Utah Admin. Code R590-178-5 - Requirements for Custodial Agreements

Current through Bulletin No. 2021-18, September 15, 2021

A. An insurance company may, by written agreement with a custodian, provide for the custody of its securities with that custodian. The securities that are the subject of the agreement may be held by the custodian or its agent, by the Federal Reserve book-entry system, or may be cleared or transferred through a clearing corporation.
B. Agreements shall be in writing and shall be authorized by a resolution of the Board of Directors of the insurance company or of an authorized committee of the board pursuant to 31A-5-412. The terms of the agreement shall comply with the following:
1. Securities' certificates held by the custodian shall be held separate from the securities' certificates of the custodian and of all of its other customers.
2. Securities held indirectly by the custodian or its agent, by the Federal Reserve book-entry system, and securities being cleared or transferred through a clearing corporation shall be separately identified on the custodian's official records as being owned by the insurance company. The records shall identify which securities are held by the custodian or its agent, by the Federal Reserve book-entry system, and which securities are being cleared or transferred through a clearing corporation. If the securities are with the Federal Reserve book-entry system or are being cleared or transferred through a clearing corporation, the records shall also identify where the securities are and the name of the clearing corporation. If the securities are held by an agent of the custodian, the records shall contain the name of the agent.
3. All custodied securities shall be registered in the name of the insurance company or in the name of a nominee of the insurance company or in the name of the custodian or its nominee or, if in a clearing corporation, in the name of the clearing corporation or its nominee.
4. Custodied securities shall be held subject to the instructions of the insurance company and shall be withdrawable upon the demand of the insurance company, except that custodied securities used to meet the deposit requirements set forth in Subsection 31A-2-206(2) shall, to the extent required by Subsection 31A-2-206(2), be under the control of the insurance commissioner and shall not be withdrawn by the insurance company without the prior written approval of the insurance commissioner. Broker/dealers are not authorized to hold custodied securities that are used to meet the deposit requirements set forth in Subsection 31A-2-206(2). To the extent that national banks, state banks, and trust companies hold custodied securities that are used to meet the deposit requirements set forth in Subsection 31A-2-206(2), these custodied securities must be held in an account separate from other custodied securities of the insurance company.
5. The custodian shall be required to send or cause to be sent to the insurance company a confirmation of all transfers of custodied securities to or from the account of the insurance company. In addition, the custodian shall be required to furnish no less than monthly the insurance company with reports of holdings of custodied securities at times and containing information reasonably requested by the insurance company. The custodian's annual report of the insurance company's accounts shall also be provided to the insurance company. Reports and verifications may be transmitted in electronic or paper form.
6. During the course of the custodian's regular business hours, an officer or employee of the insurance company, an independent accountant selected by the insurance company or a representative of the Insurance Department shall be entitled to examine, on the premises of the custodian, the custodian's records relating to custodied securities, but only upon furnishing the custodian with written instructions to that effect from an appropriate officer of the insurance company.
7. Upon written request from the insurance company, the custodian and its agents shall be required to send to the insurance company:
(a) all reports they receive from a clearing corporation on their respective systems of internal accounting control, and
(b) reports prepared by outside auditors on the custodian's or its agent's internal accounting control of custodied securities that the insurance company may reasonably request.
8. The custodian shall maintain records sufficient to determine and verify information relating to custodied securities that may be reported in the insurance company's annual statement and supporting schedules and information required in an audit of the financial statements of the insurance company.
9. The custodian shall provide, upon written request from an appropriate officer of the insurance company, the appropriate affidavits with respect to custodied securities. These shall be substantially in the form of Custodian Affidavits, Form A, 298-6, Form B, 298-7, and Form C, 298-8, published by NAIC Model Regulation Service.
a. "Form A" is to be used by a custodian where securities entrusted to its care have not been redeposited elsewhere;
b. "Form B" is to be used in instances where a custodian corporation maintains securities on deposit with The Depository Trust Company or like entity; and
c. "Form C" is to be used where ownership is evidenced by book entry at a Federal Reserve Bank.
10. A national bank, state bank or trust company shall secure and maintain insurance protection in an adequate amount covering the bank's or trust company's duties and activities as custodian for the insurance company's assets, and shall state in the custody agreement that protection is in compliance with the requirements of the custodian's banking regulator or other regulator of a trust company. A broker/dealer shall secure and maintain insurance protection for each insurance company's custodied securities in excess of that provided by the Securities Investor Protection Corporation in an amount equal to or greater than the market value of each respective insurance company's custodied securities. The commissioner may determine whether the type of insurance is appropriate and the amount of coverage is adequate.
11. The custodian shall be obligated to indemnify the insurance company for any loss of custodied securities occasioned by the negligence or dishonesty of the custodian's officers or employees, and for burglary, robbery, holdup, theft and mysterious disappearance, including loss by damage or destruction.
12. In the event that there is loss of custodied securities, for which the custodian shall be obligated to indemnify the insurance company as provided in paragraph (11) above, the custodian shall promptly replace the securities or the fair value thereof and the value of any loss of rights or privileges resulting from the loss of securities.
13. The agreement may provide that the custodian will not be liable for failure to take an action required under the agreement in the event and to the extent that the taking of such action is prevented or delayed by war, whether declared or not and including existing wars, revolution, insurrection, riot, civil commotion, act of God, accident, fire, explosion, stoppage of labor, strikes or other differences with employees, laws, regulations, orders, other acts of any governmental authority, or any other cause beyond its reasonable control.
14. In the event that the custodian gains entry in a clearing corporation through an agent, there shall be an agreement between the custodian and the agent under which the agent shall be subject to the same liability for loss of custodied securities as the custodian. However, if the agent shall be subject to regulation under the laws of a jurisdiction that is different from the jurisdiction the laws of which regulate the custodian, the Commissioner of Insurance of the state of domicile of the insurance company may accept a standard of liability applicable to the agent that is different from the standard of liability applicable to the custodian.
15. The custodian shall provide written notification to the insurance company's domiciliary commissioner if the custodial agreement with the insurance company has been terminated or if 100% of the account assets in any one custody account have been withdrawn. This notification shall be remitted to the insurance commissioner within three (3) business days of the receipt by the custodian of the insurance company's written notice of termination or within three (3) business days of the withdrawal of 100% of the account assets.

Notes

Utah Admin. Code R590-178-5

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