As Custodians Search for Profits and the EU Regulates, Prices Rise

(September 24, 2009) – European custodians, following a drop-off in high-margin services such as securities lending, are raising prices for pension schemes.

According to Financial News (FN), this rise in prices—up to a 30% increase, according to sources—is the first in 20 years. According to a consultant interviewed by FN, this is a result of “bankers scrambl(ing) to make good a loss of income from add-on services that clients no longer want.”

Previously, custodians kept basic fees low by enticing asset owners to use high-margin services; however, following severe losses related to securities lending and other such services, their use has declined markedly. With these services being used less, custodians have turned to raising basic fees to make up for lost revenue.

According to FN, this trend may accelerate if proposed European Union depository rules are enacted. These rules—under the Alternative Investment Fund Managers Directive—would impose stringent liability of custodians, which could cause costs to rise.

The Directive has been widely panned across the continent. According to European Voice, Sharon Bowles—the chair of the European Parliament’s economic and monetary affairs committee—is warning that increased regulation will cause investors to move elsewhere. “Every time you add an expense (through regulation), you are dropping the yield for the European investor,” she is quoted as saying.