Custodians do 'virtually nothing' to protect investors: PJC
The Parliamentary Joint Committee's (PJC's) scrutiny of the role of the custodian in the collapse of Trio Capital Trio Capital has drawn a defensive response from the Australian Custodial Services Association (ACSA).
ACSA acknowledged the "gap" identified by the PJC between investors' understanding of the role of the custodian and the custodian's legal obligations.
In its report, the PJC found that custodians appear to have a "limited role in managed investment schemes of the kind conducted by Trio, and by many legitimate financial services providers".
"The custodian does virtually nothing to protect the funds of investors. It makes no independent checks before transferring money offshore. Instead, the custodian simply acts on the instructions of the responsible entity," said the PJC report.
ACSA deputy chair Paul Khoury said the custody industry was "committed to working with the regulators to enhance fraud prevention measures across all parts of the financial services system".
He highlighted the PJC finding that the Trio collapse was "well-planned and complex" and "designed to take advantage of the vulnerabilities in the superannuation system".
The PJC report recommended that the term 'custodian' be changed to a term such as 'Manager's Payment Agent', which "does not give unwarranted reassurance to investors".
ACSA argued against the name change, since the term 'custodian' is used globally.
"ACSA believes that a more prudent measure would be to better describe the role of the custodian within the Product Disclosure Statements which are issued by superannuation fund trustees," said Khoury.
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