The US Office of the Comptroller of the Currency (OCC) has issued a handbook to help guide financial institutions and examiners in managing the risks involved in the custody business.
The US regulatory agency says the handbook will assist examiners in determining whether a bank has adequate systems to identify, measure, monitor and control the risks undertaken in custody services.
Banks provide custody services to mutual funds and investment managers, retirement plans, insurance companies, corporations, endowments and foundations, among others. In issuing the booklet, the OCC notes that the level of assets under custody has increased significantly, as has competition among financial institutions for this business.
"Effective internal controls are essential to managing the risks and safeguarding customer assets," states the OCC. "This is particularly important given the need for banks to effectively employ technology to process large volumes of transactions under custody."
The handbook applies the OCC’s supervision by risk framework to custody services by outlining the underlying credit, interest rate, liquidity, price, foreign currency translation, transaction, compliance, strategic and reputation risks.