Custodian’s IT Review

Custodian IT Systems review is an assurance service provided by an independent auditor. It involves examining and evaluating the automated systems utilized by the custodian in conducting its activities to verify their suitability for the nature and scale of its operations, as well as their compatibility with the IT systems adopted by the clearing agency and the stock exchange.

What is the Custodian Activity?

Custodian activity is a licensed securities activity in the State of Kuwait. Custodian offers services of safeguarding assets on behalf of clients by maintaining the client assets, performing the associated administrative duties, executing orders on behalf of the clients, and complying with all duties related to the custodian function. A Custodian may keep the assets of both Kuwaiti and non-Kuwaiti clients.

What is the regulatory authority mandating custodians’ IT systems review?

Kuwait’s Capital Markets Authority (CMA).

What are the duties of the Custodian?

As per Resolution No. (72) of 2015 regarding the Issuance of the Executive Regulations of Law No. (7) of 2010 concerning the Establishment of Capital Markets Authority and Regulation of Securities Activity, as amended, Module Five, Article 1-33, CMA defined the duties of a Custodian to include, but not limited to, the following:

1. Safeguard the assets that comprise Collective Investment Schemes in accordance with rules set out in Module Thirteen (Collective Investment Schemes) of the above-mentioned Executive Regulations.
2. Safeguard the funds and assets under its custody or under the custody of a sub-custodian on behalf of a client.
3. Open accounts, receive assets, and transfer the same on behalf of a client in accordance with their instructions.
4. Complete settlement for transactions related to assets under custody.
5. Execute the client’s instructions with regard to rights attached to those assets such as subscription, attending the general assembly meetings and voting on behalf of the client based on their instructions to their best interests.
6. Reconcile the contents of the client’s accounts with the contents of their accounts with central securities depository, licensed persons and other financial service providers regarding the assets under custody.
7. Collect and distribute dividends and interests and claim deducted taxes of assets under custody.
8. Ensure that assets under custody comply with the laws and rules regulating disposal and trading of those assets.
9. Prepare periodic reports related to the contents of the client’s accounts and send the same to the clients and the supervisory body, if any.
10. Undertake the role of the representative of a trustee in relation to bonds and Sukuk assets.

What are mandates that the custodian shall follow in relation to appointing an independent auditor?

As per Resolution No. (72) of 2015 regarding the Issuance of the Executive Regulations of Law No. (7) of 2010 concerning the Establishment of Capital Markets Authority and Regulation of Securities Activity, as amended, Module seven, Article 7-2-2, CMA mandated licensed companies for custodian activity to provide CMA with an annual report issued by an independent external audit firm on the Licensed Person. In particular, the report shall include the following:

• Evidence of the availability of the necessary IT systems, which enable the Custodian to perform their tasks in a manner that is commensurate with the nature and volume of the work they carry out, and in line with IT systems adopted by the clearing agency and the stock exchange.
• Statement of the clients’ assets: It shall include the arrangements required for ensuring compliance with the provisions of Article (3-2) of the said Module.

What legislation and international standards does the independent auditor adopt in preparing the Custodian IT Systems Review Report?

1. Capital Markets Authority legislation and regulations
2. International Standards on Auditing (ISA)
3. IT Audit and Assurance Standards, issued by the Information Systems Audit and Control Association (ISACA).

What is the deadline for submitting the annual report?

As per Resolution No. (95) of 2017 regarding Adding Controls of Custodian Activity dated 22 June 2017, Article (2), the companies licensed by the CMA to carry on custodian activity shall meet the requirements mentioned in such Resolution by 21 June of each year.

Who is authorized to issue the Custodian’s IT Systems Review Report?

Licensed auditors in the State of Kuwait who are registered with Capital Markets Authority.

What are added values to business entities from the Assurance Report on IT Systems of Custodian Activity?

• Comply with laws, regulations, resolutions, and instructions issued by Capital Markets Authority.
• Protect the clients’ funds and assets and promote their interests and investments.

What is the Service offered by Baker Tilly Kuwait?

Prepare the Annual Assurance Report issued by an independent external audit firm on the Review of the Custodian’s IT Systems.

Why Baker Tilly?

1. Baker Tilly in Kuwait is a member of Baker Tilly International network based in the UK, ranked amongst the top 10 global accounting networks.
2. Auditors in Baker Tilly Kuwait are licensed by Ministry of Commerce and Industry and are registered with the regulatory authorities, e.g., Central Bank of Kuwait, Capital Markets Authority and Insurance Regulatory Unit.
3. Extensive experience in providing Custodian’s IT Review service to companies operating across various business sectors in the State of Kuwait.
4. Highly experienced bilingual team with specialized academic qualifications and professional certifications.
5. Commitment to performing Custodian’s IT Review engagements according to predefined timelines, with no delays and responsiveness to client requirements.