ASIC RG 133 — ASIC Regulatory Guide – RG 133 Funds management and custodial services: Holding assets

Page 1 REGULATORY GUIDE 133 Funds management and custodial services: Holding assets December 2024 About this guide This guide is for:  responsible entities of registered managed investment schemes (registered schemes);  licensed providers of custodial services (licensed custody providers);  managed discretionary account (MDA) providers that are responsible to clients for assets held under an MDA; and  investor directed portfolio service (IDPS) operators that are responsible to clients for assets held under an IDPS. It explains the Australian financial services (AFS) licence obligations that apply to these entities in relation to holding assets and sets out minimum standards for asset holders. Page 2 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 2 About ASIC regulatory documents In administering legislation ASIC issues the following types of regulatory documents. Consultation papers: seek feedback from stakeholders on matters ASIC is considering, such as proposed relief or proposed regulatory guidance. Regulatory guides: give guidance to regulated entities by:  explaining when and how ASIC will exercise specific powers under legislation (primarily the Corporations Act)  explaining how ASIC interprets the law  describing the principles underlying ASIC’s approach  giving practical guidance (e.g. describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Reports: describe ASIC compliance or relief activity or the results of a research project. Document history This guide was issued in December 2024 and is based on legislation and regulations as at the date of issue. In April 2026, we made amendments to reflect renamed Regulatory Guide 181 AFS licensing: Managing conflicts of interest (RG 181). Previous versions:  Superseded Regulatory Guide 133 Funds management and custodial services: Holding assets, issued July 2018 and June 2022  Superseded Regulatory Guide 133 Managed investments and custodial or depository services: Holding assets, issued November 2013  Superseded Policy Statement 133 Managed investments: Scheme property arrangements, issued August 1998, reissued October 1998 and June 1999, rebadged as a regulatory guide 5 July 2007 Disclaimer This guide does not constitute legal advice. We encourage you to seek your own professional advice to find out how the Corporations Act and other applicable laws apply to you, as it is your responsibility to determine your obligations. Page 3 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 3 Contents A Overview .................................................................................................4 Purpose of this guide ...............................................................................4 Who this guide applies to.........................................................................5 Summary of our guidance........................................................................6 B Minimum standards and related requirements for asset holders.......8 Specific obligations for registered schemes ............................................8 Obligations for all asset holders who are licensed to hold assets ...........9 Obligations for all AFS licensees who engage asset holders..................9 What are the minimum standards and related requirements? ..............10 Organisational structure.........................................................................12 Staffing capabilities ................................................................................14 Capacity and resources .........................................................................14 Holding assets on trust ..........................................................................16 Keeping compliance records .................................................................17 Making client inquiries ...........................................................................17 C Requirements when engaging another asset holder .......................19 Specific obligations for registered schemes ..........................................19 Obligations for all AFS licensees who engage asset holders................19 Ensuring the asset holder meets the minimum standards ....................20 Requirements for the content of custody agreements ...........................23 Disclosure to retail clients of relationship with asset holder ..................31 Transfer of assets when asset holder is changed .................................32 D Compliance controls for licensed custody providers .....................33 Compliance controls must cover risks to client assets ..........................33 Compliance controls may vary...............................................................33 E Protection of rights for land used in registered schemes ...............35 Protecting members’ rights ....................................................................35 F Holding crypto-assets .........................................................................38 Risk management by asset holders regarding crypto-asset exchanges used to obtain crypto-assets ...............................................40 G Relief from the obligation to separate assets ...................................42 Specific obligations for registered schemes ..........................................42 Obligations for other AFS licensees who are asset holders ..................42 Relief for omnibus accounts ..................................................................42 Relief does not extend to non-financial assets ......................................45 Key terms .....................................................................................................46 Related information .....................................................................................51 Page 4 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 4 A Overview Key points This guide explains: • the obligations that apply to responsible entities of registered managed investment schemes (registered schemes), licensed providers of custodial services (licensed custody providers), managed discretionary account (MDA) providers and investor directed portfolio service (IDPS) operators in relation to holding assets; • the minimum standards and related requirements for asset holders; • what responsible entities, licensed custody providers, MDA providers and IDPS operators must do if they engage another asset holder; • the requirements for documented compliance controls; • the additional requirements that apply to primary production schemes that include rights for the use of land; • the limited relief we have given responsible entities of registered schemes from the obligation to separate assets to allow the use of omnibus accounts, and the requirements that apply when other Australian financial services (AFS) licensees use omnibus accounts; and • ASIC’s expectations regarding holding crypto-assets where the scheme property of a registered scheme includes crypto-assets, or a custodian holds crypto-assets that are financial products. Purpose of this guide RG 133.1 This guide sets out minimum standards for asset holders to ensure that they meet their obligations under their AFS licence or delegation. RG 133.2 We consider that clients’ confidence will be better maintained if asset holders, including non-licensees who hold assets under the licence of their client, are required to meet minimum standards to ensure that: (a) client assets are not exposed to unnecessary risks because of the way assets are held; and (b) efficient operational arrangements exist for holding and dealing with client assets. RG 133.3 The minimum standards will help maintain client confidence in the provision of the relevant services and to promote a fair and efficient market for the provision of asset-holding services. Page 5 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 5 Who this guide applies to RG 133.4 This guide is for: (a) responsible entities of registered schemes; (b) licensed custody providers and, where relevant, entities that provide custodial services incidentally; (c) MDA providers that are responsible to clients for assets held under an MDA; (d) IDPS operators that are responsible to clients for assets held under an IDPS; and (e) other asset holders who hold assets under the licence of their client. Note: For the purposes of this guide, we are excluding from the definition of ‘asset holders’ persons who must be, or are customarily, used to clear, settle or hold assets to participate in particular kinds of transactions on financial markets, such as certain securities depositories and clearing systems. RG 133.5 This guide applies to registered schemes that are also registered as Australian passport funds for the purposes of the Asia Region Funds Passport. RG 133.6 This guide does not apply to the corporate director of a corporate collective investment vehicle (CCIV), a CCIV or a custodian engaged by the corporate director or CCIV. However: (a) where the assets of the CCIV are held by the CCIV, the corporate director may wish to consider the principles set out in this guide; and (b) where the assets of the CCIV are held by a person other than the CCIV, the corporate director may wish to consider the principles set out in this guide when assessing whether that person has met the minimum standards in reg 8B.5.10(2) of the Corporations Regulations 2001 (Corporations Regulations). Note: In this guide, references to sections (s), chapters (Chs) and parts (Pts) are to the Corporations Act 2001 (Corporations Act), unless otherwise specified. References to regulations (reg) are to the Corporations Regulations 2001 , unless otherwise specified. Services that form part of a custodial service RG 133.7 The minimum standards and related requirements apply to all asset holders. This is regardless of whether the services are provided as a main business of the provider or as an incidental provider. In some cases, the nature and scale of the services provided may affect what is required to meet the minimum standards. Note: For an explanation of ‘incidental providers’, see Regulatory Guide 166 AFS licensing: Financial requirements (RG 166). Page 6 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 6 RG 133.8 We consider that services performed as a result of holding financial products, or a beneficial interest in financial products, when providing a custodial service are a part of holding the assets and so form part of the custodial services. On this basis, the following services form part of the custodial services when provided in that way: (a) Exercising rights as a holder—this involves exercising the rights and obligations associated with assets held that are interests or securities, other than dealing in the assets. For example, this applies to: (i) exercising voting rights arising from a reorganisation or restructure; (ii) electing to participate in dividend or distribution reinvestment plans; and (iii) electing to accept offers made on the basis of holding the assets, such as certain placements and rights issues. (b) Tax reclamations—this involves reclaiming recoverable portions of tax withheld by foreign taxation authorities from interest or dividend payments on investments held. (c) Reconciliations—this involves reconciling the asset holder’s own records of its holdings against the records of various third parties, such as fund managers, banks and other custodians. (d) Record keeping and reporting—this involves maintaining statements of holdings and completed transaction reports, and keeping records of valuations provided to the asset holder. RG 133.9 This list is not exhaustive. Other services may be provided from time to time that may be considered to form part of the provision of a custodial service. RG 133.10 Other services that may be provided by licensed custody providers include: (a) fund accounting; (b) unit pricing and determining asset values and net asset values; (c) compliance monitoring and reporting; (d) maintaining and operating a basic deposit product; and (e) performance measurement and monitoring. Note: Information Sheet 141 Dealing and providing custodial or depository service as secondary service (INFO 141) may also be relevant in determining whether a person is providing a custodial service and subject to this guide. Summary of our guidance RG 133.11 Table 1 summarises the sections of this guide and who each section applies to. The minimum standards and related requirements in relation to asset holding Page 7 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 7 set out in this guide apply to entities in their capacity as asset holders or when engaging an asset holder. Table 1: Summary of our guidance Section of this guide Applies to Section B: Minimum standards and related requirements for asset holders The following entities who hold assets:  responsible entities of registered schemes;  licensed custody providers;  MDA providers;  IDPS operators; and  other asset holders holding assets under the licence of their client Section C: Requirements when engaging another asset holder The following entities who engage asset holders:  responsible entities of registered schemes; Note: Under the Australian Passport Rules, the operator of a registered scheme that is registered as an Australian passport fund for the purposes of the Asia Region Funds Passport is required to appoint an independent asset holder.  licensed custody providers;  MDA providers;  IDPS operators; and  other asset holders holding assets under the licence of their client Section D: Compliance controls for licensed custody providers Licensed custody providers Note: For information on compliance controls for registered schemes, see Regulatory Guide 132 Funds management: Compliance and oversight (RG 132). Section E: Protection of rights for land used in registered schemes Responsible entities of registered schemes whose members require the use of particular land on which the scheme will occur Section F: Holding crypto assets  Responsible entities of registered schemes where the scheme property includes, or comprises, crypto-assets; and  custodians of crypto-assets that are financial products Section G: Relief from the obligation to separate assets Responsible entities, licensed custody providers, MDA providers and IDPS operators, in relation to holding assets Page 8 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 8 B Minimum standards and related requirements for asset holders Key points An asset holder must meet minimum standards and related requirements if it holds, directly or indirectly, the assets of a registered scheme, MDA or IDPS. If a responsible entity, licensed custody provider, MDA provider or IDPS operator engages another asset holder it must also ensure that the asset holder, including an asset holder who holds assets under its AFS licence, meets these minimum standards: see Section C. To meet the minimum standards, asset holders must: • have an adequate organisational structure (see RG 133.34–RG 133.43; • have adequate staffing capabilities (see RG 133.44–RG 133.47); • have adequate capacity and resources to perform core administrative activities (see RG 133.48–RG 133.50); and • hold assets on trust for the client, which includes the obligation to separate assets (see RG 133.51–RG 133.54). An asset holder must keep records for seven years demonstrating compliance with the minimum standards for organisational structure, staffing capabilities, and capacity and resources: see RG 133.55. We expect an asset holder that is an AFS licensee to conduct checks on its clients before providing the service and then, as appropriate, to ensure that it meets its obligations: see RG 133.56–RG 133.59. Specific obligations for registered schemes RG 133.12 The responsible entity of a registered scheme must hold scheme property on trust for members: see s601FC(2). RG 133.13 Under s601FB(2), the responsible entity has the power to appoint an agent, or otherwise engage a person, to do anything that the responsible entity is authorised to do in relation to the scheme, including holding scheme property. RG 133.14 The agent, or person otherwise engaged, must comply with any directions of the responsible entity in performing the delegated function or exercising the delegated power. RG 133.15 A responsible entity or another person engaged by it to hold assets of a registered scheme does not need to hold an AFS licence authorising it to provide a custodial service for this purpose. This is because holding those assets is not a custodial service under s766E(3)(b). Holding assets is a part of the operation of the registered scheme by the responsible entity. Page 9 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 9 Note: We do not consider that a controlled sub-trust is a separate scheme. This is because the members (e.g. the responsible entity as trustee) have day-to-day control over the sub-trust. We consider that any property held through a controlled sub-trust is scheme property of the registered scheme that controls the sub-trust. As such, we will regard the sub-trustee of a controlled sub-trust as a custodian who must comply with the standards and requirements in Section C. Obligations for all asset holders who are licensed to hold assets RG 133.16 An asset holder who is licensed to hold assets must: (a) do all things necessary to ensure that it carries on the financial services for which it is licensed efficiently, honestly and fairly; Note: An MDA provider must be a licensed custody provider unless another licensed custody provider directly contracts with all retail clients to be the asset holder (see Regulatory Guide 179 Managed discretionary accounts (RG 179)). (b) demonstrate that it meets the minimum standards and related requirements set out in Section B of this guide, including when it applies for an AFS licence to hold assets; and Note: The minimum standards apply while the assets are held. (c) meet any other obligations that apply to its AFS licence. Note: For information on obligations that apply to an AFS licensee, see Regulatory Guide 104 AFS licensing: Meeting the general obligations (RG 104) and Regulatory Guide 105 AFS licensing: Organisational competence (RG 105). Obligations for all AFS licensees who engage asset holders RG 133.17 If an AFS licensee engages another asset holder, it must do all things necessary to ensure that the asset holder meets the minimum standards and related requirements. This includes an asset holder who holds assets under the AFS licensee’s licence. Note: See Section C for more information on the obligations that apply to AFS licensees who engage another asset holder. Engaging non-licensees RG 133.18 An asset holder engaged by an AFS licensee may or may not be an AFS licensee itself. If the asset holder is providing a financial service to clients on the AFS licensee’s behalf, it will generally need to be an authorised representative of the AFS licensee, exempted from holding an AFS licence, or acting on behalf of another AFS licensee: see s911B(1). RG 133.19 An asset holder engaged by an AFS licensee may also be providing a financial service to the AFS licensee. The client who is provided with a Page 10 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 10 custodial service is the person on whose behalf the financial products are held, or for whom the financial products are held on trust. Depending on the terms of the arrangement, a person who contracts with a provider of a custodial service may be the client of that service or merely a person who is arranging for the service to be provided to another person. If the AFS licensee is the client, the asset holder may not need an AFS licence to hold the client assets that are financial products or beneficial interests in financial products, provided that the requirements in reg 7.6.01(1)(k) are satisfied. RG 133.20 The exemption under reg 7.6.01(1)(k) may be relevant to sub-custodians and applies if: (a) the asset holder holds the financial products on trust for, or on behalf of, a licensed custody provider; and (b) the licensed custody provider in turn holds the beneficial interest on trust for, or on behalf of, the client of the licensed custody provider. RG 133.21 This exemption takes into account the responsibility of an AFS licensee who holds the beneficial interest in the financial products, which may be a financial service provided to the person for whom the beneficial interest is held. This is to ensure that the holder of the financial products meets appropriate standards. The minimum standards for asset holders also reflect this responsibility by applying to AFS licensees that directly or indirectly engage other entities as asset holders of client assets. Ensuring that asset holders meet the minimum standards helps AFS licensees meet their broader AFS licensee obligations and safeguards clients’ interests. What are the minimum standards and related requirements? RG 133.22 All asset holders must: (a) have an adequate organisational structure (see RG 133.34–RG 133.43); (b) unless they engage another asset holder to hold all relevant assets— have adequate staffing capabilities (see RG 133.44–RG 133.47); (c) unless they engage another asset holder to hold all relevant assets— have adequate capacity and resources to perform core administrative activities (see RG 133.48–RG 133.50); and (d) hold assets on trust for the client, which includes the obligation to separate assets (see RG 133.51–RG 133.54). RG 133.23 These minimum standards and related requirements apply when: (a) the asset holder is the responsible entity, licensed custody provider, MDA provider or IDPS operator, or another asset holder holding assets under the AFS licence of its client; (b) the asset holder is engaged by the responsible entity, licensed custody provider, MDA provider or IDPS operator; or Page 11 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 11 Note: See Section C for more information on when another asset holder is engaged. If an asset holder engages another asset holder, it must ensure that the engaged asset holder meets the minimum standards. (c) the custodial services are provided as a main business of the provider or merely incidentally (see RG 133.7–RG 133.10). RG 133.24 The minimum standards are set out in the following legislative instruments, which modify the Corporations Act: (a) ASIC Corporations (Asset Holding Standards for Responsible Entities) Instrument 2024/16; (b) ASIC Corporations (Custody Standards for Providers of Custodial and Depository Services) Instrument 2024/17; (c) ASIC Corporations (Managed Discretionary Account Services) Instrument 2016/968; and (d) ASIC Corporations (Investor Directed Portfolio Services) Instrument 2023/669. Note: The application of the minimum standards by legislative instrument replaces the AFS licence conditions in Pro Forma 209 Australian financial services licence conditions (PF 209). PF 209 has been amended accordingly. RG 133.25 A responsible entity, licensed custody provider, MDA provider or IDPS operator that engages an asset holder to hold assets must keep records demonstrating compliance with the minimum standards for organisational structure, staffing capabilities, and capacity and resources: see RG 133.55. These records must be kept for seven years. RG 133.26 We expect asset holders that are AFS licensees to conduct checks on their clients before providing the service and then, as appropriate, to ensure that the asset holder will meet its AFS licensee obligations: see RG 133.56– RG 133.59. Meeting the minimum standards and related requirements RG 133.27 All asset holders must meet these minimum standards and related requirements, as set out in Section B. RG 133.28 In some cases, the nature and scale of the services provided may affect what is required to meet the minimum standards. An asset holder’s arrangements for meeting the minimum standards may vary depending on the particular assets being held. We have not prescribed specific arrangements for different asset holders. RG 133.29 We expect that an asset holder will seek independent verification of: (a) the robustness of its compliance controls that apply to the asset holding, taking into account the nature of the assets; and Page 12 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 12 (b) in the case of a registered scheme, whether the asset holder is the responsible entity or a related party of the responsible entity. RG 133.30 A responsible entity, licensed custody provider, MDA provider or IDPS operator must establish adequate procedures for giving instructions to: (a) if it is the asset holder, its custody staff; or (b) if it has engaged an asset holder, the asset holder. RG 133.31 It must ensure that the associated risks are managed appropriately and reasonable compliance controls are in place to ensure the instructions are followed. It should consider relevant industry best practice for providing instructions, including data, when establishing its procedures for interacting with the asset holder. RG 133.32 A responsible entity must set out in writing and implement a reasonable process for determining: (a) whether it should hold assets or scheme property that it is permitted to hold; or (b) if it will engage another person as asset holder, which asset holder and on what terms. RG 133.33 The process must apply a reasonable written policy approved by the directors of the responsible entity. The written policy must address the potential conflicts of interest and other considerations relevant to the best interests of members. Organisational structure RG 133.34 An asset holder must have an organisational structure that supports the separation of the assets held from its own assets and those of any other client or managed investment scheme. The exception to this is omnibus accounts: see Section G. We consider that the use of nominee companies is a means of separating client assets. RG 133.35 The requirements for organisational structure do not apply when all the financial products or beneficial interests in financial products in which the asset holder has an interest are held by another person that it appoints. However, in that case the asset holder must still ensure that it has appropriate controls to appoint and monitor delegates and that its arrangements for managing conflicts arising from this function are adequate. We encourage asset holders to separate staff responsible for appointing and monitoring sub-custodians from staff involved in investment management decisions. The asset holder also has an obligation to ensure sub-custodians comply with Page 13 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 13 the organisational structure requirements. An exception applies for assets outside Australia, if this is not reasonably practicable. RG 133.36 Asset holders must ensure that custodial staff and their managers are segregated from staff performing other functions in a way that minimises the potential for a conflict of interest arising between: (a) the duties of custodial staff; and (b) the duties and interests of persons who make investment decisions, trading decisions or other discretionary decisions resulting in the transfer or disposal of client assets. RG 133.37 The exception to this is discretionary decisions on certain at-call deposit accounts with regulated deposit takers and foreign exchange transactions. RG 133.38 This is particularly important where the asset holder is the responsible entity, MDA provider or IDPS operator performing transactional functions, or a related body corporate. RG 133.39 Custodial staff and other staff involved in these discretionary decisions must be located sufficiently separately to reduce, as far as is reasonably practicable, the risk of inappropriate influence on decisions relating to holding client assets. RG 133.40 In addition, asset holders must have a documented policy designed to ensure that custodial staff are not influenced to act other than in accordance with their duties because of a conflict of interest. The policy must be approved by: (a) the asset holder’s directors or governing body; (b) a senior manager authorised to give approval (by the directors or governing body); or (c) for an AFS licensee that is a foreign company, its senior officer in Australia. RG 133.41 The asset holder must undertake reasonable checks to ascertain and document whether there has been any attempt to inappropriately influence custodial staff, and must take reasonable action if this occurs. Note: Where the asset holder is an AFS licensee, it also has a general obligation to have adequate arrangements to manage its conflicts of interest. For information on managing conflicts of interest, see Regulatory Guide 181 AFS licensing: Managing conflicts of interest (RG 181). RG 133.42 Reporting lines must be independent of potentially conflicting activities up to the level of the managing director or senior officer in Australia. An asset holder must have arrangements that ensure custodial staff who are not involved in potentially conflicting activities can report directly, or through other custodial staff: (a) to the board of directors or governing body of the client; Page 14 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 14 (b) for a registered scheme with a compliance committee—to the committee; or (c) for non-Australian clients—to the most senior officer of the client in Australia, or the relevant foreign jurisdiction in which the assets are held. RG 133.43 An asset holder’s organisational structure must ensure that custodial staff can report directly to the directors of the asset holder or, in the case of a responsible entity, the compliance committee. This can be directly or through other custodial staff. The custodial staff and their managers must not also be responsible for investment decisions, trading decisions or other discretionary decisions resulting in the transfer or disposal of client assets. The exception to this is discretionary decisions on holding certain at-call deposit accounts with regulated deposit takers and foreign exchange transactions. Staffing capabilities RG 133.44 Custodial staff must have the knowledge and skills necessary to properly perform their functions relating to the custodial property. The asset holder must provide adequate ongoing training and educational programs so that staff knowledge remains at a level necessary for performing their assigned responsibilities. The training must cover the asset holder’s legal obligations, to the extent relevant to enable the staff members to perform their particular responsibilities relating to custodial property. RG 133.45 Responsible entities, licensed custody providers, MDA providers and IDPS operators have obligations to conduct ‘know your staff’ risk-based due diligence inquiries under the Anti-Money Laundering and Counter- Terrorism Financing Act 2006 (AML/CTF Act). RG 133.46 In addition to these inquiries, we expect that résumé, police and reference checks would be carried out, where appropriate. We also expect appropriate oversight to be applied, to address the risk of fraud and any other risks in relation to the asset holding (including exercising rights as holder) that might arise from the engagement of an employee. RG 133.47 We expect an asset holder to assess the risks associated with the various employee functions within its organisation, and design measures that it considers are appropriate to the nature of the risks faced by it in relation to potential fraud (e.g. mandatory absence periods, dual approval processes, staff rotation and ‘maker/checker’ processes). Capacity and resources RG 133.48 An asset holder’s staff must have the necessary time and authority to perform their duties associated with holding client assets. This will vary, depending on the nature of the assets. Page 15 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 15 RG 133.49 The asset holder must make resources available to custodial staff, including in specialist areas, to the extent necessary for them to adequately perform their duties. This is likely to include: (a) computer systems that are reasonably up to date and secure from any actual or potential threats, including from fraud; (b) systems capable of handling record keeping and transaction processing appropriate to the volume of transactions and capable of reliably identifying assets for each client, particularly when omnibus accounts are used; (c) systems capable of handling client instructions for assets held (e.g. exercising voting rights or other rights conferred on the asset holder on client instructions); (d) procedures for accurately recording all client assets held, all movements of those assets and evidence of authorisation for such movements. This includes who gave authorisation, how and when, and all income and other related administrative activities; (e) access to information sources that may be relevant to being aware of action that may be taken in exercising rights as an asset holder and pricing information; (f) memberships at central securities depositories, where relevant to client assets; (g) access to and, if necessary, membership of any relevant settlement and clearance systems; (h) where appropriate, access to relevant and appropriate domestic or global sub-custodial networks; (i) where physical assets are held, secure physical storage; (j) appropriate business continuity and disaster recovery procedures; and Note: AFS licensees that are bodies regulated by the Australian Prudential Regulation Authority (APRA) are excluded from the requirement in s912A(1)(h) to have risk management systems. However, responsible entities that are trustees of regulated superannuation funds must meet the requirement in s912A(1)(h), except for risks arising solely from the operation of the regulated superannuation fund by the trustee. (k) appropriate systems and procedures for change management. RG 133.50 In all circumstances, such systems, processes and procedures should ensure that opportunities for fraud and operational error are reduced as far as reasonably practicable. As part of having adequate risk management arrangements for AFS licensees to whom that requirement applies, we expect that: (a) AFS licensees that are responsible for giving instructions on the use of assets where high-volume transactions are likely to occur will ensure that automated systems are used to authenticate instructions. However, we recognise that there may be exceptional circumstances where it is only practical to use manual systems; and Page 16 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 16 (b) asset holders will have reasonable capacity to accept and act on instructions through such processes. Holding assets on trust RG 133.51 Responsible entities, licensed custody providers, MDA providers and IDPS operators must do all things necessary to ensure that they, and any other asset holder they engage, hold the relevant assets on trust. This is except for assets held: (a) outside of Australia where a trust structure is not recognised under the foreign law and it is reasonable to hold the assets in accordance with the foreign law; (b) outside of Australia where it is not reasonable to hold the assets on trust under the foreign law and the client has documented that they are satisfied that the assets are held in a manner that, given the relevant laws, provides reasonably effective protection in case of insolvency of the asset holder. This includes the basis on which the asset holder is satisfied; (c) under the requirements for omnibus accounts; or Note: See Section G for information on omnibus accounts. (d) if the asset holder is providing a custodial service through its authorised representative, where: (i) the asset holder is liable to the client for the acts and omissions of the authorised representative as if they were the acts or omissions of the asset holder; and (ii) revenue received from the client in relation to the provision of the custodial service is revenue of the asset holder. Note: The conditions in RG 133.51(d) avoid the application of regulatory requirements that could create an incentive for an asset holder to engage an authorised representative to hold the assets on its behalf. RG 133.52 The trust may be a bare trust or directed trust. A directed trust is held on the basis that the asset holder holding the assets will have no active powers and limited duties in relation to the trust assets, except as provided for in the custody agreements. RG 133.53 In the case of a deposit-taking facility, the rights under the facility (rather than any money that has been deposited in the account) are the client assets. It is these rights that should be held on trust. For example, this can be achieved by establishing the account on the basis that the account is recorded in the issuer’s records as ‘X Ltd as trustee for Y registered scheme’. In this example, X Ltd may be the responsible entity or a custodian. We consider an issuer of a deposit-taking facility cannot hold the facility on trust. Page 17 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 17 RG 133.54 Except where permitted for certain omnibus accounts, an asset holder must also: (a) identify the assets, as far as is reasonably practicable, that are held for a client; and (b) keep the assets of a client held on trust separate from the assets of: (i) the asset holder; and (ii) any other person or scheme (in the case of managed investment schemes). Keeping compliance records RG 133.55 An asset holder must keep records demonstrating how it has done all things necessary to ensure the minimum standards are met for organisational structure, staffing capabilities, and capacity and resources (as set out in RG 133.34– RG 133.50). These records must be kept for seven years. Making client inquiries RG 133.56 Businesses regulated under the AML/CTF Act have obligations to conduct certain ‘know your client’ risk-based due diligence inquiries, to the extent that they are ‘designated service providers’ under the AML/CTF Act. RG 133.57 In addition, we expect asset holders that are AFS licensees to conduct pre- contract inquiries—and subsequent inquiries, when appropriate—about their clients. In conducting these inquiries, we expect the asset holder to take into account the client’s circumstances and other circumstances. These inquiries will help ensure that AFS licensees meet their obligations to provide financial services efficiently, honestly and fairly. They will also reduce the risk of unexpected differences in capabilities or service requirements, which could lead to potentially avoidable operational risks and other issues. Such inquiries may form part of the adequate risk management systems that AFS licensees must have in place under s912A(1)(h). Note: Bodies regulated by APRA are excluded from the requirement in s912A(1)(h) unless they are responsible entities that are also trustees of regulated superannuation funds (in which case, the exclusion is limited to risks arising solely from the operation of a regulated superannuation fund by the trustee). RG 133.58 These inquiries may also produce information that forms part of the factual background against which the AFS licensee can meet its obligations to report to ASIC in certain circumstances. RG 133.59 We suggest that asset holders engaged to provide services to another person consider making the following inquiries about their clients: (a) when assets are to be held by the asset holder—identification of these assets (from at least the client), clarification of the sources of pricing for Page 18 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 18 assets that are to be applied by the asset holder, and reconciliation of holdings against relevant counterparties (such as unit registries) and on transition from a retiring asset holder; (b) when acting as a licensed custody provider—verification of the wholesale status of the client, unless the licensed custody provider complies on the basis that the client is a retail client; (c) review of the scope of the business and breadth of the operation for which custody is provided, including what assets the asset holder may be called on to hold and what transactions it may be called on to undertake; (d) understanding the process for provision of instructions to the asset holder, including from a third-party fund manager or investment administrator; (e) an assessment of whether the asset holder is able to carry out the mandate of the client (e.g. can the asset holder hold the type of assets involved and provide the reporting required by the client for these assets?); and (f) review of public registers concerning a corporate client’s status and licences. Page 19 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 19 C Requirements when engaging another asset holder Key points Responsible entities, licensed custody providers, MDA providers or IDPS operators that arrange for another person to hold client assets must take certain steps to protect clients. When engaging an asset holder, they must: • ensure that they have a basis to be confident that the asset holder will meet the minimum standards in Section B, and document how they do this; and • monitor ongoing compliance with the minimum standards and deal appropriately with any deficiencies that arise (see RG 133.65– RG 133.80). They must ensure that there is a legally enforceable agreement, which addresses certain issues, with any asset holder they engage (see RG 133.81–RG 133.108) or any master custodian they engage (see RG 133.120–RG 133.123). The agreement must also address certain issues: see RG 133.109– RG 133.119. For retail clients, we expect the engagement of the asset holder to be disclosed and the role of the asset holder to be properly explained: see RG 133.124–RG 133.125. If a responsible entity changes the asset holder, it must consider whether it is appropriate to obtain an independent report on the transfer of assets: see RG 133.126. Specific obligations for registered schemes RG 133.60 The responsible entity of a registered scheme has power to appoint an asset holder to hold scheme property under s601FB(2). RG 133.61 A responsible entity that engages an asset holder to hold scheme property is liable to members for the acts and omissions of the asset holder under s601FB(2). Obligations for all AFS licensees who engage asset holders RG 133.62 An AFS licensee may engage another asset holder because: (a) it is not permitted to hold assets: (i) under its AFS licence (e.g. because it cannot meet the financial requirements in RG 166); or Page 20 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 20 (ii) under the Australian Passport Rules; or Note: The Australian Passport Rules are the Corporations (Passport) Rules 2018 made under s1211(1) and 1211A by the Australian Minister responsible for the Asia Region Funds Passport. Under s1211(2), the Australian Passport Rules must be substantially the same as the Passport Rules set out in Annex 3 to the Memorandum of Cooperation on the Establishment and Implementation of the Asia Region Funds Passport (Memorandum of Cooperation). (b) it does not wish to be an asset holder for the relevant assets. If a responsible entity engages another asset holder because it does not meet the financial requirements under ASIC Corporations (Financial Requirements for Responsible Entities, IDPS Operators and Corporate Directors of Retail CCIVs) Instrument 2023/647, it must ensure that all the relevant assets are held by another person. This is apart from any exceptions permitted under ASIC Instrument 2023/647. For responsible entities, these exceptions are ‘Tier $500,000 class assets’ and ‘special custody assets’. Note: For definitions of these terms, see ASIC Instrument 2023/647 and RG 166. RG 133.63 A responsible entity, licensed custody provider, MDA provider or IDPS operator must also ensure that client assets are held on trust and segregated from: (a) its own property; and (b) in the case of a registered scheme—the property of any other scheme. Note: Omnibus accounts are excepted from this requirement (see Section G). RG 133.64 If a person applies for an AFS licence as a responsible entity, licensed custody provider, MDA provider or IDPS operator and plans to engage another asset holder, it will need to demonstrate that it will ensure that any asset holder that holds client assets on its behalf meets the minimum standards in Section B. Ensuring the asset holder meets the minimum standards RG 133.65 The minimum standards in Section B apply to all asset holders. This is regardless of whether the asset holder is engaged by a responsible entity, licensed custody provider, MDA provider or IDPS operator directly or is a sub-custodian engaged by another person (a master custodian) authorised by the responsible entity, licensed custody provider, MDA provider or IDPS operator. The minimum standards also apply if there are further links in a chain (e.g. in the case of a sub-sub-custodian). RG 133.66 A responsible entity, licensed custody provider, MDA provider or IDPS operator does not routinely need to explain to us how its choice of asset holder or master custodian will meet the minimum standards when it applies for an AFS licence or otherwise. However, when applying for an AFS Page 21 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 21 licence it will need to explain the process it will use. If the responsible entity, licensed custody provider, MDA provider or IDPS operator plans to engage another person as asset holder directly, or indirectly through a master custodian, it must be able to demonstrate how it will: (a) ensure any asset holder that is engaged meets the minimum standards; (b) monitor ongoing compliance with the minimum standards and deal with any deficiencies that arise; and (c) achieve the outcomes in RG 133.66(a)–RG 133.66(b) where the assets are outside Australia, except where exceptions are recognised. RG 133.67 Where appropriate, the responsible entity, licensed custody provider, MDA provider or IDPS operator may be able to meet the obligations in RG 133.66 in relation to an asset holder that is appointed by a master custodian by seeking appropriate information or assurance from the master custodian. RG 133.68 To check compliance, we may ask for written evidence at any time about how the responsible entity, licensed custody provider, MDA provider or IDPS operator is satisfied that a particular person should be appointed or remain as the asset holder. RG 133.69 A responsible entity, licensed custody provider, MDA provider or IDPS operator must ensure that any relevant master custodian has adequate processes. This includes adequate processes for selecting, monitoring and reviewing any other person engaged as asset holder (even if the asset holder is a related party) and taking appropriate action on any deficiency of performance. RG 133.70 Key processes must be documented. This includes the processes the responsible entity, licensed custody provider, MDA provider or IDPS operator has followed or will follow for appointing, monitoring and reviewing the activities of the asset holder or master custodian. Where they engage an asset holder that is a related party, they must have adequate arrangements to manage any conflicts of interest under s912A(1)(aa) to ensure that it meets all its obligations. This includes its obligation to ensure that the minimum standards are met. Note: For more information on managing conflicts of interest, see RG 181. Selecting an asset holder RG 133.71 A responsible entity, licensed custody provider, MDA provider or IDPS operator must follow a reasonable documented process in selecting an appropriate asset holder or master custodian. We expect it will consider, for example: (a) the adequacy of financial, human and technological resources, and risk management systems of the asset holder; and Page 22 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 22 (b) where it engages a master custodian—the basis on which the master custodian will engage any sub-custodian. RG 133.72 For a responsible entity, licensed custody provider, MDA provider or IDPS operator, the engagement must be in accordance with a documented policy approved by the directors. The policy must address any conflict of interest that might arise from the engagement and, in the case of a responsible entity, any other considerations relevant to the best interests of members. RG 133.73 The appropriateness of the policy must be reviewed at least every 13 months. At our request, a responsible entity, licensed custody provider, MDA provider or IDPS operator must, at its own expense, arrange for a report on the effectiveness or reasonableness of the policy. The written direction may specify who is to prepare the report and when. RG 133.74 We expect that the risks arising from engaging an asset holder will be addressed in the risk management arrangements of a responsible entity, licensed custody provider, MDA provider or IDPS operator. We also expect responsible entities, licensed custody providers, MDA providers or IDPS operators to apply appropriate resources to ensure that any arrangements for holding assets are consistent with their obligations. This includes ensuring that the minimum standards are met. Monitoring ongoing compliance RG 133.75 A responsible entity, licensed custody provider, MDA provider or IDPS operator must have an established process to monitor and assess an asset holder’s performance of the asset holder’s obligations. RG 133.76 If the responsible entity, licensed custody provider, MDA provider or IDPS operator delegates decisions to the asset holder about which authorised deposit-taking institution (ADI) or foreign equivalent are used, or how foreign exchange transactions are entered, they must be satisfied about the asset holder’s written processes for: (a) determining which account to use; (b) monitoring performance of the issuer’s obligations; and (c) taking action in case of a deficiency arising from the failure of the issuer of the account. RG 133.77 In addition, if the asset holder is permitted to choose to use its associate, a responsible entity, licensed custody provider, MDA provider or IDPS operator will need to check the adequacy of the process to ensure that the conflict is managed so outcomes are no less favourable than if there was not an association. Note: A responsible entity of a registered scheme must also comply with Pt 5C.7 about related party transactions. Page 23 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 23 RG 133.78 A responsible entity, licensed custody provider, MDA provider or IDPS operator must ensure that records of the relevant assets are kept in a way that enables the holding of the assets to be audited. It should also ensure that it enforces contractual rights to a written annual acknowledgement by the asset holder that any relevant assets are held in compliance with the minimum standards. This includes that the assets are held on trust when required and separated, subject to the permitted use of omnibus accounts. This also applies where a master custodian engages an asset holder. Note: For the use of omnibus accounts, see Section G. RG 133.79 In addition, we expect a responsible entity, licensed custody provider, MDA provider or IDPS operator to seek: (a) information to satisfy itself that the asset holder’s internal processes and controls are adequate and continue to operate effectively, and that they are subject to appropriate independent checking; and (b) periodic information from the asset holder about the effectiveness of such controls, and actions taken or planned to address any concerns. RG 133.80 We expect that, where appropriate, a responsible entity, licensed custody provider, MDA provider or IDPS operator will obtain a copy of and consider an independent audit of the effectiveness of the controls applying to the asset holding. This could be an audit based on the Auditing and Assurance Standards Board (AUASB) Guidance Statement 007 Audit implications of the use of service organisations for investment management services, or another appropriate international equivalent (e.g. AICPA Statement on Standards for Attestation Engagements No. 18 Attestation standards: Clarification and recodification.) This audit may be performed on the basis of an engagement by the asset holder. Note: AUASB’s Guidance Statement 007 is designed to provide detailed and transparent reporting on relevant control frameworks of asset holders and other custodians. It includes guidance on how to apply the AUASB’s relevant auditing and assurance standards when preparing audit and assurance reports on the description, design and operating effectiveness of the service organisation’s controls over the investment management services. Requirements for the content of custody agreements Agreement with an asset holder RG 133.81 A responsible entity, licensed custody provider, MDA provider or IDPS operator must ensure that there is a legally enforceable agreement with any asset holder it engages. There must be an agreement with any master custodian and also between any master custodian and asset holder (sub- Page 24 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 24 custodian) that addresses the relevant issues. The agreement must generally be in writing, unless the criteria in RG 133.122–RG 133.123 are met. RG 133.82 The agreement with an asset holder must address the issues in RG 133.83– RG 133.108. Rights to review and monitor the asset holder RG 133.83 The agreement must provide the responsible entity, licensed custody provider, MDA provider or IDPS operator with reasonable rights for the ongoing review and monitoring of the asset holder and any sub-custodians. The agreement must also address the criteria against which their performance will be assessed. We expect that these rights and criteria must be adequate to ensure: (a) the responsible entity, licensed custody provider, MDA provider or IDPS operator can meet its obligations to its clients under the Corporations Act; (b) ASIC’s minimum standards for asset holders are met; and (c) the services provided will at least meet the standards generally applying in the relevant markets for the assets held. Written certification RG 133.84 The agreement must require that the asset holder will give a certification to the responsible entity, licensed custody provider, MDA provider or IDPS operator in writing at least every 13 months. The asset holder must certify that, other than in any trivial respect or as previously disclosed to the responsible entity, licensed custody provider, MDA provider or IDPS operator in writing, it believes on reasonable grounds that, since the date of the previous statement in writing or the commencement of the agreement: (a) it has met, and has no reason to believe that it will not continue to meet, the minimum standards in the relevant ASIC legislative instrument that reflects the standards for asset holders (whether or not there is any explicit reference to the instrument in the agreement); and (b) it is complying with the agreement. Manner in which assets are held RG 133.85 The agreement must require that the asset holder, on request, will: (a) formally acknowledge the manner in which it holds assets; and (b) notify any other person where the asset holder is aware that to do so might protect the interest in the assets of the client for whom the assets are held. However, the responsible entity, licensed custody provider, MDA provider or IDPS operator may direct otherwise in writing. Page 25 REGULATORY GUIDE 133: Funds management and custodial services: Holding assets © Australian Securities and Investments Commission December 2024 Page 25 Giving of instructions RG 133.86 The agreement must set out how instructions will be given to the asset holder. Liability RG 133.87 The agreement must contain reasonable liability provisions. If appropriate, the agreement must also contain reasonable indemnity provisions for losses caused to the responsible entity, licensed custody provider, MDA provider or IDPS operator by the acts and omissions of the asset holder that relate to the agreement. RG 133.88 We expect that a responsible entity, licensed custody provider, MDA provider or IDPS operator would not compromise the interests of its clients in the presence of liability or indemnity provisions, unless it is satisfied that any additional cost would be disproportionate to the benefits to its clients. Clients have a significant interest in promoting compliance by the asset holder and, in the event of non-compliance, receiving compensation for loss by the asset holder. Without implying that it would be sufficient, at a minimum, a responsible entity, licensed custody provider, MDA provider or IDPS operator must: (a) not agree to any broad exclusion of any liability for direct losses that would apply for the failure to take reasonable care under general law; and (b) only allow any limited exclusion if reasonable. Security interests, mortgages, liens or other encumbrances RG 133.89 The agreement must prohibit the asset holder from taking or granting to its associates a security interest, mortgage, lien or other encumbrance over, or in relation to, the assets held under the agreement. This is not required if the responsible