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Status: You are viewing the version of the handbook as on 2009-03-31.

CASS 6.1 Application

CASS 6.1.1RRP

This chapter (the custody rules) applies to a firm:2 1

  1. (1)

    [deleted]2

    2
    1. (a)

      [deleted]2

      2
    2. (b)

      [deleted]2

      2
  2. (1A)

    2when it holds financial instruments belonging to a client in the course of its MiFID business; and/or

  3. (1B)

    2when it is safeguarding and administering investments, in the course of business that is not MiFID business.

  4. (2)

    [deleted]2

    2
CASS 6.1.1AGRP

2The regulated activity of safeguarding and administering investments covers both the safeguarding and administration of assets (without arranging) andarranging the safeguarding and administration of assets, when those assets are either safe custody investments or custody assets. A safe custody investment is, in summary, a designated investment which a firm receives or holds on behalf of a client. Custody assets include designated investments, and any other assets that the firm holds or may hold in the same portfolio as a designated investment held for or on behalf of the client.

CASS 6.1.1BRRP

2Firms to which the custody rules apply by virtue of CASS 6.1.1R (1B) must also apply the custody rules to those custody assets which are not safe custody investments in a manner appropriate to the nature and value of those custody assets.

CASS 6.1.1CGRP

2In accordance with article 42 of the Regulated Activities Order, a firm ("I") will not be arranging safeguarding and administration of assets if it introduces a client to another firm whose permitted activities include the safeguarding and administration of investments, or to an exempt person acting as such, with a view to that other firm or exempt person:

  1. (1)

    providing a safe custody service in the United Kingdom; or

  2. (2)

    arranging for the provision of a safe custody service in the United Kingdom by another person;

and the other firm, exempt person or other person who is to provide the safe custody service is not in the same group as I, and does not remunerate I.

CASS 6.1.2GRP

Firms are reminded that dividends (actual or payments in lieu), stock lending fees and other payments received for the benefit of a client, and which are due to the clients,2 should be held in accordance with the client money chapter where appropriate.

2
CASS 6.1.3G

[deleted]2

2

Business in the name of the firm

CASS 6.1.4RRP

The custody rules do not apply where a firm carries on business in its name but on behalf of the client where that is required by the very nature of the transaction and the client is in agreement.

[Note: recital 26 to MiFID]

CASS 6.1.5GRP

For example, this chapter does not apply where a firm borrows safe custody assets 2 from a client as principal under a stock lending agreement.

2

Title transfer collateral arrangements

CASS 6.1.6RRP

The custody rules do not apply where a client transfers full ownership of a safe custody asset 2 to a firm for the purpose of securing or otherwise covering present or future, actual, contingent or prospective obligations.

[Note: recital 27 to MiFID]

2
CASS 6.1.7G

A title transfer financial collateral arrangement under the Financial Collateral Directive is a type of transfer of instruments to cover obligations where the financial instrument will not be regarded as belonging to the client.

CASS 6.1.8GRP

Firms are reminded of the client's best interests rule, which requires them to act honestly, fairly and professionally in accordance with the best interests of their clients when structuring their business particularly in respect of the effect of that structure on firms' obligations under this chapter.

CASS 6.1.9GRP

Firms are reminded that, in certain cases, the collateral rules apply where a firm receives collateral from a client in order to secure the obligations of the client.

Affiliated companies - MiFID business2

CASS 6.1.10GRP

The fact that a client is an affiliated company in respect of MiFID business2 does not affect the operation of the custody rules in relation to that client.

Affiliated companies - non-MiFID business2

CASS 6.1.10AG

2In respect of business which is not MiFID business, the custody rules do not apply to a firm when it safeguards and administers a designated investment on behalf of an affiliated company, unless:

  1. (1)

    the firm has been notified that the designated investment belongs to a client of the affiliated company; or

  2. (2)

    the affiliated company is a client dealt with at arm's length.

CASS 6.1.11G

[deleted]2

2

Delivery versus payment transactions

CASS 6.1.12RRP
  1. (1)

    A firm need not treat this chapter as applying in respect of a delivery versus payment transaction through a commercial settlement system if it is intended that the safe custody asset 2 is either to be:

    2
    1. (a)

      in respect of a client's purchase, due to the client within one business day following the client's fulfilment of a payment obligation; or

    2. (b)

      in respect of a client's sale, due to the firm within one business day following the fulfilment of a payment obligation;

    unless the delivery or payment by the firm does not occur by the close of business on the third business day following the date of payment or delivery of the safe custody asset 2 by the client.

    2
  2. (2)

    Until such a delivery versus payment transaction through a commercial settlement system settles, a firm may segregate money (in accordance with the client money chapter ) instead of the client's safe custody assets.2

    22
CASS 6.1.13G

[deleted]2

2
CASS 6.1.14G

[deleted]2

2

Temporary handling of safe custody assets2

CASS 6.1.15GRP

The custody rules do not apply if a firm temporarily handles a safe custody asset 2 belonging to a client. A firm should temporarily handle a safe custody asset 2 for no longer than is reasonably necessary. In most transactions this would be no longer than one business day, but it may be longer or shorter depending upon the transaction in question. For example, when a firm executes an order to sell shares which have not been registered on a de-materialised exchange, handling documents for longer periods may be reasonably necessary. However, in the case of safe custody assets 2 in bearer form, the firm is expected to handle them for less than one business day. When a firm temporarily handles safe custody assets,2 it is still obliged to comply with Principle 10 (Clients' assets).

