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CASS 6.3 Depositing assets and arranging for assets to be deposited with third parties2

CASS 6.3.1 R RP
  1. (1)

    1A firm may deposit safe custody assets2 held by it on behalf of its clients into an account or accounts opened with a third party, but only if it exercises all due skill, care and diligence in the selection, appointment and periodic review of the third party and of the arrangements for the holding and safekeeping of those safe custody assets.2

    22
  2. (1A)

    A firm which arranges the registration of a safe custody investment through a third party must exercise all due skill, care and diligence in the selection and appointment of the third party.2

  3. (2)

    A firm must take the necessary steps to ensure that any client'ssafe custody assets2 deposited with a third party, in accordance with this rule are identifiable separately from the applicable assets2 belonging to the firm and from the applicable assets2 belonging to that third party, by means of differently titled accounts on the books of the third party or other equivalent measures that achieve the same level of protection.

    222
  4. (3)

    When a firm makes the selection, appointment and conducts the periodic review referred to 2under this rule, it must take into account:

    1. (a)

      the expertise and market reputation of the third party; and

    2. (b)

      any legal requirements or market practices related to the holding of those safe custody assets2 that could adversely affect clients' rights.

      2
  5. (4)

    A firm must make a record of the grounds upon which it satisfies itself as to the appropriateness of its selection of a third party as required in this rule. The firm must make the record on the date it makes the selection and must keep it from the date of such selection until five years after the firm ceases to use the third party to hold safe custody assets2 belonging to clients.

    2

[Note: articles 16(1)(d) and 17(1) of the MiFID implementing Directive]

CASS 6.3.2 G RP

In discharging its obligations under this section, a firm should also consider, together with any other relevant matters:

  1. (1)

    once a safe custody asset2 has been lodged by the firm with the third party, the third party's performance of its services to the firm;

    2
  2. (2)

    the arrangements that the third party has in place for holding and safeguarding the safe custody asset;2

    2
  3. (3)

    current industry standard reports, for example Financial Reporting and Auditing Group (FRAG) 21 report or its equivalent;

  4. (4)

    the capital or financial resources of the third party;

  5. (5)

    the credit rating of the third party; and and

  6. (6)

    any other activities undertaken by the third party and, if relevant, any affiliated company.

CASS 6.3.3 G

A firm should consider carefully the terms of its agreements with third parties with which it will deposit safe custody assets2 belonging to a client. The following terms are examples of the issues firms should address in this agreement:

2
  1. (1)

    that the title of the account indicates that any safe custody asset2 credited to it does not belong to the firm;

    2
  2. (2)

    that the third party will hold or record a safe custody asset2 belonging to the firm'sclient separately from any applicable asset2 belonging to the firm or to the third party;

    22
  3. (3)

    the arrangements for registration or recording of the safe custody asset2 if this will not be registered in the client's name;

    2
  4. (4)

    3 [deleted]5

    235
  5. (5)

    the restrictions over the circumstances in which the third party may withdraw assets from the account;

  6. (6)

    the procedures and authorities for the passing of instructions to or by the firm;

  7. (7)

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

  8. (8)

    the provisions detailing the extent of the third party's liability in the event of the loss of a safe custody asset2 caused by the fraud, wilful default or negligence of the third party or an agent appointed by him.

    2
CASS 6.3.4 R RP
  1. (1)

    A firm must only deposit safe custody assets2 with a third party in a jurisdiction which specifically regulates and supervises the safekeeping of safe custody assets2 for the account of another person with a third party who is subject to such regulation.

    22
  2. (2)

    A firm must not deposit safe custody assets2 held on behalf of a client with a third party in a country that is not an EEA State (third country) and which does not regulate the holding and safekeeping of safe custody assets2 for the account of another person unless:

    22
    1. (a)

      the nature of the safe custody assets2 or of the investment services connected with those safe custody assets2 requires them to be deposited with a third party in that third country; or

      22
    2. (b)

      the safe custody assets2 are held on behalf of a professional client and the client requests the firm in writing to deposit them with a third party in that third country.

      2
  3. (3)

    [deleted]2

    2
    1. (a)

      [deleted]2

      2
    2. (b)

      [deleted]2

      2
      1. (i)

        [deleted]2

        2
      2. (ii)

        [deleted]2

        2
      3. (iii)

        [deleted]2

        2

[Note: article 17(2) and (3) of the MiFID implementing Directive]

CASS 6.3.5 R

Subject to CASS 6.3.6 R, in relation to a third party with which a firm deposits safe custody assets belonging to a client, a firm must ensure that any5 agreement with that third party relating to the custody of those assets does not include the grant to that party, or to any other person, of a lien or a right of retention or sale over the safe custody assets, or a right of set-off over any client money derived from those safe custody assets.3

5 5
CASS 6.3.6 R

A firm may conclude an agreement with a third party relating to the custody of safe custody assets which confers on that5 party, or on another person instructed by that party to provide custody services for those assets,5 a lien, right of retention or sale, or right of set-off in favour of that party or that other person only if that lien or right:

5 5 5
  1. (1)

    is confined to those safe custody assets held in an account with that third party or that other person and extends only to5 properly incurred charges and liabilities arising from the provision of custody services in respect of safe custody assets held in that account; or5

    55
  2. (2)

    arises under the operating terms of a securities depository, securities settlement system or central counterparty in whose account safe custody assets5 are recorded or held, and provided that it does so for the purpose only of facilitating the settlement of trades involving the assets held in that account; or5

    55
  3. (3)

    arises in relation to those safe custody assets5 held in a jurisdiction outside the United Kingdom,5 provided that:

    5
    1. (a)

      it does so as a result of local applicable law in that jurisdiction or is necessary for that firm to gain access to the local market in that jurisdiction;5 and

      5
    2. (b)

      in respect of each client to which those assets belong, either:5

      1. (i)

        the firm has taken reasonable steps to determine that holding those assets subject to that lien or right is in the best interests of that client; or5

      2. (ii)

        where a client is a professional client, the firm is instructed by that client to hold those assets in that jurisdiction notwithstanding the existence of that lien or right.5

CASS 6.3.7 G

5A firm will be considered to be acting on the instructions of its professional client under CASS 6.3.6R (3)(b)(ii) where:

  1. (1)

    the firm has received an individual instruction or has a standing instruction in its terms of business which results in it holding safe custody assets in the relevant jurisdiction; and

  2. (2)

    prior to acting on the instruction, the firm has expressly informed the client that holding that client'ssafe custody assets in the relevant jurisdiction will involve the granting of a lien or right over those assets. The firm may do this by discussing the lien or right individually with the client or by including reference to it in terms of business (which may themselves cross refer to a separate list of relevant jurisdictions to which CASS 6.3.6R (3)(a) applies maintained on the firm's website in a form accessible to clients) or by a similar method.

CASS 6.3.8 R

5For the purpose of CASS 6.3.6 R, references to a safe custody asset include any client money derived from that safe custody asset. Client money derived from a safe custody asset may be regarded as held in the same account as that safe custody asset even though that money and those assets may be recorded separately.

CASS 6.3.9 R RP

5 CASS 6.3.6 R does not permit a firm to agree to a right of set-off of the kind prohibited by either CASS 7.8.1 R or CASS 7.8.2 R in relation to client money.