The Central Depository Bangladesh Ltd. (CDBL) is set to take on the role of custodian of mutual funds (MFs) in a move aimed at expanding its portfolio and playing a supportive role in the MF industry.
The company, which has so far provided only depository services, will apply for the licence required for the new role within a week, sources at the organisation said.
The development comes at a time when MF custodians are facing heavy criticism for their failure to prevent scams in fund management and when CDBL is experiencing shrinking income amid a bearish secondary market.
While the board of directors of CDBL suggested taking on the new responsibility, the Bangladesh Securities and Exchange Commission (BSEC) viewed the move as a way to bring discipline to the professionally managed fund industry.
At a recent meeting, the securities regulator urged the depository authority to submit an application seeking a custodian licence, CDBL sources said.
“CDBL is well positioned to act as custodian of mutual funds,” said its Managing Director Md. Abdul Mutaleb.
Meanwhile, CDBL’s operating profit has endured a sharp decline.
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, with the collaboration of 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 came under question 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 – 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.
Assets under management (AUM) in the country’s mutual fund industry amount to approximately Tk 113.43 billion. The industry comprises 68 licensed AMCs, 136 mutual funds, nine trustees, and nine custodians.
https://today.thefinancialexpress.com.bd/stock-corporate/cdbl-to-apply-for-custodian-licence-to-strengthen-mf-oversight-1772038747
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