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CASS 6.2 Holding of client assets

Requirement to protect clients' safe custody assets2

CASS 6.2.1R

1A firm must, when holding safe custody assets 2 belonging to clients, make adequate arrangements so as to safeguard clients' ownership rights, especially in the event of the firm's insolvency, and to prevent the use of safe custody assets 2 belonging to a client on the firm's own account except with the client's express consent.

[Note: article 13(7) of MiFID]

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Requirement to have adequate organisational arrangements

CASS 6.2.2R

A firm must introduce adequate organisational arrangements to minimise the risk of the loss or diminution of clients' safe custody assets,2 or the rights in connection with those safe custody assets,2 as a result of the misuse of the safe custody assets,2 fraud, poor administration, inadequate record-keeping or negligence.

[Note: article 16(1)(f) of the MiFID implementing Directive]

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Registration and recording of legal title2

CASS 6.2.3R

Subject to CASS 6.2.3A-1R, a9 firm must effect appropriate registration or recording of legal title to a safe custody asset 2 belonging to a client8 in the name of:

62
  1. (1)

    the client, unless the client is an authorised person acting on behalf of its client, in which case it may be registered in the name of the client of that authorised person;

    6
  2. (2)

    a nominee company which is controlled by:

    1. (a)

      the firm;

    2. (b)

      an affiliated company;

    3. (c)

      a recognised investment exchange; or

      5
    4. (d)

      a third party with whom financial instruments are deposited under CASS 6.3 (Depositing assets and arranging for assets to be deposited with third parties);3

  3. (3)

    any other third party, if the firm is not a trustee firm but is prevented from registering or recording legal title in the way set out in (1) or (2) and provided that:6

    6
    1. (a)

      the safe custody asset 2 is subject to the law or market practice of a jurisdiction outside the United Kingdom and the firm has taken reasonable steps to determine that it is in the client's best interests to register or record it in that way, or that it is not feasible to do otherwise, because of the nature of the applicable law or market practice; and

      2
    2. (b)

      the firm has notified the client in writing;

  4. (4)

    the firm if either:6

    1. (a)

      it is not a trustee firm but is prevented from registering or recording legal title in the way set out in (1), (2) or (3) and provided that:6

      6
      1. (i)

        the safe custody asset is subject to the law or market practice of a jurisdiction outside the United Kingdom and the firm has taken reasonable steps to determine that it is in the client's best interests to register or record it in that way, or that it is not feasible to do otherwise, because of the nature of the applicable law or market practice; and6

      2. (ii)

        the firm has notified the client if a professional client, or obtained prior written consent if a retail client.6

    2. (b)

      it is a trustee firm and is prevented from registering or recording legal title in the way set out in (1) or (2).6

      6
CASS 6.2.3A-1R

9A firm need not comply with CASS 6.2.3 R for any safe custody asset:

  1. (1)

    that it has deposited with a third party in accordance with CASS 6.3 (Depositing assets and arranging for assets to be deposited with third parties); and

  2. (2)

    for which, because of the arrangements with that third party for depositing the safe custody asset, it is not practicable for the firm to effect appropriate registration or recording of legal title itself.

CASS 6.2.3AR

4If:

  1. (1)

    the safe custody asset is an emission auction product that is a financial instrument; and

  2. (2)

    it is not practicable or possible for a firm to effect registration or recording of legal title in this asset in the manner set out in CASS 6.2.3 R,

the firm must register or record legal title in its name provided it has notified the client in writing.

CASS 6.2.3BG

6A firm, when complying with CASS 6.2.3R (3) or CASS 6.2.3R (4)(a), will be expected to demonstrate that adequate investigations have been made of the jurisdiction concerned by reference to local sources, which may include an appropriate legal opinion.

CASS 6.2.4R

A firm must accept the same level of responsibility to its client for any nominee company controlled by the firm, or any nominee company controlled by an affiliated company of the firm,6 with respect of any requirements of the custody rules.

