Custodian of securities means a person who has custody, as a bailee, of securities or certificate issued in the investor’s name with the investor’s name appearing in the issuer’s register as the beneficial owner of the securities.
Registered custodian of securities shall have the following functions, amongst others:
- Maintaining accounts of securities of a client;
- Collecting the benefits, entitlement or rights accruing to the client in respect of securities;
- 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;
- Maintaining and reconciling records of the services referred to in sub-clauses (1) to (3) above;
- Settlement of investment obligations;
- Ensuring compliance with fund-specific and other contractual obligations with clients.
It is noteworthy that a person who intends to carry on business as custodian of securities must registered under SEC in accordance to Rule 117 of SEC Rules and Regulations, 2013 which is below;
(1) An application for registration as a custodian of securities shall be filed in the designated form and shall be accompanied by:-
(a) a sets of duly completed designated forms to be filed by a minimum of 3 sponsored individual;
(b) copy of certificate of incorporation certified by the Company Secretary;
(c) copy of Memorandum and Articles of Association certified by the Corporate Affairs Commission which shall include, among others, power to act as custodian of securities;
(d) copy of Corporate Affairs Commission’s form containing names and particulars of directors and certified by the Corporate Affairs Commission ;
(e) copy of latest audited accounts or audited statement of affairs and management accounts for companies in operation for less than one year at the time of filing with the Commission;
(f) profile of the Company, its promoters and management;
(g) Fidelity bond of a value not less than 25% of paid up capital;
(h) sworn undertaking to keep proper records and render returns;
(i) sworn undertaking to abide by the provisions of the Act and these rules in the discharge of its functions as custodian of securities;
(j) specimen custodian agreement to be signed with its client;
(k) an operational manual, specifying the systems and procedures to be followed for the effective and efficient discharge of its functions, management and mitigation of custody risks, and the independence of its operations from its other business, if any;
(l) any other document that may be required by the Commission from time to time.
(2) An Applicant for registration as custodian of securities shall meet the following additional requirements:
(a) necessary infrastructure, including vaults for safe custody of securities and information technology capability required to effectively discharge its functions;
(b) have in its employment persons with the required qualifications as specified under rule 20;
(c) be an entity duly licensed to carry out banking functions;
(d) any other requirement as may be specified by the Commission from time to time;
(3) A person who is carrying on business as custodian of securities before the coming into effect of these rules shall make an application to the Commission for registration within a period of three (3) months;
(4) (a) A person referred to in sub-rule (3) who fails to make an application for registration within the period specified shall cease to carry on any activity as custodian of securities;
(b) Such a person shall be subject to the directives of the Commission with regard to the transfer of records, documents or securities relating to its activities as custodian of securities in addition to any penalty that may be imposed.
Exemption to the Registration Requirements
The obligation to register as a custodian of securities and observe various other safeguards for the benefit of independent capital market investors do not apply to a person who performs custodial service only in the course, or as a necessary part of a profession or business not otherwise constituting investment business or in the course of holding securities as collateral or taking a legal charge over securities as a means of taking security for a loan.
Where an applicant for registration as a custodian of securities has been denied registration by the Commission or where a custodian of securities withdraws from the function, such a custodian will cease to carry on any activity as custodian of securities and must be subject to the directives of the Commission with regard to the transfer of records, documents or securities that may be in its custody or control relating to its activity as custodian of securities.