Written by The Banking Post
BRAC Bank is considering withdrawing custodianship from around 60 mutual funds unless it gains stronger authority over how asset managers handle investors’ money.
The move follows the bank’s bitter experience with alleged fund embezzlement by an asset manager, which left custodians like BRAC Bank accused of failing to protect investors despite having little control over cash management.
In 2023, a securities regulator probe found Alliance Capital Asset Management CEO Kh. Asadul Islam guilty of embezzling Tk 450 million from two funds—MTB Unit Fund and Alliance Shandhani Life Unit Fund—for which BRAC Bank served as custodian. Both the regulator and the anti-graft body later questioned the bank’s oversight role.
Currently, custodians are responsible for safeguarding fund assets purchased by asset management companies (AMCs) but have no authority over cash transactions. “We were blamed for not securing investors’ money even though cash operations are beyond our control,” said Md Shaheen Iqbal, deputy managing director of BRAC Bank.
The bank has already decided to withdraw from the SEML Lecture Equity Management Fund, which unitholders voted to convert into an open-ended fund in late October. During the meeting, BRAC Bank expressed dissatisfaction with the fund’s management and stated it would continue custodianship only until a new custodian takes over.
The developments come as the Bangladesh Securities and Exchange Commission (BSEC) prepares to finalize revised mutual fund rules that aim to strengthen custodians’ powers and raise their fees. The upcoming rules would transfer fund bank accounts from AMCs to custodians, allowing them to oversee all cash flows.
BRAC Bank has submitted its feedback on the draft rules. “After the gazette notification, we will see whether our suggestions were considered,” Iqbal said, adding that merely transferring fund accounts is not enough to prevent misuse.
He argued that custodians should also control all AMC cash accounts, including those for IPO collections, equity subscriptions, and dividend disbursements, to ensure full transparency.
The revised rules also propose increasing custodians’ minimum paid-up capital requirement to Tk 2 billion and raising the custodian fee from 0.10% to up to 0.50% of fund assets to attract reputed banks such as BRAC Bank and HSBC to the role.
However, despite the proposed incentives, BRAC Bank appears reluctant to continue in its current custodial role unless it gains clear regulatory authority to prevent fund mismanagement and protect investors’ interests.
