What is a Custodian?

30 May 2023 by National Bank

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Custodians are typically regulated Canadian banks, trust companies, or their affiliates that independent wealth managers must use to hold and safeguard their clients' assets. A custodian, like the National Bank Independent Network (NBIN), acts like a vault or depository for client assets, minimizing risk and providing additional services to support financial advisors and their clients.

In addition to custodial services, NBIN supports introducing brokers and portfolio managers with some or all of the following:

Opening and maintaining accounts.
Keeping current and accurate records of client holdings.
Servicing and settling trades.
Preparing account statements and tax documents.
Calculating and reporting tax information to federal and provincial authorities.

What is a qualified custodian?

Independent wealth managers must use a Canadian custodian to safe keep and safeguard client assets. In October 2021, the Investment Industry Regulatory Organization (IIROC), now part of the New Self-Regulatory Office of Canada (New SRO) and overseen by the Canadian Securities Administrators (CSA), issued the following guidance:

A basic principle of securities regulation is to protect client property. The New SRO Rules provide for the requirement to “segregate” or hold in trust client securities at “acceptable securities locations” supported by written “custodial agreements” that contain prescribed minimum terms and conditions that serve to meet the protection of client property entrusted to a Dealer.

Asset managers hired to invest client funds are obligated to arrange for a reputable and regulated Canadian financial institution, like NBIN, to act as a caretaker between broker and client assets. The custodian also tracks the movement of funds, settlements and must ensure compliance with applicable regulations and laws. This additional oversight offers some protection against theft or loss.

In almost all instances, a custodian must be a Canadian financial institution subject to the Bank Act, a trust company incorporated under the laws of Canada, an affiliate, or an investment dealer who is a member of IIROC (now the New SRO) and is permitted under the rules to serve as a custodian.

Who regulates custodians in Canada?

Some custodians, like NBIN, are governed by the Universal Market Integrity Rules and the New SRO Investment Dealer and Partially Consolidated Rules outlined by the New SRO. Custodians must be approved by the New SRO to hold assets on behalf of clients. NBIN is a member of the New SRO and is subject to its rules and regulations. Members who are in violation can be fined or reprimanded.

Do portfolio managers and introducing brokers need to work with custodians?

The short answer is yes. However, the jurisdictions are different for each.

Licensed portfolio managers are subject to CSA rules that outline the requirements for the use of custodians. The provincial securities commissions establish specific guidelines for who can serve as a custodian in Canada.

Introducing Brokers require an investment dealer who is a member of the New SRO (previously IIROC) and provides Carrying Broker services in order to have access to securities markets and other services.

The provincial and territorial market regulators have largely harmonized these rules across the country. They establish specific guidelines for broker registration requirements, exemptions and obligations, including detailed rules on who can serve as a custodian in Canada.

Benefits of using NBIN as a custodian

The National Bank Independent Network (NBIN) is a division of National Bank Financial Inc., a wholly-owned subsidiary of the National Bank of Canada (NBC). As well as being a member of IIROC (now the New SRO), NBIN is backed by the National Bank's solid reputation as one of Canada's leading financial institutions.

Plus, NBIN is more than a custodian. NBIN offers specialized services such as: Investment Fund Services, Prime Brokerage Services, Managed Portfolio Solutions, Fully Paid Lending and Financial Research.

To learn about how NBIN can help you build an independent wealth management practice, contact an RVP now. You can also visit the Going Independent page at nbin.ca or use the Income Calculator to calculate the earning potential of independence.

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