Custodians of Open-Ended Collective Investment Schemes with Indirectly Held Assets - Guidance Note (November 2021)

Summary

This is a GFSC Guidance Note explaining how Designated Custodians (trustees/custodians) of Guernsey open-ended collective investment schemes should meet their safekeeping duties when Scheme assets are held indirectly, for example through a separate legal structure such as an SPV. It sets out non-binding ways of complying with existing custody rules rather than creating new rules itself.

• Look-through: Custodians should consider whether they need to look through intermediate holding structures to the ultimate underlying asset to fulfil their safekeeping duty.
• Risk-based approach: Custodians may assess and document custody chain risks at scheme take-on, including due diligence on promoters, sponsors and relevant third parties, and monitor these risks on an ongoing basis.
• Ownership verification: Custodians should perform and evidence ownership verification appropriate to the asset type (e.g. land registry checks, share registers, audited accounts, independent valuations) to confirm the scheme's proportionate ownership.
• Documentation and record-keeping: Custodians should maintain sufficient, reliable and up-to-date records of ownership verification, including for assets held or controlled by delegated third parties.
• Minimum criteria for licensing: The Commission will take this Guidance Note into account when assessing a firm's compliance with minimum licensing criteria.
• Interaction with other guidance: Where the Depositary Requirements Guidance Note applies, it takes precedence over this Guidance Note.
• Limited exceptions: The Guidance Note does not apply where an underlying asset is held by an appropriately Regulated Custodian, or where the asset is an Operating Company, provided the Designated Custodian makes sufficient enquiries to confirm this.

The Note applies to Designated Custodians of Guernsey Open-Ended Schemes, including Class A, Class B and Class Q authorised schemes and registered Open-Ended Schemes, and is intended to help them meet safekeeping obligations under the relevant Class A, B, Q and Registered CIS Rules, alongside their ongoing monitoring obligations under the Proceeds of Crime Law.

Key obligations

• Designated Custodians must take into custody or under their control all scheme property and hold it in accordance with the Class A, Class B, Class Q or Registered CIS Rules as applicable.
• Designated Custodians should consider looking through intermediate holding structures to verify and record the Scheme's ultimate ownership of underlying assets.
• Designated Custodians should perform appropriate ownership verification using evidence suited to the asset type and retain copies of any independent advice obtained.
• Designated Custodians should maintain sufficient, reliable and up-to-date records of ownership verification, including for assets held via delegated third parties, and review these on a documented risk basis.
• Designated Custodians relying on the Regulated Custodian or Operating Company exceptions must make sufficient enquiries into the underlying structure or investment to justify reliance on the exception.
• Designated Custodians remain subject to ongoing and effective transaction monitoring obligations under Paragraph 11(1)(b) of the Proceeds of Crime Law and Chapter 11 of the Handbook on Countering Financial Crime and Terrorist Financing.

Applies to

Designated Custodians, Designated Trustees, Open-Ended Collective Investment Schemes (Class A, Class B, Class Q, and Registered)