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CASS 2.3 Client agreement and client statements1


CASS 2.3.1R

CASS 2.3 applies in accordance with CASS 2.11

CASS 2.3.2R

Before a firm provides safe custody services to a client, unless CASS 2.3.5 R applies, the firm must notify the client as to the appropriate terms and conditions which apply to this service, including, where applicable, those covering:

  1. (1)

    registration of the safe custody investments if these will not be registered in the client's name;

  2. (2)

    the extent of the firm's liability in the event of a default by a custodian, except that a firm must accept the same level of responsibility to its client for any nominee company controlled by the firm or by its affiliated company as for itself and may not disclaim responsibility for losses arising directly from the fraud, wilful default or negligence of the firm;

  3. (3)

    the circumstances in which the firm may realise a safe custody investment held as collateral to meet the client's liabilities (see COB 7.8) (Realisation of a private customer's assets).

  4. (4)

    claiming and receiving dividends, interest payments and other entitlements accruing to the client;

  5. (5)

    dealing with takeovers, other offers or capital reorganisations and exercising voting, conversion and subscription rights;

  6. (6)

    arrangements for the distribution of entitlements to shares and any other benefits arising from corporate events, where clients' balances have been pooled;

  7. (7)

    arrangements for the provision of information to the client relating to the safe custody investment which the firm, or its nominee company, holds on behalf of the client;

  8. (8)

    how often a statement of custody assets will be sent to the client and the basis on which assets shown on the statement are valued;

  9. (9)

    fees and costs for safe custody services to the extent that they are not notified to the client elsewhere; and

  10. (10)

    if the firm intends to pool a safe custody investment with that of one or more other clients, notification of its intention to the market counterparty or intermediate customer and if the client is a private customer, an explanation of the effects of pooling to that private customer.

CASS 2.3.3G

When explaining the meaning of pooling to a private customer, firms are expected to advise the private customer that:

  1. (1)

    individual entitlements may not be identifiable by separate certificates, other physical documents or equivalent electronic record; and

  2. (2)

    in the event of an unreconcilable shortfall after the failure of a custodian, clients may share in that shortfall in proportion to their original share of the assets in the pool.

CASS 2.3.4R

Unless CASS 2.3.5 R or CASS 2.3.6 R applies, the firm must obtain the written agreement of a private customer, or notify a market counterparty or an intermediate customer, as to:

  1. (1)

    the arrangements for the giving and receiving of instructions by or on behalf of the client in respect of the safe custody service which is to be provided, including, if applicable, the arrangements for the giving of authority by the client to another person and the extent of that authority and any limitation on it; and

  2. (2)

    any lien or security interest taken over a safe custody investment by the firm or a third party, except in respect of any charges relating to the administration or safekeeping of the safe custody investments;

CASS 2.3.5R

A firm need not obtain the written agreement or give notice as required by CASS 2.3.4 R, or give notice to a client in accordance with CASS 2.3.2 R, if the firm has no intention of providing a safe custody service to the client but unintentionally holds a safe custody investment for the client as a result of circumstances that could not reasonably have been foreseen by the firm.

CASS 2.3.6R
  1. (1)

    A firm need not obtain the written agreement of a private customer, or give notice to a market counterparty or an intermediate customer, as required by CASS 2.3.4 R if:

    1. (a)

      the client is ordinarily resident outside the United Kingdom;

    2. (b)

      the firm has taken reasonable steps to determine that the client does not wish to execute that agreement; and

    3. (c)

      the firm makes and retains a record of those steps and their results.

  2. (2)

    For a firm acting as an outgoing ECA provider, the exemption in (1) applies only if the client is ordinarily resident outside the EEA.

Risk disclosures

CASS 2.3.7R

Before holding or arranging for another person or firm to hold a customer's safe custody investment overseas, a firm must notify the customer in writing that there may be different settlement, legal and regulatory requirements in overseas jurisdictions from those applying in the United Kingdom, or such jurisdiction as is appropriate in the circumstances, and that there may be different practices for the separate identification of safe custody investments.

