New Guidance for Client Money and Property Services Brokers

Highlights:

• Direct Reporting: Custody reports must be sent directly to clients, not intermediaries.
• Secure Platforms: Electronic reporting platforms must be secure and tamper-proof.
• Custodian Obligations: Enhanced responsibilities for custodians include audits, client reporting, and reconciliations.

FMA Issues Updated Guidelines

The Financial Markets Authority (FMA) has introduced updated guidance for brokers and custodians managing client money or property under the Financial Markets Conduct Act (FMC Act). This new guidance, released on July 25, 2024, replaces the FMA's 2014 guidance note to better align with the current regulatory framework.

Addressing Previous Issues

The updated note stems from issues identified during monitoring visits and misconduct cases. The FMA engaged in thorough consultations with providers and custodians to finalize the new guidelines. Under the FMC Act, a 'provider' is defined as a financial service provider who manages client money or property, replacing the 'broker' designation from the old Financial Advisers Act 2008.

Enhanced Responsibilities for Custodians

The guidance introduces additional responsibilities for custodians, who are distinct from brokers in that they hold client assets rather than merely executing transactions. Custodians are now required to adhere to specific obligations, including audit and assurance engagements, detailed client reporting, and regular reconciliations.

Key Takeaways

The new guidance outlines several important points for providers and custodians:

• Direct Client Reporting: Custody reporting must be sent directly to clients via an address they choose, not to financial advisers or other intermediaries.
• Secure Electronic Platforms: If reporting is conducted electronically, the platform must either be managed by the custodian or have robust controls to prevent alterations by third parties.
• Verifying Electronic Addresses: The FMA suggests measures for providers and custodians to verify clients' electronic addresses to ensure secure communication.
• Exclusions for Brokers: The guidance clarifies that the client money and property rules do not apply to brokers under the Insurance Intermediaries Act 1994, reaffirming that non-IAA brokers are not considered client money or property service providers.

This comprehensive update aims to strengthen the integrity and transparency of financial services, ensuring better protection for clients and clearer obligations for providers and custodians.

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