What has changed?
Under the Financial Advisers Act 2008 (FA Act) persons who held, transferred or made payments with client money or property on behalf of clients were referred to as brokers (or custodians). Under the new regime (Financial Markets Conduct Act 2013 (FMC Act)) persons who hold, transfer or make payments with client money or property, on behalf of clients, are referred to as a provider of client money or property services (provider). A person who holds client money or property continues to be referred to as a custodian but now also provides a client money or property service. More information regarding these changes and new terms are detailed below.
Who is a Client money or client property service provider?
A provider is defined as a financial services provider who holds, transfers or makes payments with client money or property. Client money or client property services is defined as the receipt of client money or property by a provider and includes custodial services. The full definition is set out in section 431W of the FMC Act.
The obligations of providers apply whether their services are to retail or wholesale clients. This includes custodians of client money and client property.
- Client money is money received in connection with a financial advice product
- Client property is property (other than money) that is a financial advice product or a beneficial interest in a financial advice product or received in connection with a financial advice product.
Custodial Services
A ‘custodial service’ is provided if client money or client property is held by a person in trust for, or on behalf of, a client (or another person nominated by the client) under an agreement. The full definition is set out in section 431W of the FMC Act.
Who is not a Client Money or Client Property service provider?
A client money or property service is a regulated client money or property service if the exclusions (set out below) do not apply, and in that case, certain disclosure and conduct obligations will apply. Other disclosure, conduct and money handling obligations apply to all providers.
Client money or property service exclusions
Services given in course of carrying out other occupations or given in the ordinary course of the business for certain entities are not regulated client money or property services.
These include:
- Lawyers, incorporated law firms, conveyancing practitioners, qualified statutory accountant, 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.
The simple transmission of a non-transferable instrument payable to another person is not considered to be a client money or property service
For a detailed list of those services and entities that are seen as not providing a regulated client money or property service please see clauses 19 to 23 of Schedule 5 of the FMC Act.
Custodians of financial products
Under the Financial Markets Conduct Amendment Regulations 2020 (FMC Amendment Regulations), regulations 229P to 229V apply to a person who provides relevant custodial services to a client.
These regulations do not apply to any of the following:
- They hold client money or property solely for the purpose of completing a transaction, securing an obligation, or both.
- The custodian and all their associates provide the services to no more than five clients in aggregate.
- 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.
- 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 in respect of a person's assets;
- A sub-custodian acting in that capacity.
