Funds’ service links to Irish banks raise concerns

Concerns have emerged over funds that use Irish banks as administrators, ­custodians and depositaries as the financial turmoil in Ireland and its institutions continues.

Several Irish-domiciled portfolios sold in Britain have appointed Irish banks to service their assets.

If a servicing bank becomes insolvent, creditors cannot claim the assets, but in the event of bankruptcy, funds’ recovery of the assets could be delayed.

According to Morningstar, 46 funds have reported that they have Irish custodians, although Morningstar warns that the list may be incomplete and that in some cases the custodians may have changed since the last report.

Barclays has registered 17 funds, PineBridge has registered 11, Legal & General has registered seven, BlackRock has registered five and Goldman Sachs three.
Gary Palmer, the chief executive of the Irish Funds Industry Association (IFIA), says that most Irish-domiciled funds have appointed overseas institutions as custodians and depositaries, although many more have hired Irish groups as administrators. (article continues below)

Under Irish Financial Regulator rules, Palmer says, all firms are obliged to ensure business continuity to guard against disruption and protect any complicated administrative processes.

Palmer says responsibility for individual portfolios lies with the funds themselves, and that the IFIA has not drawn up any contingency plans for funds in case a servicing bank fails.

Shane O’Neill, the head of British distribution at Bloxham, which has appointed Bank of Ireland as custodian on its new Midas Global Absolute Return fund, says the industry typically allows a 90-day timeframe to transfer between servicers if a service agreement is terminated.