Key Highlights
- Global custodian assessments reviewed under the revised scoring methodology.
- A major institution upgraded to Stable on stronger financials.
- Philippines and Indonesia reviewed amid market volatility.
- Risk penalties applied across cash correspondent banks for operational, ESG and AML findings.
Global Custodian Assessments
As part of the ongoing review, the Committee upgraded the overall outlook of a major global financial institution from “On Watch” to “Stable”, reflecting consistent growth in revenue and net income and the successful delivery of cost-reduction targets. The Stable outlook applies globally, with the exception of entities operating in certain high-risk geopolitical regions, which remain “On Watch”.
The institution’s Financial Risk outlook was also upgraded from “Negative” to “Stable”. The Committee concluded that recent legal provisions related to isolated, one-off events did not materially affect the institution’s overall financial position or balance-sheet strength.
The broader review of maintained Global Custodian Assessments resulted in most providers retaining their existing overall grades, with targeted adjustments made where appropriate to reflect current performance. Improvements in Asset Safety and Operational Risk were observed for some custodians, while reductions in Asset Servicing grades were applied in cases where contractual responsibilities were not being satisfactorily fulfilled.
Market and FMI Reviews
The Committee also reviewed developments in the Philippines and Indonesia, together with the principal financial market infrastructures and sub-custodian assessments in these markets.
Both markets have experienced increased market volatility, influenced by geopolitical developments and, in Indonesia, concerns regarding a potential change in its international market classification. These developments have contributed to capital outflows and pressure on assets under custody for a number of banks. Indonesia has nevertheless shown some resilience, supported in part by continued growth in its domestic retail investor base, which now exceeds 9.5 million investors.
In the Philippines, proposed consolidation within the market infrastructure landscape could result in greater integration between the country's principal securities depositories and exchange infrastructure. The market is also expected to benefit from potential international investment flows following the inclusion of peso-denominated government bonds in a major emerging-markets index. In addition, the local regulator is exploring developments relating to T+1 settlement and digital assets.
Cash Correspondents and Compliance
The Committee applied a number of risk adjustments and penalties across banks providing cash correspondent services, reflecting regulatory findings and audit-related issues.
Group-level Operational Risk downgrades were applied to several institutions following identified weaknesses in areas including risk management, fraud controls and operational remediation.
The Committee also considered Environmental, Social and Governance (ESG) and Anti-Money Laundering (AML) risks. Adjustments included a group-level ESG penalty associated with sanctions breaches, together with a number of AML-related adjustments.
Localised penalties were also applied where appropriate, including a 12-month penalty relating to a tax-fraud matter in one jurisdiction and a three-year AML/CTF penalty relating specifically to a local market.
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