CASS 2.3.8G

The term "customer" does not include a market counterparty.

CASS 2.3.9G

It is intended that the application of CASS 2.3.7 R be appropriate to the circumstance, so for example, a European branch of a UK firm which provides services to customers in the country where the branch is located may adapt the risk disclosure required by CASS 2.3.7 R to suit the particular circumstances applicable to that branch and customer.

CASS 2.3.10R

Before a firm registers or records legal title to a safe custody investment in the name of the firm, it must notify the client if a market counterparty or an intermediate customer, and obtain his prior written consent if the client is a private customer, that:

  1. (1)

    the safe custody investment will or may be registered or recorded in the firm's name;

  2. (2)

    as a result the safe custody investment may not be segregated from the designated investments of the firm; and

  3. (3)

    in the event of the failure of the firm, the client's assets may not be as well protected from claims made on behalf of the general creditors of the firm.

CASS 2.3.11R

If a client has instructed the firm on the holding, registration or recording of a safe custody investment under CASS 2.2.10 R(5) (Registration and recording) or CASS 2.2.15 R(2)(c) (Holding) the firm must notify the client that the consequences of doing so are at the client's own risk, unless the firm has agreed otherwise.

Production and despatch of client statements

CASS 2.3.12R

A firm must, as often as necessary or as often as agreed with its client, but in any event not less frequently than annually, provide to each client, or to a representative nominated by the client in writing, a statement prepared in accordance with CASS 2.3.17 R (Content of client statements) unless:

  1. (1)

    the account of a client for whom a custody asset has been held at any time during the firm's financial year has been closed; and

  2. (2)

    the firm has sent the client a closing statement which shows that the firm no longer holds any custody asset for the client .

CASS 2.3.13R

Statements must be provided in accordance with CASS 2.3.12 R within 25 business days of the date as at which the statement is made.

CASS 2.3.14R
  1. (1)

    A firm may, with the client's prior written agreement, retain statements required to be sent to a client who is ordinarily resident outside the United Kingdom.

  2. (2)

    For a firm acting as an outgoing ECA provider, the exemption in (1) applies only if the client is ordinarily resident outside the EEA.

CASS 2.3.15G

The statements referred to in CASS 2.3.14 R may be retained either electronically or in hard copy. Wherever possible responsibility within a firm for such statements should be given to an employee or department not otherwise involved with that client.

CASS 2.3.16R

If a firm provides a range of safe custody services for a private customer which result in statements being generated from more than one system, it must ensure that all the statements in respect of those services are produced as at the same date and despatched within one week of each other, unless each statement makes clear that it relates to a particular service.

Content of client statements

CASS 2.3.17R

All statements produced by or on behalf of a firm in accordance with CASS 2.3.12 R - CASS 2.3.14 R and CASS 2.3.16 R, must list all custody assets held for the client for which the firm is accountable and:

  1. (1)

    identify any safe custody investment registered in the client's own name separately from those registered in any other name;

  2. (2)

    identify any custody assets which are being used as collateral or have been pledged to third parties, separately from any other custody assets;

  3. (3)

    show the market value of any collateral held, as at the date of the statement; and

  4. (4)

    for a private customer, base the statement on either trade date or settlement date information for cash balances and safe custody investment and notify the basis to the private customer.

CASS 2.3.18R

A firm may include the information required by CASS 2.3.17 R in any statement provided by the firm to the client in accordance with COB 8.2 (Periodic statements), or by other separate documents, as long as they are prepared in relation to the same date and delivered to the client within a reasonable period of one another.

CASS 2.3.19R

A statement under CASS 2.3.17 R must include client money unless this has been included in a statement separately despatched to the client within one month before or after the statement date.

CASS 2.3.20G

CASS 2.3.19 R refers to the client money balance as at the statement date for each client.

CASS 2.3.21R

A safe custody investment need not be included in a statement if a client transaction has been carried out within the previous three months and the firm does not intend to offer a safe custody service in relation to the safe custody investment.