Custodian
Regulation 2(c) of defines the term ‘custodian’ as any person who carries on or proposes to carry on the business of providing custodial services.
Custodial services
Regulation 2(d) defines the expression ‘custodial services’ in relation to securities or goods of a client or gold or gold related instruments or silver or silver related instruments held by a mutual fund or title deeds of real estate assets held by a real estate mutual fund scheme in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as the safekeeping of such securities or goods or gold or gold related instruments or silver or silver related instruments or title deeds of real estate assets and providing services incidental thereto, and includes-
- maintaining accounts of securities or goods or gold or gold related instruments or silver or silver related instruments or title deeds of real estate assets of a client;
- undertaking activities as a Domestic Depository in terms of the Companies (Issue of Indian Depository Receipts) Rules, 2004;
- collecting the benefits or rights accruing to the client in respect of securities or goods or gold or gold related instruments or silver or silver related instruments or title deeds of real estate asset
- keeping the client informed of the actions taken or to be taken by the issuer of securities, having a bearing on the benefits or rights accruing to the client; and
- keeping the client informed of the actions taken or to be taken with respect to the goods held on its behalf;
- maintaining and reconciling records of the services.
Filing application for Registration
Any person wants to be a custodian under these regulations shall submit an application to the Board in Form A. The applicant shall be a body corporate. The fee payable is as detailed below-
- Application fee - Rs.5 lakhs;
- Registration fee - Rs.50 lakhs;
- Annual fee - Rs.10 lakhs or 0.05% of the assets
Annual fee shall be payable proportionate annual fee in respect of the financial year in which he was granted registration and full annual fee for every subsequent financial year during which the registration subsists. The fees above shall be payable by way of direct credit into the bank account through NEFT/RTGS/IMPS or online payment using the SEBI Payment Gateway or any other mode as may be specified by the Board from time to time. The payment of annual fee shall be accompanied by a statement of assets under custody which shall be in such format as may be specified by the Board and shall be certified to be true and complete by the functional head of the custody services of the custodian.
The Board may require the applicant to furnish such further information or clarification regarding matters relevant to the activities of a custodian for the purpose of consideration of the application. The applicant or his authorized representative, if required, shall appear before the Board.
Consideration
The Board shall consider the following before granting registration-
- the capital requirement shall be a net worth of a minimum of Rs.50 crores
- .the applicant has the necessary infrastructure, including adequate office space, vaults for safe custody of securities and computer systems capability, required to effectively discharge his activities as custodian;
- the applicant has the requisite approvals in connection with providing custodial services in respect of goods of a client or gold or gold related instruments or silver or silver related instruments held by a mutual fund or title deeds of a real estate assets held by a real estate mutual funds scheme, where applicable;
- the applicant has in his employment adequate and competent persons;
- the applicant has prepared a complete manual, setting out the systems and procedures to be followed by him for the effective and efficient discharge of his functions and the arms length relationships to be maintained with the other businesses, if any, of the applicant;
- the applicant, his director, his principal officer or any of his employees is involved in any litigation connected with the securities market;
- the applicant, his director, his principal officer or any of his employees has at any time been convicted of any offence involving moral turpitude or of any economic offence;
- the applicant is a fit and proper person;
- the grant of certificate is in the interest of investors.
Grant of certificate
If the Board on being satisfied that all particulars sought have been furnished and the applicant is eligible for the grant of a certificate, shall send an intimation of the same to the applicant. The applicant shall pay to the Board a registration fee specified on receipt of information from the Board. The Board shall grant a certificate in Form B to the applicant on receipt of the registration fee.
The certificate granted to the custodian is subject to the following conditions-
- it shall not commence any activities as custodian unless it fulfills the capital requirement;
- it shall obtain prior approval of the Board in case of change in control in such manner as specified by the Board
- it shall abide by the provisions of the Act and these regulations in the discharge of its functions as custodian;
- it shall enter into a valid agreement with its client for the purpose of providing custodial services;
- it shall pay annual fees every year;
- if any information previously submitted by it to the Board is found by it to be false or misleading in any material particular, or if there is any change in such information, it shall forthwith inform the Board in writing; and
- it shall not carry on any activity other than activities relating to rendering of financial services.
Validity of certificate
The certificate granted under these regulations, shall be valid unless it is suspended or cancelled by the Board.
