The Financial Markets Authority (FMA) has released a discussion paper on its review of New Zealand's laws and market practices relating to the custody (safeguarding) of money and assets in financial markets (Discussion Paper). The Discussion Paper offers an opportunity for market participants, from managed investment scheme managers to payment service providers, to give their views on the preferred shape of New Zealand's future custodial regulatory framework.
Submissions on the Discussion Paper close at 5pm on Monday, 27 July 2026.
Background
Custody services are described by the FMA as "fundamental to maintaining confidence in New Zealand's financial markets". Prior to the publication of the Discussion Paper, the FMA had sought feedback from interested firms, industry bodies and individuals, with the FMA reporting that stakeholders largely considered that custody arrangements were fundamentally sound and operationally effective, however ongoing risks, including those relating to conflicts of interest, outsourcing, market concentration and operational resilience, remained.
The Discussion Paper does not propose specific reforms to address these risks. Rather, it seeks feedback from industry participants on issues and risks in New Zealand's current regime and how these might be addressed, with responses intended to be used to formulate custody reform recommendations to the Ministry of Business, Innovation and Employment.
Key issues
The Discussion Paper identifies key issues and risks with the current regime, including:
- Complexity and fragmentation: requirements for custody are spread across various pieces of legislation, including the Financial Markets Conduct Act 2013 (FMCA) and its regulations. Variations across different sectors also add to increased uncertainty, which can lead to both an increase in compliance costs and risk of non-compliance.
- Limited oversight, intervention and enforcement tools: acting as a "custodian" is a "market service" under the FMCA but does not on its own require a market services licence. Absence of licensing reduces regulatory visibility, limits intervention options, and constrains proactive supervision.
- Independence: independent custody can provide a core safeguard for investors, however current requirements apply only to certain custodians (eg custodians for retail managed investment schemes) and are not required for client money or property services, retail custody or wholesale custody.
- Regulatory gaps in wholesale custody: a large proportion of New Zealand retail investors' assets are ultimately held in wholesale investments, yet wholesale custody in New Zealand is largely unregulated. While not unusual, this does limit regulator visibility of wholesale custody arrangements, including whether arrangements are suitable for New Zealand markets and in relation to prioritisation and enforceability in foreign jurisdictions.
- Resilience requirements: the FMA notes that there are limited regulatory requirements imposed on custodians in relation to financial and operational resilience (including cyber) and business continuity.
- Emerging issues: the FMA acknowledges that clearer regulatory pathways for payment service providers and virtual assets would better support innovation and deliver market benefits. In comparison to overseas regimes such as the United Kingdom or as proposed in Australia, New Zealand does not have a dedicated payment services regulatory regime, which may result in unsuitable regulatory settings. In addition, virtual asset safekeeping, bundled tokenised financial instruments and digital payment tokens all carry additional specific custody-related risks.
Our view
We agree with descriptions of New Zealand's custody regulation framework in the Discussion Paper as both "light and underdeveloped", as well as "complex and fragmented". In our experience, while custody regulation is relatively clear and consistently applied in more highly regulated market segments, for less regulated segments such as retail platforms or payment services, the lack of clarity gives rise to considerable uncertainty and variations in market practice. In our view, a greater level of regulatory consistency, even were it to increase compliance costs, would be welcomed by many market participants.
Most comparable jurisdictions require custodians to be licensed or authorised and impose obligations around operational resilience, outsourcing controls, cyber security, and minimum financial resources. As financial markets become ever more globally interconnected, alignment with international custody standards is both increasingly important, and increasingly expected, by international financial market participants. Further, international technological trends such as virtual asset developments and tokenised instantaneous settlements are increasingly relevant to New Zealand's custodial services regime.
We encourage industry participants such as custodians, fund managers, fintechs, financial advice providers, supervisors, and investors to engage with the consultation process. Submissions close at 5pm on Monday 27 July 2026.
If you would like to make a submission or discuss any aspects of the FMA's custody review and the implications for your business, please get in touch with our financial services regulation team.
This article was prepared by Andrew Suggate (senior associate), Janet Liu (senior solicitor) and Lily Rose Hosseini (law clerk).
