Who is responsible for broker and custodian obligations
Anyone providing a broking service (including a custodial service) as defined in the FA Act must register on the FSPR unless an exemption applies.
Where a broker provides all broking services to the client, including custodial services, they must comply with all of the broker obligations under the FA Act and the custodian regulations. This includes the requirement to report to clients and to obtain an assurance engagement. See Scenario 1 which clarifies this.
Where a person (Person A) provides the broking service (including a custodial service that is subject to the custodian regulations) on behalf of another person (Person B):
- Person B (not Person A) is treated as the broker having the broker obligations, including any obligations under the Custodian regulations (see sections 5I and 77U of the FA Act)
- However, Person A will perform the requirements under the custodian regulations, including reporting to clients and obtaining an assurance engagement.
- Person B must ensure that Person A complies with the requirements of the custodian regulations.
Where a sharebroker outsources the custody of shares to a custodian.
- Both the sharebroker and the custodian will be providing broking services and both will need to be registered on the FSPR. See our registration page for more information. Custodians should choose the FSPR catergory 'Broking service (including custodial service)'.
- The custodian is a 'custodian' as defined in the custodian regulations.
- If the custodian is providing the custodial service on behalf of the sharebroker's business (see the definition in section 5I of the FA Act) then the sharebroker has obligations as a broker under the FA Act and the custodian regulations.
- However, because the sharebroker is not providing the custodial service, they are obliged to ensure that the custodian complies with the requirements of the custodian regulations,eg obtaining an assurance report. This means where the custodian fails to perform their custodial services in accordance with the custodian regulations, then the sharebroker will be held responsible for failing to ensure that the custodian complied. The sharebroker should ensure they properly supervise the custodian (or any other broker) that acts on behalf of the sharebroker's business.
Refer to the guidance note: Broker obligations for more examples.
Legal arrangements between brokers and custodians should be clear if broking services are being provided on behalf of the other.
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