Rejection of application
The application, which is not complete in all respects or which does not conform to the instructions specified therein shall be rejected. Before rejecting any such application, the Board shall give the applicant an opportunity to remove the objection, within such time as may be specified by the Board. The decision of the Board to reject the application shall be communicated within 30 days of such decision to the applicant in writing stating therein the grounds on which the application has been rejected.
An applicant, who is aggrieved by the decision of the Board rejecting the application may, within a period of 30 days from the date of receipt of communication apply to the Board for re-consideration of its decision. The Board shall, as soon as possible, in the light of the submissions made in the application for reconsideration and wherever necessary, after giving the applicant a reasonable opportunity of being heard, convey its decision in writing to the applicant.
Obligations and responsibilities of Custodian
- Every custodian of securities shall abide by the Code of Conduct.
- If the custodian is doing any other business in additional to custodial service, the custodial service shall be segregated from other type of business and the officials working in the custodial services shall not be allowed to do the work of any other business.
- Every custodian shall have adequate mechanisms for the purposes of reviewing, monitoring and evaluating the custodian's controls, systems, procedures and safeguards.
- The inspection report shall be sent to the Board within 3 months from the date of inspection.
- No custodian shall assign or delegate its functions as a custodian to any other person unless such person is a custodian.
- The custodian shall remain responsible in all respects to its client for safekeeping of the goods or gold or silver kept with such other person, including any associated risks.
- All books, documents and other records relating to the goods or gold or silver so kept with the other person shall be maintained in the premises of the custodian or if they are not so maintained, they shall be made available therein, if so required by the Board.
- The custodian shall continue to fulfill all duties to the clients relating to the goods or gold or silver so kept with the other person, except for its physical safekeeping.
- Every custodian shall open a separate custody account for each client, in the name of the client whose securities are in its custody and the assets of one client shall not be mixed with those of another client.
- Every custodian shall enter into an agreement with each client on whose behalf it is acting as custodian and every such agreement shall provide for the following matters-
- the circumstances under which the custodian will accept or release securities 3[, goods, assets or documents from the custody account;
- the circumstances under which the custodian will accept or release monies from the custody account;
- the circumstances under which the custodian will receive rights or entitlements on the securities or goods of the client;
- the circumstances and the manner of registration of securities in respect of each client; and
- details of the insurance, if any, to be provided for by the custodian.
- Every custodian shall have adequate internal controls to prevent any manipulation of records and documents including audits for securities , goods and rights or entitlements arising from the securities and goods held by it on behalf of its client. It shall have appropriate safekeeping measures to ensure that such securities, goods, assets or documents are protected from theft and natural hazard.
- Every custodial shall maintain the following records and documents-
- details of securities, goods, assets or documents] received and released on behalf of each client
- details of monies received and released on behalf of each client;
- details of rights or entitlements of each client arising from the securities held on behalf of the client;
- details of registration of securities in respect of each client;
- ledger for each client;
- details of instructions received from and sent to clients; and
- all reports submitted to the Board.
The custodian shall intimate to the Board the place where the records and documents are maintained. It shall preserve the records and documents for a minimum period of 5 years.
- Every custodian shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions, etc., issued by the Board or the Central Government and for redressal of investors' grievances.
- Where any information is called for by the Board it shall be the duly of the custodian to furnish such information within such reasonable period as the Board may specify.
Disputes resolution
The disputes arised between the custodian and its clients are to be settled through a dispute resolution mechanism including mediation/conciliation and or arbitration as per the procedure prescribed by the Board.
Inspection and Audit
The Board may inspect the books of account, records and documents of the custodian. Before ordering an inspection the Board shall give not less than 10 days notice to the custodian. Even without notice the Board may cause inspection on the custodian. The custodian is under obligation to produce books of accounts, records and documents to the inspecting authority. All assistances to the inspecting authority are to be rendered by the custodian. The inspecting authority shall submit the report to the Board on completion of inspection. The Board or the Chairman shall after consideration of inspection or investigation report take such action as the Board or Chairman may deem fit and appropriate including action under Chapter V of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.
The Board shall appoint an auditor to inspect or investigate the books of account, records, documents or affairs of the custodian. The officers of the custodian shall give all assistance in furnishing the required information/documents to the auditor.
Liability of custodian
A custodian is liable if he-
- contravenes any of the provisions of the Act, the rules framed there under or these regulations;
- fails to furnish any information relating to his activity as custodian as required by the Board;
- furnishes to the Board information which is false and misleading in any material particular;
- does not submit periodic returns or reports as required by the Board;
- does not co-operate in any enquiry or inspection conducted by the Board;
