ICBC has continued to explore the custody market and achieved sustainable growth by product innovations, business system upgrade and service extension in the first half of 2011. By end of June, the Bank registered RMB 3 trillion of assets under custody, ranking first among Chinese banks for 13th consecutive year. ICBC also retained the top spot in providing asset custody services to securities investment fund, insurance asset, corporate annuity fund, cross-border asset and wealth management services to fund houses as well as other main custody services, well positioning itself as the No. 1 custodian bank in China.
According to an official of ICBC, despite large fluctuations in the domestic capital market, the Bank's custody business has seen steady, rapid and healthy growth these years. This was mainly attributed to its efforts in expanding the custody market by stepping up product innovation and developing a full spectrum of products that covers banking, securities, insurance and industrial sectors, targeting institutional investors in China and abroad to create new business drivers. In the first half of the year, ICBC continued to promote rapid growth in its traditional business lines, while taking active measures to boost the "Anxin account" (an asset custody business), custody services for asset management plan of securities brokers, equity investment fund and other new custody services in an effort to achieve steady growth in business size and boost revenue.
The official said, ICBC has maintained a satisfactory record in offering quality custody services for customers and gained their trust with stable business operations. The bank's efforts and performance has made ICBC Number One in custody services. ICBC is the first commercial bank in China to independently develop custodian system, moreover, the powerful system that supports multiple accounting principles and operations across markets under multiple valuation methods and financial statements for its global custody business has provided full IT solutions to ensure quality custody services. ICBC also continues working to fine-tune its custody business system and lay solid foundation for attracting more customers and expanding its service capacity. The Bank recently upgraded its custody business system once again. The system is based on its business processes with global rules embedded. ICBC is the first Chinese bank that has put in place a ledger system for the custody of securities. Also upgraded was the investment monitoring system and performance analysis system on investment based on evaluation criteria, in a bid to expand and innovate its custody services and explore value-added services including performance evaluation and risk management.
While it has seen rapid and healthy business growth, ICBC is building a sound and extensive network moving from the Head Office to its national branches and from local to global coverage. Currently, 37 Tier-I and direct branches have been granted permission to offer the custody services, forming a wide custody service network in China. With a global perspective, ICBC is striving to set up a global custody service network including ICBC Asia, ICBC London, the Seoul Branch and other overseas branches that offer the custody services. It has also maintained close cooperation and communication with world leading custodian banks, promoting stable growth in its global custody business centered around QFII and QDII. By end of June, ICBC has ranked first among Chinese banks in terms of the number of QFII custody customers and asset scale under custody, further outperforming its peers in the QDII custody area.
Background:
Custody Services of Commercial Banks
Commercial banks offer asset custody services to address the problem of asymmetric information between the investors and investment managers. By definition, asset custody is a comprehensive service that a commercial bank offers as an independent third party entrusted by the trustor to safeguard the entrusted assets, make payments and maintain accounting records in accordance with the laws and regulations, as well as supervise the actions taken by all parties involved and offer relevant services as required by the regulatory authorities or the trustor.
Custody services mainly involve the trustor, the investment manager and the custodian. Take the securities investment fund as an example. The trustor is the fund holder, the investment manager is the fund management company, and the custodian is the commercial bank. The custodian is entrusted by the trustor to conduct cash clearing, accounting calculation and evaluation, and supervision on the investment made by the investment manager. Daily clearing is conducted between the fund management company, the custodian bank and the Securities Exchange. Calculation of the fund's daily net value is jointly done by the custodian bank and the fund management company. Moreover, the custodian is responsible for double-checking the fund performance report and monitoring if the direction and proportion of the investment portfolio by the fund management company meet the requirements as specified by the contract and the regulatory body.
The purpose of introducing the asset custody is to safeguard customers' assets and protect their interests. First, with the involvement of a custodian, the ownership, right of use and custodian rights of customers' assets are separated. The custodian, the manager and the investor limit each other to prevent improper appropriation of customers' assets and ensure the safety of assets. Second, by monitoring the manager's investment actions including investment objectives, scope and restrictions, the custodian can detect in a timely manner if the manager abide by the relevant laws and regulations. In case of the breach of law and other offences, the custodian can refuse to implement the order and report to the regulatory body. Third, through accounting calculations and evaluation by the custodian, the custodian will know details of the investment in entrusted asset and ensure accurate disclosure of financial information of the entrusted assets.
Interim Measures on the Management of Securities Investment Funds, promulgated in 1997, specifies that securities investment funds must be under the custody of a qualified commercial bank. Upon approval of the China Securities Regulatory Commission and the People's Bank of China, ICBC became the first commercial bank in China that has been certified to provide the service. The custody business of commercial banks is expanding rapidly to accommodate the needs of a fast growing market of asset management in China. Currently there are 18 commercial banks that offer the asset custody services
In more than a decade China's asset custody market has been expanding rapidly, from an initial scale of less than RMB 1 billion to nearly RMB 10 trillion by the end of 2010, almost 10,000-fold as much. As China is integrated into the global capital market which has seen a vast amount of financial innovations, innovations of the custody business is increasing rapidly. Speaking from a horizontal perspective, the scope of custody services is expanding rapidly. Currently in China, the custody business covers securities investment fund, national social security fund, basic pension fund for personal account, corporate annuity fund, rural insurance fund, entrusted assets, trust assets, revenue and expense account, and industrial fund. As QFII (Qualified Foreign Institutional Investor) and QDII (Qualified Domestic Institutional Investor) were introduced, the service scope has extended to the international market. Speaking from the vertical perspective, asset custody services is moving up to higher levels, from providing a safeguard mechanism and general calculation and evaluation services at the very beginning to offering value-added services including performance evaluation, corporate behavior and risk management.
During this process, ICBC has participated in developing most innovative products in China and provided custody services, making it a pioneer in product innovation in the banking sector. ICBC provided custody services for China's first batch of close-end securities investment funds - Kaiyuan fund and Jintai fund early in 1998; for China's first open-end securities fund - China Southern Stable Growth Fund in 2001; for China's first bond fund - China Southern Baoyuan Bond Fund and first open-end index fund - Hua'an SSE 180 Enhanced Index Investment Fund in 2002; for China's first money market fund Hua'an Cash Income Fund in 2003; for China's first LOF fund - China Southern Positive Allocation Securities Fund and ETF fund - Huaxia SSE 50 Open-Ended Index Fund in 2004; for China's first insurance fund - Huatai Insurance Fund in 2005; for China's first corporate annuity fund, first QDII product (bank) - Bank of China USD Enhanced Cash Management, and first QDII product (fund house) – Hua'an International Allocation Fund in 2006; for the national social security fund and China's first QDII stock fund - China Southern Global Selected Allocation Fund and first innovative closed-ended fund - UBS SDIC Ruifu Classification Stock Fund in 2007; for China's first client-specific asset management plan of fund management company in 2008; for China's first batch of special QDII products and first batch of asset management plans for multiple specific clients of fund houses in 2009. In the same year ICBC also launched the first ESCROW services. By far, ICBC has the biggest market share in China with largest variety of asset custody products, biggest size and best service quality.
In 2005, ICBC was the first bank in China accredited with the SAS70 certification which was institutionalized as annual internal control measure, which has been widely recognized by the independent third party for its sound and effective risk management and internal control in the custody service processes. ICBC was also the first bank that has run the disaster recovery drill and made it a regular practice. The Bank's innovation capability, service quality and risk control ability were highly valued and respected. To recognize its outstanding performance in offering quality custody services in China and abroad, ICBC has received 26 awards for the "Best Custodian Bank in China" by Hong Kong's Asiamoney, the UK's Global Custodian, Hong Kong's The Asset, and the US' Global Finance and Mainland China's Securities Times and Shanghai Securities News for ninth consecutive years since 2003. ICBC is the custodian bank in China winning the most number of awards for its excellent custodian services. The Bank enjoys rising influence in international market and brand recognition.