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Financial Markets Conduct Act 2013

Governance of financial products - Governance of managed investment products - Custodianship of scheme property

156: Requirement to have supervisor or other independent person as custodian

You could also call this:

"Someone independent must safely look after the property of a registered scheme"

Illustration for Financial Markets Conduct Act 2013

When you have a registered scheme, the supervisor must look after the scheme's property. The supervisor can either hold the property themselves or contract someone else to do it, as long as that person meets certain requirements. This person must be independent and able to safeguard the property.

If the scheme does not have a supervisor, the property must be held by a body corporate that is a corporate trustee or has directors who are trustees. Alternatively, the property can be held by a person who meets the external custodianship requirements, and the manager of the scheme has contracted them to do so. This person can then contract someone else to hold the property, as long as they also meet the requirements.

To meet the external custodianship requirements, a person must be a body corporate that is believed to be appropriate to hold and safeguard the property. They must also not be the same person as, or associated with, the manager or any of the trustees. You can find more information about these requirements in the Financial Markets Conduct Act 2013 and related laws, such as the Securities Act 1986 and the Securities Markets Act 1988, which can be found on the New Zealand legislation website.

If someone contracts another person to hold the scheme property, they must ensure that person performs the function correctly and monitors their performance. They are also jointly liable with the other person for the performance of that function. However, this does not apply if the scheme property is held directly by the scheme participants.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM4091151.

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Part 4Governance of financial products
Governance of managed investment products: Custodianship of scheme property

156Requirement to have supervisor or other independent person as custodian

  1. The supervisor of a registered scheme (A) must hold the scheme property or, if authorised by the governing document, contract the holding of the scheme property to another person (B) who meets the external custodianship requirements.

  2. If there is no supervisor for the scheme (for example, in the case of a restricted scheme), the scheme property must be held in 1 of the following ways:

  3. in the case of a restricted scheme, by a body corporate that is either a corporate trustee of the restricted scheme or has, as its directors, only persons who are trustees of the restricted scheme; or
    1. by a person (B) who meets the external custodianship requirements and to whom the manager of the scheme (A), if authorised by the governing document, has contracted the holding of the scheme property.

      1. B may, if authorised in writing by A, in turn contract the holding of the scheme property to another person who meets the external custodianship requirements.

      2. To meet the external custodianship requirements, a person must—

      3. be a body corporate that A or (if B contracted the custodian) B believes, on reasonable grounds, to be appropriate to hold, and safeguard, the scheme property; and
        1. not be the same person as, or be associated with, the manager or, in the case of a restricted scheme, any of the trustees (other than by virtue of the custodianship).

          1. If a person contracts the holding of the scheme property to another person (the nominee) under this section, the person contracting out that function—

          2. must take all reasonable steps to—
            1. ensure that the function is performed by the nominee in the same manner and subject to the same duties and restrictions as if that person were performing it directly; and
              1. monitor the performance of that function; and
              2. is jointly and severally liable with the nominee (and any other person who has contracted out the function) for the performance of that function in accordance with paragraph (a).

                1. This section does not apply to the extent that scheme property is held directly by the scheme participants.

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