EUROPE - A report commissioned by the European Asset Management Association has called for greater transparency in custody contracts and highlighted “ambiguity and uncertainty” about the liabilities of custodians in the event of operational failures.

The EAMA, a lobby group comprising 28 top European asset management companies and six national bodies, commissioned the 125-page report entitled “The role of Custody in European Asset Management” from UK-based research consultancy Oxera.

The main findings of the report are that there is insufficient clarity in custody contracts and ambiguity about liabilities. “It seems desirable that contracts should be made more transparent so that the bearer of risks is clearly identified,” the report states.

It adds that, judging from some of its survey responses, there may well be “some ambiguity and uncertainty regarding the responsibilities of custodians and their liability in the event of operational failures”.

It said a number of respondents saw a need for standardised custody contracts and a clearer definition and assignment of custodian responsibilities.

“Contracts between client, asset manager and custodian seems to be incomplete and it can be unclear where liability lies in the event of a loss,” it adds.

The EAMA, in a separate foreword to the report, said that it is “not ready to draw firm conclusions from this study”. But it conceded that “there may be scope to give greater clarity over risk-bearing in contracts for custody services”.

On the heels of the report, the EAMA has identified four key areas for debate: choice of services, regulatory harmonisation, clarity over operational risk and regulatory capital requirements.

The EAMA is to conduct a series of meetings in 2003 to address these issues.

“EAMA has identified a number of questions for further debate, and intends to hold a series of meetings in major European cities early in 2003 for members, custodians, and other interested parties to discuss these issues,” it said.

The report, which surveyed 32 asset management companies and 22 custodians in eight EU countries, follows the EAMA’s previous study on risk, released in 2001.