“A custodial bank in Australia like State Street or BNP Paribas must have the assets completely segregated from other depositors, all banks will do this. The SVB assets would be independently segregated and verifiable,” he said.
“Offshore has all different rules. European banks after [convicted fraudster Bernie] Madoff where the assets didn’t exist and the banks didn’t do their homework, they created a concept called UCITS IV for a depositary that has a fiduciary and custodial responsibility.”
On Monday, Australian time, the US Treasury and Federal Reserve said all SVB depositors would be repaid their savings in full, and set up a new line of funding to stem fears of a broader run on US regional banks.
The gross asset value of the individual investment funds is commonly anywhere between $US10 million and more than $US1 billion, with most of the funds smaller than $US500 million.
The data was sourced by US intelligence group Castle Hill using a proprietary tool that allows it to track ADV registration forms submitted to the SEC by investment managers that employ key service providers such as administrators, auditors, and custodians.
Custody requirements
Under the US Dodd Frank Act conceived in the aftermath of the global financial crisis, certain private equity, hedge fund, and other multi-asset fund managers must register with the SEC as investment advisers to comply with custody rules, after laws were tightened to narrow reporting exemptions.
Some pure play venture capital firms still qualify for exemptions from SEC registration.
US and global custody rules generally mean all cash and other securities purchased by an investment fund must be sent to the segregated custodian, which may be subject to independent audits and liable for preparing account statements.
Under a service agreement, a custodian or funds administrator is also generally responsible for complex security arrangements around funds transfer authorisations as one line of defence against fraudulent activity.
Other back office or prime brokerage functions such as securities lending, re-hypothecation, fund accounting, unit pricing, reconciliations, and the preparation of periodic statements may also be provided by the asset servicing arms of investment banks, segregated from custody functions.
The Wall Street and European financial services giants commonly split business units between asset management and asset servicing, with reporting lines segregated and the head of each unit reporting into the chief executive.
Mr Kalman said Australian registered investment schemes must have a legal custodian under the rules in ASIC regulatory guide 133 and other financial services laws to ensure minimum regulatory capital and segregated responsibilities.
However, the California lender’s meltdown affected at least eight ASX-listed tech businesses and potentially hundreds of local start-ups that scrambled to retrieve deposits and find new banking partners.
Private equity firms including Ares Management, Blackstone, Carlyle Group and KKR are now looking to buy some of the loan assets on SVB’s books, according to Bloomberg.
Investment bank HSBC agreed to buy the UK arm of SVB for £1 this week in a bailout that will ease the pressure on government, as the biggest bank collapse since the GFC sends after shocks through capital markets.
