A group of major custodians involved with Hong Kong's Mandatory Provident Fund (MPF) have sent a request to the city's pension regulator demanding a speeding up of the approval process for depositories and sub custodians. Without it, they believe managers' investment options could be severely restricted when the retirement scheme kicks off in two weeks time.

Under MPF rules, all sub custodians and depositories used by MPF custodians have to be approved by the Mandatory Provident Fund Authority (MPFA) before they are allowed to handle the scheme's assets. However, it is understood that up to 20 depositories in the region have yet to be approved by the authority.

There are also concerns that since some custodians use as many as 90 sub custodians across the globe, the authority's approval process could be dragged out further still. Questions put to the authority by PensionsAsia today have not been answered.

Anthony Galliano, regional head of Cititbank's Worldwide Securities Services, warns that custodians will not be able to allow fund managers to invest in instruments that are required to be cleared by various depositories in different countries. Indeed, Citibank has played an instrumental part in Hong Kong's informal custodian's association, formed 18 months ago to provide a platform for local trustees and custodians.

Where individual approvals of sub custodians are concerned, the group has suggested it would be more practical for the MPFA to issue selection guidelines to MPF custodians, so that the onus of choosing suitable sub custodians is shifted back to the custodians themselves.

KK Tse, managing director of State Street, says his company's decision not to become involved with the MPF was partly as a result of the onerous requirement of having all sub custodians approved.

"We have 92 sub custodians around the world. As a global custodian we source our business from many different countries. Hong Kong is a relatively small market. I wouldn't terminate our good relationships with some sub custodians just because HK doesn't like them," he says.

Under the MPF scheme, members' assets are handled by either fund administrators or custodians depending on the structure of the fund. Part of their remit is to provide settlement and safekeeping and update trustees with net asset valuations. Trustees will monitor the activities of managers and other services providers, including custodians.