Foreign-owned banks operating in Bangladesh will now be able to provide custodial services to mutual funds even without a local board of directors, following a new directive from the Bangladesh Securities and Exchange Commission (BSEC).

Under the directive, the bank’s management committee or a designated person will be allowed to perform the necessary functions on behalf of the board. The move is expected to resolve longstanding organisational and regulatory complications faced by foreign banks in providing custodial services.

BSEC issued the directive on Thursday, signed by its Chairman Masud Khan, and said it would take immediate effect.

Under Rule 43(6) of the Bangladesh Securities and Exchange Commission (Mutual Fund) Rules, 2023, a custodian is required to operate a mutual fund’s bank and securities accounts through a signatory nominated by its board of directors.

However, many foreign-owned banks in Bangladesh do not have local boards of directors. Their local operations are managed by management committees or designated individuals, creating difficulties in complying with the existing requirement for board-nominated signatories.

As a result, foreign banks faced regulatory and organisational barriers in performing custodial functions and managing mutual fund accounts.

Taking the issue into consideration, the BSEC said it had exercised its powers under Section 20A of the Securities and Exchange Ordinance, 1969, to allow the management committee or a designated person of a foreign-owned bank to carry out the necessary functions on behalf of the board for the purposes of Rule 43(6) of the Mutual Fund Rules, 2023.

According to the commission, the directive aims to protect investors’ interests and ensure effective implementation of the mutual fund regulations.

BSEC also clarified that the move does not provide any special advantage to foreign banks. Rather, it aligns the regulatory requirements with the existing organisational structures of such banks.

Custodians play a crucial role in safeguarding mutual fund assets and operating their bank and securities accounts. The new directive is expected to remove uncertainty over the authorised representatives of foreign banks and make their custodial operations more efficient.