BSEC allows CDBL to work as mutual fund custodian

The securities regulator has allowed Central Depository Bangladesh Ltd. (CDBL) to work as the custodian of mutual funds (MFs).

To this effect, the depository authority this week received a consent letter from the Bangladesh Securities and Exchange Commission (BSEC). CDBL’s Managing Director Md. Abdul Mutaleb confirmed this to the FE.

To expand its portfolio, the depository authority, which so far has provided only depository services, applied for a licence to work as the custodian of MFs.

The development comes at a time when MF custodians are facing heavy criticism for their failure to prevent scams in fund management.

Mr Mutaleb said they would exercise professionalism in securing the interests of unitholders of pooled funds.

“Some asset management companies have talked to us to engage us as the custodian of their funds,” he said.

As per the latest rules for MFs, an organisation will not be allowed to play more than one role in the management of MFs.

Some organisations, including the Investment Corporation of Bangladesh (ICB), are working both as trustee and custodian. They will have to reduce their responsibility in those funds. CDBL is expecting to take over the charge.

Meanwhile, CDBL’s operating profit has endured a sharp decline, a reason why the company seeks to expand its portfolio through custodianship of MFs.

The company receives Tk 25 for every settlement of listed securities worth Tk 0.1 million. The lower the daily transactions in the capital market, the lower CDBL’s earnings from securities settlements.

Moreover, income from the maintenance of each BO (beneficiary owner’s) account has been reduced to Tk 50 from Tk 100. As a result, the company’s annual income from BO account maintenance fell to Tk 70 million in FY25 from more than Tk 130 million the previous year.

Consequently, CDBL’s operating profit eroded by more than 17 per cent year-on-year to Tk 522 million in FY25, prompting the company to explore a new line of operation to recover lost income.

Under the revised rules, a custodian’s role includes safekeeping funds’ assets, maintaining accounts of unitholders and funds, and managing bank transactions.

CDBL was incorporated in August 2000, sponsored by the country’s nationalised commercial banks, the Investment Corporation of Bangladesh (ICB), private commercial banks (PCBs), and the Dhaka and Chittagong stock exchanges, among others, in collaboration with the Asian Development Bank (ADB).

CDBL officials said the securities regulator wanted them to take on the new role due to a lack of efficient custodians.

Custodians’ efficiency has been questioned after funds worth Tk 2.07 billion were embezzled from three open-ended funds managed by Universal Financial Solutions (UFS) without any resistance from the custodian, the Investment Corporation of Bangladesh (ICB).

UFS Managing Director Syed Hamza Alamgir left for Dubai in October 2022 with the money.

Custodians have said that the previous rules defining their role did not enable them to secure investors’ interests in pooled funds.

At the end of last year, BRAC Bank, which serves as custodian for more than 60 MFs, expressed its intention to withdraw its custodianship from a large number of funds, saying the role lacked adequate authority in fund management.

At the time, a custodian’s role was limited to ensuring the protection of assets purchased by asset management companies (AMCs), while cash funds and transactions remained under the control of asset managers.

The revised MF rules, which came into effect in November last year, empowered custodians to oversee bank transactions.

The MF industry comprises 68 licensed AMCs, 136 mutual funds, nine trustees, and nine custodians. The number of custodians will now rise to 10 following the regulatory approval granted to CDBL.

Source: The Business Standard