1. Compliance
  2. Brokers & custodians
  3. Who needs to comply
hero blue bg

Brokers & Custodians

Who needs to comply

Brokers

Under the Financial Advisers Act (FA Act) a broker is defined as a financial services provider who holds, transfers or makes payments with client money or property, on behalf of clients.

Brokers can include stockbrokers, providers of portfolio administration services and financial advisers, who receive property or money from clients eg DIMS providers.

For a detailed definition of ‘broker’ and ‘broking services’ see sections 77B, 77C and 77U of the FA Act .

The obligations of brokers apply whether their services are to retail or wholesale clients. It also includes custodians of client money and client property.

  • Client property is a financial product (or an interest in a financial product), eg shares, debt securities, derivatives and managed investment products, or is client money.
  • Client money is money received in connection with client property. 

Who is not a 'broker'?

Certain financial service providers are not brokers under the FA Act, including:

  • Insurance and mortgage brokers. This is because the property or client money they may hold is not a financial product. 
  • Lawyers, incorporated law firms, conveyancing practitioners, chartered accountants, tax agents, real estate agents and registered legal executives providing a service in the ordinary course of their business.
  • Licensed derivatives issuers. They are subject to separate obligations.
  • Employers offering employees financial products such as employee share purchase schemes.

Non-transferable instruments, such as non-transferable cheques or automatic payment forms payable to another person are not considered to be broking services.

Custodians

Under the Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 (custodian regulations) a custodian only holds money or property for clients.   Under the FA Act all custodians are brokers, but not all brokers are custodians.

For the custodian regulations to apply, the client money or property must relate to a financial product, ie debt securities, equity securities, managed investment products or derivatives.

Who is not a 'custodian'?

A person is not a custodian under the custodian regulations if any of the following apply:

  • They hold client money or property solely for the purpose of completing a transaction, securing an obligation, or both. For example, a broker is not a custodian for execution-only services provided to clients on a T+2 basis, where the client money and property is returned to the client (or a party acting on the client's behalf) immediately following execution.
  • The custodian and all their associates provide the services to no more than five clients in total.
  • They are a trustee of a family trust for the trust's assets.
  • They are an executor, an administrator or a trustee of a deceased person's estate for the estate's assets.
  • They are an attorney acting under an enduring power of attorney for a donor's property in circumstances where the donor becomes mentally incapable.
  • They are appointed by the court for a person's assets; or where they are acting on behalf of a sub-custodian.

Discretionary investment management service (DIMS) custodians

Under the Financial Markets Conduct Act 2013 (FMC Act), a financial services provider who holds client money or property in relation to discretionary investment management services (DIMS) is a DIMS custodian. DIMS custodians are also subject to the custodian regulations.

Client money and property held for a retail DIMS must be held by a custodian who is independent of the DIMS provider, except where the client money and property is held directly by the client. The FMA, may in limited circumstances, allow the use of an associated part custodian. For more information see our DIMS licensing section.

Managed investment scheme (MIS) custodians


Under the FMC Act, a financial service provider who holds the property of a managed investment scheme is an MIS custodian.

For managed investment scheme property, MIS custodians are not custodians under the custodian regulations. They do not need to comply with broker obligations under the FA Act.

However, MIS custodians have similar obligations under the FMC Act for that property, including meeting the standard of care, skill and diligence required, holding scheme property on trust, record keeping and reporting.

See our information sheet on custodian obligations for more information. 

Find out more about: