Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698829858501.pdf (New Zealand)
2014/48 Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 Jerry Mateparae, Governor-General Order in Council At Wellington this 24th day of February 2014 Present: His Excellency the Governor-General in Council Pursuant to section 154 of the Financial Advisers Act 2008, His Ex- cellency the Governor-General, acting on the recommendation of the Minister of Commerce made after consulting the Financial Markets Authority and on the advice and with the consent of the Executive Council, makes the following regulations.
Contents Title Commencement Interpretation Application Information requirements Alternative means of providing information required by regulation 5(1) Client request for information Procedures for reconciling records Page 2 2 Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 2014/48 Custodian must obtain assurance engagement Requirements of assurance engagement and report Application of sections 77P to 77T of Act and these regulations to wholesale clients Transitional matters Transitional provision relating information requirements Application of regulations 9 and 10 7 7 8 9 9 Regulations Title These regulations are the Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014.
Commencement These regulations, except regulation 11, come into force on 1 April 2014.

Regulation 11 comes into force on 1 December 2014.
Interpretation In these regulations, unless the context otherwise requires,— Act means the Financial Advisers Act 2008 address, in relation to a client, means the client’s last known address or an address specified by the client for the purpose of receiving information required by regulation 5(1) (whether the address is electronic or otherwise) applicable auditing and assurance standard has the mean- ing given to it in section 5(1) of the Financial Reporting Act 2013 associated person has the meaning given to it in section 12 of the Financial Markets Conduct Act 2013 assurance report means a report resulting from an assurance engagement referred to in regulation 9(1) custodian means a person to whom these regulations apply under regulation 4(1) family trust has the meaning given to it in section 173M(5) of the Tax Administration Act 1994 r 1 (1) (2) 3 2 2014/48 Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 r 4 FMCA custodial service means a custodial service (as that term is defined in section 77B(2) of the Act) that— (a) is provided in respect of client money or client property that relates to an FMCA financial product; and does not include any service to the extent that an FMCA financial product is held solely for completing a trans- action, securing an obligation, or both (b) a debt security: an equity security: a managed investment product: a derivative FMCA financial product means each of the following within the meaning of the Financial Markets Conduct Act
 2013: (a) (b) (c) (d) qualified auditor has the meaning given to it in section 461E of the Financial Markets Conduct Act 2013 sub-custodian means a person who provides FMCA custodial services under an arrangement with a custodian where the cus- todian holds a beneficial interest in the FMCA financial prod- uct (to which the FMCA custodial services relate) in trust for, or on behalf of, the client.
4 (1) (2) Application These regulations apply to a person who carries on a business of providing or offering to provide FMCA custodial services to a client (whether or not the business is the provider’s only business or the provider’s principal business).
These regulations do not apply to— (a) a person who provides FMCA custodial services if the person and all of its associated persons provide FMCA custodial services to no more than 5 clients in aggregate: services provided by— (i) (b) a trustee of a family trust in respect of the trust’s assets; and an executor, an administrator, or a trustee of a deceased person’s estate in respect of the estate’s assets; and an attorney acting under an enduring power of attorney in respect of a donor’s property in cir- (ii) (iii) 3 r 5 (3) Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 2014/48 cumstances where the donor becomes mentally incapable; and any person appointed by the court in respect of a person’s assets: (iv) a sub-custodian acting in that capacity.
(c) Subclause (4) applies if— (a) (b) a person (A) provides FMCA custodial services on be- half of the business of another person (B); and B does not itself provide any FMCA custodial services but, by virtue of section 77U of the Act, is treated (in- stead of A) as the broker having the broker obligations under the Act.

(4) B must ensure that A complies with the requirements of these regulations (applied as if references to a custodian were refer- ences to A).
Information requirements 5 (1) A custodian must provide the following information to a client for each reporting period in respect of client money and client property received, held, or paid by the custodian and any of its sub-custodians: (a) a record of all transactions effected by the custodian or any of its sub-custodians for each client during the reporting period, which for each transaction must, at a minimum, include— (i) (ii) the date of the transaction; and the name of the issuer and the number (if applic- able) and class of FMCA financial products to which the transaction relates; and the balance of that class of FMCA financial prod- ucts held on behalf of the client on completion of the transaction; and (iii) (b) all entries made in a ledger of client money during the reporting period, which for each entry must, at a min- imum, include— a date; and (i) references that identify the source or destination (ii) of client money and that enable it to be traced backward or forward; and 4 2014/48 Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 r 6 (c) (d) (e) information on client property currently held on behalf of the client, which, at a minimum, must include— (i) the name of the issuer and the number (if applic- able) and class of FMCA financial products cur- rently held on behalf of the client; and the name, if known, of the custodian or sub-cus- todian that holds those products; and (ii) the amount of any fees charged by the custodian in re- spect of client money or client property held on behalf of the client; and a statement that the client may request the latest assur- ance report required by regulations 9 and 10.
(2) The information required by subclause (1)— (a) must be prepared as at the last day of the reporting period and in respect of the last reporting period; and (b) must be provided to the client not later than 20 working days after the last day of each reporting period by giving it to the client or delivering or sending it to the client’s address.
(3) In this regulation, reporting period means— (a) each period of 6 months (or any shorter period deter- mined by the custodian) for which the person is a client of the custodian; or if the person ceases to be a client of a custodian on a date within that period, the shorter period ending on that date.
(b) 6 Alternative means of providing information required by regulation 5(1) (1) A custodian does not have to comply with regulation 5(2) and (3) if the information required by regulation 5(1) is available through an electronic facility on a substantially continuous basis and— (a) the client agrees to the information being provided in that way; and (b) the client has been given access to the facility.
The information that is made available on the facility must include a statement of the date at which the information is prepared.
(2) 5 r 7 (3) 7 8 (1) Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 2014/48 For the purposes of this regulation, a reference in regulation 5(1) to a reporting period means the period— (a) beginning on the date on which the person becomes a client of a custodian; and ending on the date that is not earlier than 48 hours before the information is made available.
(b) Client request for information If a client has made a written request to the custodian for any information required by regulation 5(1), the custodian must provide the information by giving it to the client or delivering or sending it to the client’s address not later than 10 working days after the date on which the request is received.
Procedures for reconciling records For the purpose of ensuring that the custodian’s records accur- ately state the custodian’s holding of client money and client property and all transactions relating to that money and prop- erty, the custodian must— (a) take adequate steps to reconcile records of client money and client property held for each client with the overall records of client money and client property held by the custodian; and take adequate steps to reconcile records of client money and client property kept by the custodian with records kept by sub-custodians and third parties; and have in place adequate procedures for promptly iden- tifying discrepancies in those records and determining the cause of those discrepancies; and promptly and fully rectify any discrepancies referred to in paragraph (c).
(b) (c) (d) (2) The frequency of the reconciliation must be appropriate to— the type of client property to which the records relate; (a) and the frequency with which client property is traded; and the timing of any custody reports provided.