2222
CASS 6.1.16GRP

When a firm temporarily handles a safe custody asset,2 in order to comply with its obligation to act in accordance with Principle 10 (Clients' assets), the following are guides to good practice:

2
  1. (1)

    a firm should keep the safe custody asset 2 secure, record it as belonging to that client, and forward it to the client or in accordance with the client's instructions as soon as practicable after receiving it; and

    2
  2. (2)

    a firm should make and retain a record of the fact that the firm has handled that safe custody asset 2 and of the details of the client concerned and of any action the firm has taken.

    2

Exemptions which do not apply to MiFID business

CASS 6.1.16ARRP

2The exemptions in CASS 6.1.16B R to CASS 6.1.16D G do not apply to a MiFID investment firm which holds financial instruments belonging to a client in the course of MiFID business.

Operators of regulated collective investment schemes

CASS 6.1.16BR

2The custody rules do not apply to a firm when it acts as the operator of a regulated collective investment scheme, in relation to activities carried on for the purpose of, or in connection with, the operation of the scheme.

Personal investment firms

CASS 6.1.16CRRP

2The custody rules do not apply to a personal investment firm when it temporarily holds a designated investment, other than in bearer form, belonging to a client, if the firm:

  1. (1)

    keeps it secure, records it as belonging to that client, and forwards it to the client or in accordance with the client's instructions, as soon as practicable after receiving it;

  2. (2)

    retains the designated investment for no longer than the firm has taken reasonable steps to determine is necessary to check for errors and to receive the final document in connection with any series of transactions to which the documents relate; and

  3. (3)

    makes a record, which must then be retained for a period of 5 years after the record is made, of all the designated investments handled in accordance with (1) and (2) together with the details of the clients concerned and of any action the firm has taken.

CASS 6.1.16DGRP

2Administrative convenience alone should not lead a personal investment firm to rely on CASS 6.1.16C R. Personal investment firms should consider what is in the client's interest and not rely on CASS 6.1.16C R as a matter of course.

Trustees and depositaries

CASS 6.1.16ERRP

2The specialist regime in CASS 6.1.16F R to CASS 6.1.16I G does not apply to a MiFID investment firm which holds financial instruments belonging to a client in the course of MiFID business.

CASS 6.1.16FRRP

2When a trustee firm or depositary acts as a custodian for a trust or collective investment scheme and:

  1. (1)

    the trust or scheme is established by written instrument; and

  2. (2)

    the trustee firm or depositary has taken reasonable steps to determine that the relevant law and provisions of the trust instrument or scheme constitution will provide protections at least equivalent to the custody rules for the trust property or scheme property;

the trustee firm or depositary need comply only with the custody rules listed in the table below.

Reference

Rule

CASS 6.1.1 R to CASS 6.1.9 G and CASS 6.1.15 G to CASS 6.1.16C R

Application

CASS 6.1.16E R to CASS 6.1.16I G

Trustees and depositaries

CASS 6.1.22 G to CASS 6.1.24 G

General purpose

CASS 6.2.1 R and CASS 6.2.2 R

Protection of clients' safe custody assets

CASS 6.2.3 R and CASS 6.2.6 G

Registration and recording

CASS 6.2.7 R

Holding

CASS 6.4.1 R and CASS 6.4.2 G

Use of safe custody assets

CASS 6.5.

Records, accounts and reconciliations

CASS 6.1.16GGRP

2The reasonable steps referred in CASS 6.1.16FR (2) could include obtaining an appropriate legal opinion to that effect.

CASS 6.1.16HR

2When a trustee firm or depositary within CASS 6.1.16F R arranges for, or delegates the provision of safe custody services by or to another person, the trustee firm or depositary must also comply with CASS 6.3.1 R (Depositing assets and arranging for assets to be deposited with third parties) in addition to the custody rules listed in the table in CASS 6.1.16F R.

CASS 6.1.16IGRP

2A trustee firm or depositary that just arranges safeguarding and administration of assets may also take advantage of the exemption in CASS 6.1.16J R (Arrangers).

Arrangers

CASS 6.1.16JRRP

2Only the custody rules in the table below apply to a firm when arranging safeguarding and administration of assets.

Reference

Rule

CASS 6.1.1 R to CASS 6.1.9 G and CASS 6.1.15 G to CASS 6.1.16B R

Application

CASS 6.1.16J R

Arrangers

CASS 6.1.22 G to CASS 6.1.24 G

General purpose

CASS 6.3.1R (1A) and CASS 6.3.2 G

Arranging for assets to be deposited with third parties

CASS 6.1.16K R

Records

CASS 6.1.16KRRP

2When a firm arranges safeguarding and administration of assets, it must ensure that proper records of the custody assets which it arranges for another to hold or receive, on behalf of the client, are made and retained for a period of 5 years after they are made.

CASS 6.1.17R
  1. (1)

    [deleted]2

    2
  2. (1A)

    [deleted]2

    2
  3. (2)

    [deleted]2

    2
  4. (3)

    [deleted]2

    2
CASS 6.1.18G

[deleted]2

2
CASS 6.1.19G

[deleted]2

2
CASS 6.1.20G

[deleted]2

2
CASS 6.1.20AG

[deleted]2

2
CASS 6.1.21R

[deleted]2

2

General purpose

CASS 6.1.22GRP

Principle 10 (Clients' assets) requires a firm to arrange adequate protection for clients' assets when it is responsible for them. As part of these protections, the custody rules require a firm to take appropriate steps to protect safe custody assets 2 for which it is responsible.

2
CASS 6.1.23GRP

The rules in this chapter are designed primarily to restrict the commingling of client and the firm's assets and minimise the risk of the client's safe custody assets 2 being used by the firm without the client's agreement or contrary to the client's wishes, or being treated as the firm's assets in the event of its insolvency.

2
CASS 6.1.24GRP

The custody rules also, where relevant,2 implement the provisions of MiFID which regulate the obligations of a firm when it holds financial instruments belonging to a client in the course of its MiFID business.2