BBH&Co.'s New Markets Team (NMT) recently visited Slovenia, Croatia, Bulgaria, and Romania to perform due diligence on local banks and subcustody services. The team met with prospective custodian banks and market regulators in each country to analyze the various market practices, key risks, as well as the scope of custodial services offered among banks. The New Markets Team also attended a conference on the Slovenian and Croatian Capital Markets in Zagreb, Croatia.

Ljubljana, Slovenia was the first stop on the trip. There are eight banks in the country which offer some form of a custody product. These banks range from smaller Slovenian banks, to large international banks with local subsidiaries. All of the potential providers in Slovenia were previously hampered by the Bank of Slovenia's (the central bank's) regulation making it expensive for custodians to offer custody service. This regulation stated that any custodian bank offering custody services to foreign investors be required to open "custody cash accounts" through which all funds must be funneled. In addition, Slovenian banks must carry all funds and investments as liabilities on their balance sheets until the investor sells the securities and repatriates the funds.

This regulation was recently changed. Under the revision, effective June 28, 1997, local custodians are no longer required to carry investments by foreign investors securities and funds on their balance sheets as liabilities. Going forward, the central bank will regulate foreign investment by allowing foreign investors to sell their securities to local investors, only after a seven-year holding period. Alternatively, foreign investors may sell their securities at any time and without any restrictions to other foreign investors. As such, local custodians are now re-evaluating their ability to provide custody services in the market.