Custody banking by foreign banks: beneficial for Switzerland
In spring 2025, the Swiss Parliament debated whether the custody of assets belonging to the OASI compensation fund should be entrusted to a foreign-controlled bank. The fund’s board of directors had put the contract out to tender at the request of the Swiss Federal Audit Office. Having reviewed the tenders received, it concluded that the asset owners’ interests would be best served by one from a US-based bank.
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Background
There is a huge difference between management and custody, and this fact was often overlooked in the debate, resulting in some confusion. Asset management involves making investment decisions and investing assets in specific instruments while complying with binding guidelines. Custody, meanwhile, involves holding assets in safekeeping, valuing them on an ongoing basis with the aid of market prices, paying out dividends, booking assets in and out when the asset manager buys and sells them and much more besides. A custodian bank must foster a network of contacts to as many central securities depositaries as possible in the markets where the asset manager invests. This is important because securities are held in custody in the country where they were issued and are only accessible to investors there. The custodian bank of an investment fund such as the OASI compensation fund (which manages the assets used to pay state pensions) should thus maintain links to as many central depositaries as possible around the world and be able to process large quantities of data quickly in order to keep portfolio valuations up to date at all times.
What is needed
Unlike an asset manager, which has in-depth knowledge of a specific market, a custodian bank must be able to handle a large number of standardised processes quickly and reliably. It must know the regulatory requirements in the various markets as well as the requirements for settling corporate actions in respect of individual securities. It must be capable of collating all of this information to ensure that each securities transaction is settled efficiently and swiftly. It therefore needs efficient, largely automated processes, which in turn require infrastructure and vast amounts of computing power. Each process must be cost-effective. Global networks, efficient technology and knowledge of regulation are the three core competencies a custodian must invest in continually. The bigger it is, the more these investments will pay off as they affect a larger number of transactions.
Why having global specialists in Switzerland is a good thing
Switzerland has the advantage of being attractive for global custodian banks because it is an international financial centre with a large volume of assets under management. Thanks to their presence, Swiss investment foundations such as the OASI fund, SUVA and other pension funds have access to expertise with a permanent competitive edge in the global marketplace. Many custodian banks specialise in this business, are not exposed to any other risks and can focus all of their investments on increasing efficiency in this one market segment. No Swiss bank operates global custody either as its main business or as one of its core businesses, but a number of foreign banks that do so are present in Switzerland. Swiss investors benefit from this by having direct access to internationally competitive services. This is good news for the Swiss financial centre because it boasts an extra link in the value chain that enhances its appeal for international investors relative to rival centres.