OREANDA-NEWS. January 27, 2014. As an effective platform for the cooperation between the banking industry and other industries including funds, securities, insurance and trust and an important link connecting the money, capital and industry, the development of assets custody business by banks plays a crucial role in building a harmonious financial system.

With the expansion of assets management business in recent years, assets custody business witnessed rocketing development in banks. Grasping opportunities, Industrial Bank (IB) adhered to active marketing and service in the business of assets custody and strengthened the construction of regulations and procedures. Up to now, it has taken the lead to achieve many innovations in the industry, leading the development of custody business among commercial banks.

As revealed by relevant data, at the end of the third quarter of 2013, the assets custody scale of Industrial Bank (IB) reached RMB 2,633.02 billion, a doubled increase on a year-on-year basis, and compared with the scale of RMB 227.149 billion at the end of 2010, it increased by 10.6 times. According to the “Development Report of China Assets Custody Industry (2012)”, IB has ascended into the first echelon of domestic custody banks in terms of custody incomes with the fast growth of assets under its custody, only next to the four big state-owned banks – ICBC, ABC, BOC and CCB, ranking No. 1 among all joint-stock commercial banks.

Flourishing development of custody business among banks
The custody mechanism is helpful to settle the problem of information asymmetry at the layer of institutions, and it can also reduce the social transaction cost effectively and guarantee the security and stability of assets. It boasts unique advantages in controlling financial risks and promoting the sturdy development of real economy and financial market.

The scale of assets custody keeps expanding in China, and its industrial function comes into being gradually. The integrated business feature of crossing industries and markets endows the custody sector with more motives for innovation and development. Starting from securities and investment fund custody, domestic custody banks have their business coverage extended to many assets management areas including corporate annuity, insurance capital, brokerage assets management plan, trust assets, cross-border investment, social benefits, and various transaction payments. In this way, assets custody has become an important part of the social economic relations.

At present, commercial banks are actively devoting themselves to developing custody business in the area of funds custody covering security of medical care, housing, education, social insurance, and public benefit projects, boosting the society to safeguard and improve people's life in a better way.

Wu Ruoman, General Manager of the Assets Custody Department of IB, indicated that the steady development of capital market had generated diversified assets management businesses, and in particular, the fast development of trust assets and bank wealth management focusing on fixed incomes had propelled the business of assets custody to yield unusually brilliant results in the financial industry. Meanwhile, with the gradual implementation of new regulatory policies, the progress of the “age of extended assets management” was accelerated, and assets custody is one of the most benefited businesses.

Leading-edge Innovative Service
In confrontation with the problem of highly homogenized custody business, Wu Ruoman indicated, the market positioning of IB has always been sticking to the road with differentiated characteristics, but such differentiation can be seen not only in the selection of products, but also in services.

IB concentrated the major objectives of custody onto the businesses of trust and securities platform in recent years and built them into leading products. Up to now, IB has took the lead to achieve many innovations in the industry involving many aspects, including brokerage financing securities, stock index futures products, rating fund, and installment-based collective wealth management, etc. Meanwhile, the bank also made great efforts to extend business channels, building service sharing platforms of high quality for customers.

Take the business of brokerage assets management as an example, Wu Ruoman said, in 2009, the business of brokerage assets management was mainly conventional investment. Then, as such custody business was characterized by small scale, low rate and a large variety of individualized demands, most custodian banks might be unwilling to accept it. Nonetheless, IB was willing to exert itself to handle the business in cooperation with brokerages, thus building a good cooperation base. In October 2012, the regulatory authority issued the new regulations on brokerage assets management, and hence, brokerages entered into the age of general assets management. Thanks to the sufficient preparation of IB, the fast development of brokerage assets management also became a great opportunity for the bank to develop assets management business. By now, IB has established cooperation with more than 70 brokerages, with the custody scale of brokerage assets management products ranking first among all custodian banks.
After the project development and implementation for over a year and parallel system operation for half year, the new generation of assets custody system of IB accomplished business switchover smoothly on May 27, 2013. With a period of test run, the system showcased stable operation, with all indexes reaching the design expectations.

Assets management requires consolidated operation
In the area of assets management business, Wu Ruoman indicated, all custodians play the role of relatively independent competitors. With the gradual lowering requirements for developing inter-industry business striding over thresholds, nonetheless, the demands of consolidated operation become increasingly intense. As banks boast massive customer groups and advantageous networks, their assets custody businesses may be taken as consolidated resources and bridging platforms to connect various assets management businesses. While developing the custody business, IB is also making efforts to promote various management institutions to “cooperate among competition and develop for win-win results”. Each year, the bank organizes exchanges between professional business custodians to have discussions on new businesses, build cooperation platforms and develop business opportunities jointly.

“While the business of assets custody grows bigger, all of us gradually form some common ideas”, Wu Ruoman said. First, during the entire development process of assets management and assets custody, what's needed most are interdisciplinary talents. For instance, fund companies have powerful product design capabilities and professional knowledge on investment in secondary market and bond market, but they lack professional knowledge on credit. In the coming age of general assets management, an increasing number of projects involving investment in equity and bonds require professional credit officers and credit risk control and management officers.

Second, to intensify risk management is an important guarantee for promoting the sound development of assets management industry. IB has built a well-established system for assets custody regulations and procedures, which covers the front, middle and back offices and is suitable for various custody products. The internal control has passed SAS70 international certification, reaching the front position of the industry.

Third, we may draw on the experience of advanced financial institutions at abroad to carry out specialized outsourcing in the area of custody business.