(b) (c) (3) All records of client money must be reconciled daily.
6 2014/48 Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 r 10 Custodian must obtain assurance engagement 9 (1) A custodian must obtain, within 4 months after the close of the custodian’s accounting period, an assurance engagement with a qualified auditor done in accordance with applicable auditing and assurance standards.
The custodian must,— (a) (2) within 20 working days after obtaining an assurance report, provide a copy of the report to the FMA unless the FMA waives this requirement; and at the request of a client, send the client a copy of the most recent assurance report within 10 working days after receiving the request.
(b) 10 Requirements of assurance engagement and report (1) An assurance report must state whether, in the auditor’s opin- ion,— (a) (b) the custodian’s processes, procedures, and controls were suitably designed to meet the control objectives in subclause (2) throughout the accounting period; and the custodian’s processes, procedures, and controls op- erated effectively throughout the accounting period.
(2) The control objectives are— (a) (b) (c) (d) (e) new accounts are set up completely and accurately in accordance with client agreements and any applicable regulations: complete agreements that properly authorise the hold- ing of client money and client property (authorising agreements) are established before the custodian starts providing FMCA custodial services: transactions are authorised, processed, and recorded in an appropriate, accurate, and timely manner: accounts are administered in accordance with the Act, these regulations, and authorising agreements: records and changes to records relating to FMCA cus- todial services are accurate and are kept— (i) (ii) in an appropriate and timely manner; and in accordance with the Act, these regulations, and authorising agreements: 7 r 11 Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 2014/48 (f) (g) (h) (i) there are adequate safeguards against the loss, mis- appropriation, and unauthorised use of client money and client property: sub-custodians are appropriately approved and man- aged and adequately monitored: reports to the client in respect of holdings of client money and client property— (i) (ii) are complete and accurate; and are provided within the time frames in the Act, these regulations, and client agreements: information technology systems and processes are ap- propriate to allow the custodian to accurately and reli- ably meet the objectives in paragraphs (a) to (h).
Application of sections 77P to 77T of Act and these regulations to wholesale clients Sections 77P to 77T of the Act and these regulations apply to FMCA custodial services provided by a custodian to whole- sale clients.
Subclause (1) does not apply to an FMCA custodial service if all of the clients for that service fall within 1 or more of the following categories: (a) investment businesses within the meaning of clause 37 of Schedule 1 of the Financial Markets Conduct Act 2013: large persons within the meaning of clause 39 of Sched- ule 1 of the Financial Markets Conduct Act 2013: government agencies within the meaning of clause 40 of Schedule 1 of the Financial Markets Conduct Act 2013.
In subclause (2)(b), for the purpose of applying Schedule 1 of the Financial Markets Conduct Act 2013, relevant time (as referred to in clause 39 of that schedule) must be treated as the time immediately before the client agreement for the FMCA custodial service is entered into.
(b) (c) 11 (1) (2) (3) 8 2014/48 Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 Explanatory note Transitional matters 12 13 (1) (2) Transitional provision relating information requirements In regulations 5 to 7, the information required by regulation 5(1)— (a) does not have to be provided until on or after 1 April 2015; and does not have to relate to any transactions or any entries that occurred before 1 December 2014.
(b) Application of regulations 9 and 10 Regulations 9 and 10 apply to an accounting period beginning on or after 1 April 2014.

Regulation 10(1) does not apply to the design or operation of the custodian’s processes, procedures, and controls before 1 December 2014.

Michael Webster, for Clerk of the Executive Council.

Explanatory note This note is not part of the regulations, but is intended to indicate their general effect.
These regulations, which (other than regulation 11) come into force on 1 April 2014, are made under the Financial Advisers Act 2008 (the Act).

Regulation 11 comes into force on 1 December 2014.

These regulations apply to persons (custodians) who carry on a busi- ness of providing or offering to provide custodial services in respect of client money or client property that relate to FMCA financial prod- ucts.
An FMCA financial product means any equity security, debt security, managed investment product, or derivative as each of those terms is defined in the Financial Markets Conduct Act 2013.
These regulations, in broad terms,— • require custodians to regularly provide clients with specified information relating to client money and client property; and 9 Explanatory note Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 2014/48 • • • • • allow for clients to receive that information electronically and to make written requests for that information; and provide for the reconciliation of records of client money and client property held by the custodian; and require custodians to obtain assurance engagements with qual- ified auditors and prescribe requirements that apply to an as- surance engagement; and require persons who, by virtue of section 77U of the Act, are treated as having broker obligations but do not themselves pro- vide FMCA custodial services to ensure that persons that pro- vide those services on their behalf comply with these regu- lations (for example, a provider of discretionary investment management services); and provide for the application of sections 77P to 77T of the Act and for transitional matters.
Issued under the authority of the Legislation Act 2012.

Date of notification in Gazette: 27 February 2014.

These regulations are administered by the Ministry of Business, Innovation and Employment.

12 10 Wellington, New Zealand: Published under the authority of the New Zealand Government—2014