be improved and supplemented. Taking P2P hosting as an example, the existing system basically does not involve this field. After the regulatory change, the system has not changed accordingly, and some regulations are difficult to implement effectively. If the regulatory authorities have gradually canceled the approval system and changed it to the filing system, without the product approval, the branch cannot apply to the public security organ for engraving the custody products.

Internal management risk

There are great differences in laws, regulations and supervision between different regulatory authorities. The regulations of China Securities Regulatory Commission may not be considered applicable to insurance assets. Similarly, it is not appropriate to directly adopt insurance laws and regulations to regulate enterprise annuities. Therefore, it is necessary to pay attention to the types of assets under custody and the regulatory authorities under their jurisdiction, so as to be targeted; It is difficult to meet the rapid development of business needs because of the shortage of business personnel. Facing the increasingly diversified requirements of custody business, the workload of custody business is increasing, and the requirements for employees are getting higher and higher, and the quality and ability of personnel need to be further improved; The access and audit mechanism is not clear, the branches handle business beyond their authority, and the contract signing is not standardized; Failing to perform the duties of the custodian in strict accordance with the contract.

(v) Reputation risk

In the custody business, especially the securities investment fund, if the error reaches or exceeds 0.5% of the fund's net asset value, it is necessary to disclose information in addition to being questioned by the regulatory authorities. For example, a false announcement about the net value of ICBC Credit Suisse Global Natural Resources Index Securities Investment Fund (LOF) was published in the newspaper by the custodian bank and the management company. Once such an announcement is issued, it will cause a major blow to the reputation of the custodian bank. There is a major failure in the custody business system, and an important data error in a certain link is likely to cause a large-scale error, which will also cast a shadow on the reputation of the custody bank.

Third, the countermeasures of risk prevention

How commercial banks ensure the standardized operation of custody business and realize zero mistakes is a problem worth pondering. Effective measures must be taken to effectively prevent the risks of custody business from the aspects of system, system and management:

(A) strong business system support

According to the actual business, independently develop a centralized and unified custody business system for the whole bank, standardize business processes with the system, and strengthen business management and monitoring. Comply with the characteristics of the Internet finance era, strengthen the application of information and big data technology, and strive to ensure the stable operation of hardware equipment, accurate and reliable software application functions and data processing of the custody business system, and ensure the safety and effectiveness of information and data. Actively apply technical system to realize risk control, and embed the risk control design into the system architecture layer. Achieve unified access to external data and unified management of internal data, effectively control data risks while reducing costs. There must be a backup mechanism before the system is upgraded. If there is a big problem, you should go back to the previous version, and you can upgrade again after the retest is successful. When switching to the new system, a long enough parallel transition period should be set, and potential problems should be found through parallel result verification, and corrected and optimized in time, especially to check whether all risk control measures are in place and meet the requirements accurately and effectively.

(2) Standardize the operation and make unremitting efforts.

Fully understand the performance risk of custody business and strengthen implementation in performance management and standardized operation. Establish a reward and punishment mechanism, reward those who regulate business, act cautiously and pay attention to preventing business risks, and warn and inform those who violate the rules and are irresponsible. In terms of error correction mechanism and business continuity, we should also make full preparations, formulate a complete emergency plan, locate problems quickly once they occur, and implement solutions in time. Follow the principles of comprehensiveness, independence and effectiveness, and establish appropriate separate firewalls in business systems and post personnel to achieve the purpose of preventing risks. Business personnel are required to be clear about their job responsibilities, be familiar with system processes, avoid mistakes or even omissions in sequence, and must implement a review and regular inspection mechanism for important data and parameters, and implement unified classification and operation standards and follow them. In terms of staffing, it is necessary to equip necessary personnel according to business needs and build a professional and high-quality hosting team.

(3) adhere to the system construction

The core of establishing an effective custody business management system is to formulate unified rules and regulations so that there are rules to follow and evidence to follow. Where there is business, it is necessary to formulate corresponding specific systems, and it is impossible to form a lack of systems. On the basis of in-depth understanding of regulatory policies, regulations, product operation mode and related requirements, the first task is system construction. Establish a regular arrangement mechanism for the managed business system, and check whether it is complete and whether it needs to be changed or revised. Information that affects the custody business in the market can be quickly responded and logically analyzed, especially for changes in regulatory policies and the emergence of new products. We should do a good job in business impact analysis in advance, do a good job in response, such as the analysis of the situation and supervision of third-party payment in Internet finance, pay close attention to regulatory trends, and directly reflect new legal and policy requirements in the adjustment of custody business processes and systems. Establish communication channels. Improve the reporting system of custody business problems, clarify the reporting path and procedures, and smooth the path of problem solving. If each institution has any problems or suggestions for improvement in its operation, it can find the specific person in charge and get feedback within the specified time limit. Avoid the situation that you don't know who to look for because of the division of responsibilities and unclear reporting path. Building a perfect custody business management system requires the joint efforts of the entire custody line.

(4) Strengthen basic management.

It is necessary to strengthen basic management and implement it under the framework of custody business management system. All institutions of the custodian bank need to clarify the responsibilities of departments and posts, use scientific and effective business processes, manage people with systems and manage affairs with processes, and further improve their risk management and control capabilities. Strictly implement the requirements of rules and regulations, and put control measures in place. Check the product business. We should not blindly carry out business for products that do not have the conditions. We should consider whether we can take effective measures to ensure compliance, deeply understand regulatory policies, strengthen risk identification, and conduct business in compliance. Establish a regular self-inspection mechanism, be problem-oriented, self-discover and self-correct problems. It is necessary to carry out regular compliance self-inspection, especially in those areas that are prone to risks and have problems in previous inspections. It is necessary to intensify self-examination, find and correct problems in time, and effectively solve problems. Establish a bank-wide spot check mechanism. Increase the frequency of internal inspection, covering all aspects, especially pay special attention to the problems in the industry, do a good job of self-inspection according to the analysis, and do not make simple, low-level and repetitive mistakes. Establish inspection notification and inspection problem tracking system, and continuously track the rectification situation to ensure implementation. In particular, whether the problems found in the previous inspection have learned lessons has been seriously and comprehensively rectified. The weaknesses that have been found must be improved and filled.

(e) Compliance awareness is always strong.

Properly handle the relationship between business development and risk prevention and control, and all custody business behaviors should adhere to the bottom line of risk compliance, which is the premise and condition for the development of custody business and the lifeline of custody business of commercial banks. We must realize that the risk of custody business is not only related to personal career prospects, but also related to the reputation of commercial banks. We must uphold the concept of giving priority to risk control, improve the awareness of compliance management, and expand our business under the premise of standardized management. Strengthen compliance risk control education and vigorously advocate the concept of compliance risk control. Attach importance to training, strengthen the training of business personnel, organize various online or offline training courses, and improve the business ability of employees. To establish the necessary professional qualification mechanism, the person in charge of the institution must have the professional qualification of the fund to ensure that they are familiar with the policy requirements and basic concepts of the custody business. Conduct regular assessments, strengthen the awareness of compliance management of all employees, make compliance risk management and control continuous and normal, and avoid incidents that damage the reputation of the custodian bank. Asset custody has become one of the emerging businesses with the largest development space and the widest innovation field in commercial banks. Is it necessary to better ensure financial security and safeguard investors' rights and interests? Standardized, efficient and independent operation to ensure safety? Ensure the stable, efficient and safe operation of the custody business.

References:

[1] Banking Association. Guidelines on Custody Business of Commercial Banks, 2013 [2] Banking Association. China Asset Custody Industry Development Report (20 16), 20 16.

[3] mirror. In the first half of the year, ICBC's asset custody scale reached 13 trillion yuan [n]. Financial Times, 20 16.

[4] Sun. Research on P2P lending model and its supervision in China [J]. Teaching and research of finance, 20 14

[5] Fund share net valuation error announcement [n]. Securities Times 20 13

[6] Jiang Xianling, Xu Xiaolan. Current situation and supervision of third-party payment: an observation from internet finance [J]. Reform, 20 14

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