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HMRC internal manual

International Exchange of Information Manual

From
HM Revenue & Customs
Updated
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Custodial Institution: Introduction

Custodial Institution

A Custodial Institution is an entity that holds, as a substantial portion of its business, financial assets for the account of others.

In this context, a substantial portion is taken as being at least 20% of the entity’s gross income that is attributable to holding financial assets and providing related financial services in the shorter of:

  • Its last three accounting periods, or
  • The period since it commenced business.

 

Income attributable to holding financial assets and providing related financial services includes the following:

  • Custody, account maintenance and transfer fees;
  • Commissions and fees earned from executing and pricing securities transactions;
  • Income earned from extending credit to customers;
  • Income earned from contracts for differences and as the bid-ask spread of financial assets;
  • Fees for providing financial advice;
  • Fees for providing clearance and settlement services.

 

Where an entity has no operating history at the time its status as a custodial institution is being assessed, it will be regarded as a Custodial Institution if it expects to meet the gross income threshold based on its anticipated functions, assets and employees. Consideration must be given to any purpose or function for which the entity is licensed or regulated (including those of any predecessor).

There may be circumstances where an entity holds financial assets for a customer where the income attributable to holding the financial assets or providing related financial services either belongs or is otherwise paid to a connected party such as another company in the same group of companies. This may be because the entity holds assets for a customer of a connected party, or simply that any consideration is paid to a connected party, either as an identifiable payment or as one element of a consolidated payment.  In that case the attributable income should be taken account of when applying the 20% test.

Where an entity holds financial assets that are the property of a connected person, for example a company may hold the financial assets of some or all members of the group to which it belongs, and no or nominal fees are paid for that service, that is fees less than would apply on a commercial basis, consideration should be given to what would have been paid by an arm’s length customer when applying the 20% test.