CASS 6.2.5R

A firm may only6 register or record legal title to its own applicable asset 6 in the same name as that in which legal title to a client's 6 safe custody asset 2 is registered or recorded if the firm's applicable asset is separately identified from the client's safe custody asset in the firm's records, and either or both of the conditions in (1) and (2) are met.6

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  1. (1)

    The firm's holding of its own applicable asset arises incidentally to:6

    6
    1. (a)

      designated investment business it carries on for the account of any client; or6

    2. (b)

      steps taken by the firm to comply with an applicable custody rule;6

    and, in the case of either (a) or (b), the situation where registration or recording of legal title of the firm's applicable asset is in the same name as the client's safe custody asset under this rule remains in place only to the extent that it is reasonably necessary.6

  2. (2)

    The registration or recording of legal title of the firm's own applicable asset in the same name as the client's safe custody asset is only as a result of the law or market practice of a jurisdiction outside of the United Kingdom.6

    6
CASS 6.2.6G
6
  1. (1)

    Consistent with a firm's requirements to protect clients' safe custody assets and have adequate organisation arrangements in place (CASS 6.2.1 R and CASS 6.2.2 R), before a firm registers or records legal title to its own applicable asset in the same name as that in which legal title to a client's safe custody asset is registered or recorded under CASS 6.2.5 R, it should consider whether there are any means to avoid doing so.

  2. (2)

    Examples of where the conditions under CASS 6.2.5R (1) might be met include in the course of a firm:

    1. (a)

      correcting a dealing error that relates to a transaction for the account of a client; or

    2. (b)

      maintaining a small balance of the firm's own applicable assets for purely operational or compliance purposes (eg, as a float to cover potential custody shortfalls) in an amount that is proportionate to the total amount of safe custody assets held for clients; or

    3. (c)

      allocating safe custody assets to clients following settlement of a bulk order; or

    4. (d)

      facilitating a client transaction that involves fractional entitlements; or

    5. (e)

      making good a shortfall.6

CASS 6.2.7R

A firm must ensure that any documents of title to applicable assets 2 in bearer form, belonging to the firm and which it holds in its physical possession, are kept separately from any document of title to a client's safe custody assets 2 in bearer form.

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Allocated but unclaimed safe custody assets6

CASS 6.2.8G

6The purpose of CASS 6.2.10 R is to set out the requirements a firm must comply with if it chooses to divest itself of a client's unclaimed safe custody assets.

CASS 6.2.9G

6Before acting in accordance with CASS 6.2.10 R to CASS 6.2.16 G, a firm should consider whether its actions are permitted by law and consistent with the arrangements under which the safe custody assets are held. These provisions relate to a firm's obligations as an authorised person.

CASS 6.2.10R

6A firm may either (i) liquidate an unclaimed safe custody asset it holds for a client, at market value, and pay away the proceeds or (ii) pay away an unclaimed safe custody asset it holds for a client, in either case, to a registered charity of its choice provided:

  1. (1)

    this is permitted by law and consistent with the arrangements under which that safe custody asset is held;

  2. (2)

    it has held that safe custody asset for at least 12 years;

  3. (3)

    in the 12 years preceding the divestment of that safe custody asset, it has not received instructions relating to any safe custody assets from or on behalf of the client concerned;

  4. (4)

    it can demonstrate that it has taken reasonable steps to trace the client concerned and return that safe custody asset; and

  5. (5)

    the firm complies with CASS 6.2.14 R: the undertaking requirement.

CASS 6.2.11E
  1. (1)

    6Taking reasonable steps in CASS 6.2.10R (4) includes following this course of conduct:

    1. (a)

      determining, as far as reasonably possible, the correct contact details for the relevant client;

    2. (b)

      writing to the client at the last known address either by post or by electronic mail to inform it:

      1. (i)

        of the name of the firm with which the client first deposited the safe custody asset in question;

      2. (ii)

        of the firm's intention to pay the safe custody asset to charity under CASS 6.2.10 R if it does not receive instructions from the client within 28 days;

    3. (c)

      where the client has not responded after the 28 days referred to in (b) attempting to communicate the information set out in (b) to the client on at least one further occasion by any means other than that used in (b) including by post, electronic mail, telephone or media advertisement;

    4. (d)

      subject to (e) and (f), where the client has not responded within 28 days following the most recent communication, writing again to the client at the last known address either by post or by electronic mail to inform them that:

