Under the Financial Advisers Act 2008 (FA Act), brokers and custodians must comply with broker conduct obligations.
Brokers must also comply with other law, including:
The general conduct obligations (sections 77K-77O of the FA Act) apply to all brokers, whether you provide services to retail or to wholesale clients.
These obligations require you to:
Obligations for handling client money and property, require brokers to:
See sections 77P-77T of the FA Act for more information.
Custodians also have an obligation to hold client money and property separately from their own money or property and records must be kept that allow for each client’s property to be identified.
These obligations apply to all broking services (including custodial services) provided to:
These obligations do not apply to certain money received by brokers who the Insurance Intermediaries Act 1994 applies. This is because alternative provisions apply under that Act (see section 77J(3)(b) of the FA Act).
Sufficient information should be given to each client to enable them to make an informed decision about whether to use your broking or custodial services.
Although there are no specific disclosure regulations for brokers, you should, in exercising the care, diligence and skill required, disclose certain information including:
You must disclose your fees and other remuneration payable (directly or indirectly) by clients for your services. In particular, you must obtain your client's consent to any direct or indirect remuneration you will earn from their money or property (see section 77S of the FA Act).
All custodians are brokers under the FA Act so must comply with the relevant broker obligations - see above.
Custodian obligations for DIMS may be enforced under either the FA Act or the FMC Act.
In addition, custodians have their obligations set out in the custodian regulations*. Those obligations relate to the following matters.
Custodians must send a report to clients about their money and property held at least every six months. The report must include details of transactions carried out during the reporting period.
Alternatively, that information can be provided to the client using an electronic facility if certain conditions are met, eg that the information is available on a substantially continuous basis and the client has agreed to the information being provided in that way.
Custodians must reconcile records of client money and property, and must promptly and fully rectify any discrepancies. Records of client money must be reconciled daily. The frequency of the reconciliation must be appropriate to the type of client property, how frequently the client property is traded, and the timing of any custody reports provided.
Under the custodian regulations, custodians have reporting, reconciliations, assurance engagement and general conduct obligations among others.
Within 4 months of their accounting period’s close, custodians must obtain and receive an assurance report from a qualified auditor.
The assurance report must include an opinion of whether the custodian's processes, procedures and controls are suitably designed to meet the control objectives in regulation 10(2).
The auditor’s report must also state whether the controls and processes were effective throughout the accounting period. The report should include detail of the controls and the auditor’s findings (including management response). The report should specify that the FMA is an intended user of the report.
The custodian must submit the assurance report to us at email@example.com within 20-working days of receiving it from the auditor. Custodian’s requirements for reporting and reconciliations are in addition to any existing broker obligations that may apply.
*Note: Where a person (Person A) provides a custodial service regulated under the custodian regulations, on behalf of the business of another person (Person B), Person B must ensure that Person A complies with the requirements of the custodian regulations above. See who is responsible for broker and custodian obligations for more information.
We monitor and visit selected brokers and custodians to assess their compliance under:
Our monitoring will generally focus on outsourcing oversight, reconciliations, record keeping and reporting. In particular, we will focus on: