Guidelines for Custodians
Summary
This circular prescribes guidelines for custodians following amendments to the SEBI (Custodian) Regulations, 1996. It details requirements for segregating financial services activities, outsourcing non-core functions, and maintaining physical vaults. Additionally, it mandates specific governance structures and risk management policies to strengthen compliance frameworks. This section mandates specific operational standards for custodians, including risk management frameworks, scalable infrastructure, and business continuity plans. It outlines the discontinuation of certain duplicate reporting requirements to SEBI to facilitate ease of doing business. Finally, it establishes the applicability dates for these new provisions and cites the legal authority under which the circular is issued.
Text
The list of activities relating to rendering of financial services that can be carried out by a Custodian... shall be specified through the Custodians and DDPs Standards Setting Forum (‘CDSSF’), in consultation with SEBI.
Custodian (except which is a Bank or a subsidiary / associate / joint venture of a Bank) shall undertake financial services activities falling under the purview of SEBI and those outside the purview of SEBI through separate Strategic Business Units (SBU) respectively.
Separate accounts shall be prepared and maintained for the SBUs on arms-length basis.
Net worth criteria for Custodian shall be satisfied after excluding the books of the SBU.
Custodian (except which is a Bank or a subsidiary/ associate/ joint venture of a Bank) rendering unregulated financial services shall make appropriate disclosure to its clients to this effect.
A Custodian may share manpower resources, infrastructure and systems across other financial services activities undertaken by it, subject to the following conditions.
Custodian shall ensure that adequate controls and mechanisms, including chinese walls and adherence to ‘need to know’ principles, are in place to address issues of conflicts of interest.
Custodian shall continue to adhere to general guidelines as specified in SEBI Circular no. CIR/MIRSD/5/2013 dated August 27, 2013 for dealing with conflict of interest.
The registered intermediaries including Custodians are allowed to outsource non-core activities. The Intermediaries, however, cannot outsource their core business activities and compliance functions.
CDSSF shall work out and adopt a list of core / non-core activities categorization, in consultation and with due approval from SEBI.
If the Custodian is not holding any physical securities, there shall be no requirement of vaults.
Subject to full disclosure and taking informed consent from client, physical securities may be held in the vault/safe or equivalent storage with features that may be harmoniously adopted by the industry through the CDSSF, in consultation with SEBI.
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Source: SecMarx — Guidelines for Custodians. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.