Consultation on Guidance for Custodians of Open-Ended Collective Investment Schemes with Indirectly Held Assets (September 2020)

Summary

This is a consultation paper issued by the Guernsey Financial Services Commission (GFSC) seeking industry feedback on a proposed Guidance Note for Designated Custodians of Guernsey open-ended collective investment schemes whose assets are held indirectly, for example through separate legal holding structures such as SPVs. The draft Guidance Note is appended to the consultation and explains how custodians can satisfy existing safekeeping duties under the Class A, Class B, Class Q and Registered CIS Rules made under the Protection of Investors (Bailiwick of Guernsey) Law, 1987, when assets are not held directly.

• Look-through requirement: Custodians must consider whether it is necessary to look through holding structures to the ultimate underlying asset to fulfil their safekeeping duty.
• Risk-based approach: Custodians may assess and document custody risks across the custody chain at scheme take-on and on an ongoing basis, including due diligence on promoters, sponsors and relevant third parties.
• Ownership verification: Custodians should be able to evidence that each asset is ultimately owned by the scheme in the recorded proportion, using evidence appropriate to the asset type.
• Documentation and record-keeping: Custodians should maintain sufficient, up-to-date and reliable records of ownership verification, including for assets held or recorded by delegated third parties.
• Minimum licensing criteria: The Commission will take the Guidance Note into account when assessing a firm's compliance with the minimum criteria for licensing.
• Interaction with other guidance: Where the separate Depositary Requirements Guidance Note applies, it takes precedence over this Guidance Note.
• Limited exceptions: The guidance would not apply where an underlying asset is held by a Regulated Custodian or where the asset is an Operating Company, subject to the custodian making sufficient enquiries to confirm this.

The consultation is a working document and does not represent a final decision by the Commission. Respondents are invited to comment on any part of the draft Guidance Note via the Commission's Consultation Hub, after which the Commission will consider feedback and issue a final version of the Guidance Note.

Key obligations

• Interested parties wishing to comment must submit feedback on the draft Guidance Note via the Commission's Consultation Hub by the stated closing date
• Designated Custodians remain subject to existing safekeeping duties under Rule 7.10(1) of the Class A Rules, Rule 4.05(2) of the Class B Rules, Rule 5.03(2) of the Class Q Rules, and Rule 3.02(1) of the Registered CIS Rules, which the draft guidance is intended to help satisfy

Applies to

Designated Custodians of Guernsey Open-Ended Collective Investment Schemes (Class A, Class B and Class Q authorised schemes, and registered Open-Ended Schemes)

Deadlines

• 21 October 2020: Closing date for submission of comments/feedback on the Consultation Paper and draft Guidance Note