2.2.5. Providing Custody
2.2.5.1. General description
Providing Custody is listed in section 5 of Schedule 1 of GEN. It means safeguarding and administering Investments (Fund Property, Digital Assets) belonging to another Person.
Safeguarding and administering Investments consists of both of the following:
(a) safeguarding of assets belonging to another, and
(b) the administration of those assets.
Administering an Investment would include, for example, crediting income arising out of an Investment to the beneficiary's account; however, it is important that discretion is not exercised in the carrying out of the activities, otherwise the actions will fall within another regulated activity (that of Advising on Investments, or Managing Investments), and separate permission will be required.
Safeguarding an Investment is holding it in safe custody, e.g. looking after a share certificate.
Providing Custody differs from that of Arranging Custody because:
(a) a Person Providing Custody is legally accountable to Clients for safeguarding and administering Client Investments; and
(b) a Person arranging Custody does not become a party to the arrangement to Provide Custody and hence does not assume any duties or responsibilities to the Client for the safe custody of the Client’s Investments – instead, such a Person merely facilitates a custodian to provide its services to a potential user of its services.
An Authorised Firm authorised to carry on the regulated activity of Providing Custody is subject to prudential supervision and must comply with AIFC Prudential Rules for Investment Firms.
Currency regulation
Currency transactions will be performed via AIFC Banks if processed in only foreign currency, and via second-tier banks in any currency. For more details of transactional implications see Chapter 4 of PERG.
The table below illustrates currency regulation implications if services are offered to residents of Kazakhstan that are not AIFC Participants.
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Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? |
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Yes:
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Your services will be subject to the AIFC Rules on Currency Regulation: |
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Name of allowed activity: |
Providing custody services (nominal holding, accounting and safeguarding of securities).
This is limited to the following cases of providing custody 1) in respect to securities issued in accordance with foreign legislation and Acting Law of the AIFC 2) in respect to Kazakhstani securities provided that the AIFC participant has relevant ARDFM* licence 3) Settlement depository or custodial services of Astana International Exchange Central Securities Depository in respect to all securities included in the official list of Astana International Exchange. * ARDFM – Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market. |
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Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: |
3.4 in the list of financial services. |
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Type of currency: |
Any currency |
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Transaction: |
Via AIFC Banks: only foreign currency Via second-tier banks: any currency |
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Currency reporting: |
No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details).
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No: |
Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
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For more details see Chapter 4 of PERG.
2.2.5.2. Exclusions
There are a number of exclusions applicable in certain circumstances:
(a) while acting as personal representative;
(b) in connection with the carrying on of a profession of a non-investment business;
(c) in connection with the sale of goods or supply of services;
(d) where they belong to a group member or participator in a joint enterprise;
(e) in connection with an employee share scheme;
(f) that involve the provision of information to policyholders or potential policyholders about contracts of insurance on an incidental basis; or
(g) where they are acting as an insolvency practitioner.