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.
The obligations of brokers apply whether their services are to retail or wholesale clients. It also includes custodians of client money and client property.
Certain financial service providers are not brokers under the FA Act, including:
Non-transferable instruments, such as non-transferable cheques or automatic payment forms payable to another person are not considered to be broking services.
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.
A person is not a custodian under the custodian regulations if any of the following apply:
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.
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.
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