Supervision of an operator should seek to ensure that the assets of a CIS are properly held in safekeeping and segregated from the assets of management and other entities.
The CIS Principles already require that a regulatory regime must seek to protect the physical and legal integrity of the assets of a CIS by separation of the assets from the assets of management5. In this regard, a custodian may be appointed to hold the assets or be in a position to ensure their safekeeping. These arrangements vary between jurisdictions but will often be the responsibility of an independent custodian rather than an operator itself. Accordingly, the investments will usually be registered in the name of an entity other than an operator. There are a number of different activities that may require supervision.
Supervision should ensure that all investments, including cash deposits, are properly held in safekeeping. It may be appropriate for a physical count of the assets to be undertaken periodically. The purpose of this exercise would be to confirm that the assets of a CIS, in fact, exist and that they are correctly registered in the name of a CIS.
An additional supervisory function may be to ensure that reconciliations of investments have been conducted to ensure that the assets of a CIS held by a custodian reconcile to the portfolio which is managed by an operator.
Footnotes:
5 Guidance on Custody is the subject of a separate paper which has been produced by WP 5, that was approved by the Technical Committee in Montreal, September 1996.