      1. (i)

        as the firm received no instructions from the client, it will in 28 days pay the safe custody asset to charity under CASS 6.2.10 R; and

      2. (ii)

        an undertaking will be provided by the firm or a member of its group to pay to the client concerned a sum equal to the value of the safe custody asset at the time it was liquidated or paid away in the event of the client seeking to claim the safe custody asset in future;

    5. (e)

      if the firm has carried out the steps in (b) or (c) and in response has received positive confirmation in writing that the client is no longer at a particular address, the firm should not use that address for the purposes of (d);

    6. (f)

      if, after carrying out the steps in (a), (b) and (c), the firm has obtained positive confirmation that none of the contact details it holds for the relevant client are accurate or, if utilised, the communication is unlikely to reach the client, the firm does not have to comply with (d); and

    7. (g)

      waiting a further 28 days following the most recent communication under this rule before divesting itself of the safe custody asset under CASS 6.2.10 R.

  2. (2)

    Compliance with (1) may be relied on as tending to establish compliance with CASS 6.2.10R (4).

  3. (3)

    Contravention of (1) may be relied on as tending to establish contravention of CASS 6.2.10R (4).

CASS 6.2.12G

6For the purpose of CASS 6.2.11E (1)(a), a firm may use any available means to determine the correct contact details for the relevant client, including telephoning the client, searching internal records, media advertising, searching public records, mortality screening, using credit reference agencies or tracing agents.

CASS 6.2.13R

6Where a firm liquidates a safe custody asset under CASS 6.2.10 R, it must pay away the proceeds to charity as soon as practicable.

CASS 6.2.14R

6Where a firm divests itself of a client's safe custody asset under CASS 6.2.10 R, it must comply with either (1)(a) or (1)(b) and, in either case, (2).

  1. (1)
    1. (a)

      The firm must unconditionally undertake to pay to the client concerned a sum equal to the value of the safe custody asset at the time it was liquidated or paid away in the event of the client seeking to claim the safe custody asset in future.

    2. (b)

      The firm must ensure that an unconditional undertaking in the terms set out in (1)(a)7 is made by a member of its group and there is suitable information available for relevant clients to identify the member of the group granting the undertaking.

  2. (2)

    Any undertaking under this rule must be:

    1. (a)

      authorised by the firm's governing body where (1)(a)7 applies or the governing body of the group member where (1)(b)7 applies;

    2. (b)

      legally enforceable by any person that had a legally enforceable claim to the unclaimed safe custody asset in question at the time it was divested by the firm, or by an assign or successor in title to such claim; and

    3. (c)

      retained by the firm, and, where (1)(b)7 applies, by the group member, indefinitely.

CASS 6.2.15R
  1. (1)

    6If a firm pays away a client's unclaimed safe custody assets to charity or liquidates a client's unclaimed safe custody assets and pays the proceeds to charity under CASS 6.2.10 R it must make and retain, or where the firm already has such records, retain:

    1. (a)

      records of all safe custody assets divested under CASS 6.2.10 R (including details of the value of each asset at that time and the identity of the client to whom the asset was allocated);

    2. (b)

      all relevant documentation (including charity receipts); and

    3. (c)

      details of the communications the firm had or attempted to make with the client concerned pursuant to CASS 6.2.10R (4).

  2. (2)

    Records in (1) must be retained indefinitely.

  3. (3)

    If a member of the firm's group has provided an undertaking under CASS 6.2.14R (1)(b) then the records in (1) must be readily accessible to that group member.

Costs associated with divesting allocated but unclaimed client assets

CASS 6.2.16G

6Any costs associated with the firm divesting itself of safe custody assets pursuant to CASS 6.2.10 R to CASS 6.2.15 R should be paid for from the firm's own funds, including:

  1. (1)

    any costs associated with the firm carrying out the steps in CASS 6.2.10R (4) or CASS 6.2.11 E; and

  2. (2)

    the cost of any insurance purchased by a firm or the relevant member of its group to cover any legally enforceable claim in respect of the assets divested under CASS 6.2.10 R.