The UK custody market is working well in pricing bundled services, despite the small number of providers, according to the Financial Conduct Authority (FCA).
The FCA made the comment in its Investment Management Sector View, in which it surmised:
“Our work in this area suggests that in general, the market is working well despite the small number of providers.”
However, it suggested that some asset managers could be overpaying for bundled custody and
investment administration services. It explained: “This may be particularly relevant in some areas of service provision, such as foreign exchange transactions.”
Given the current macroeconomic environment, FCA said “the likelihood of this concern growing to be low, as there are no anticipated changes in the custody bank or ancillary
services landscape”.
The FCA also highlighted the potentially significant effects outsourcing providers could have on a wider range of firms that rely on them.
It said: “Outsourcing to third-party technology providers is growing, meaning that the proportion of assets potentially affected is increasing.”
It added: “Any increase in levels of outsourcing, which could exacerbate the likelihood of firm or technology failure, may be offset by an increased regulatory focus on third-party service provision oversight.”
