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Financial Markets Conduct Act 2013

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

160: Duty of supervisor to refuse to act on wrongful directions

You could also call this:

"Supervisors must refuse to follow bad instructions that break rules or harm scheme members."

Illustration for Financial Markets Conduct Act 2013

If you are a supervisor of a registered scheme, you must refuse to follow a direction from the manager if you think it would break the scheme's rules or the law. You must also tell any other custodian to refuse the direction if you think it would be very clearly not in the best interests of the people in the scheme. You have to make this decision based on what you think is best for the scheme participants.

When you make this decision, you are in charge, and any other custodian must listen to you. If you decide to refuse a direction, you must write to the manager and the Financial Markets Authority to tell them what you have decided and why.

If you refuse to follow a direction from the manager because you think it is not right, you will not get in trouble with the scheme participants or the manager for making that decision. You can find more information about this by looking at the Financial Markets Authority link, which is similar to a law from 1960.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM4091154.

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159: Custodian must report on scheme property, or

"Custodians must tell others about the scheme property they are looking after."

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"How to call a meeting with other investors in a scheme"

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

160Duty of supervisor to refuse to act on wrongful directions

  1. The supervisor of a registered scheme must refuse, and must direct any other custodian to refuse, to act on a direction of the manager that relates to the acquisition or disposal of scheme property if the supervisor considers that the proposed acquisition or disposal would be—

  2. in breach of the scheme's governing document, any rule of law, or any enactment; or
    1. manifestly not in the interests of the scheme participants.

      1. A custodian of a registered scheme must comply with any direction given to it by a supervisor under this section.

      2. If the supervisor refuses, or directs any other custodian to refuse, to act on a direction of the manager, the supervisor must notify the manager and the FMA in writing of that fact and the supervisor's reasons for the refusal or direction.

      3. A supervisor of a registered scheme, and any other custodian of the scheme, is not liable to the scheme participants or the manager for refusing, or directing any other custodian to refuse, to act on a direction of the manager in accordance with this section.

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