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CASS 6.4 Use of safe custody assets2

CASS 6.4.1RRP
  1. (1)

    1A firm must not enter into arrangements for securities financing transactions in respect of safe custody assets 2 held by it on behalf of a client or otherwise use such safe custody assets 2 for its own account or the account of any other person or6 client of the firm, unless:

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    1. (a)

      the client has given express prior consent to the use of the safe custody assets 2 on specified terms; and

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    2. (b)

      the use of that client's safe custody assets 2 is restricted to the specified terms to which the client consents.

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  2. (2)

    A firm must not enter into arrangements for securities financing transactions in respect of safe custody assets 2 held by it on behalf of a client in an omnibus account maintained6 by a third party, or otherwise use safe custody assets 2 held in such an account for its own account or for the account of any other person6 unless, in addition to the conditions set out in (1):

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    1. (a)

      each client whose safe custody assets 2 are held together in an omnibus account has given express prior consent in accordance with (1)(a); or

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    2. (b)

      the firm has in place systems and controls which ensure that only safe custody assets 2 belonging to clients who have given express prior consent in accordance with (1)(a) are so6 used.

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  3. (3)

    For the purposes of obtaining the express prior consent of a 6client under this rule, the consent must be clearly evidenced in writing and6 the signature of the client6 or an equivalent alternative means of affirmative execution6 is required.

  4. (4)

    [deleted]4

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[Note: article 5(1) and (2) of the MiFID Delegated Directive6]

CASS 6.4.1AGRP

5The FCA expects firms which enter into arrangements under CASS 6.4.1 R with retail clients to only enter into securities financing transactions and not otherwise use retail clients' 6 safe custody assets.

CASS 6.4.1BGRP
  1. (1)

    6Prior express consent by clients should be given and recorded by firms in order to allow the firm to demonstrate clearly what the client agreed to and to help clarify the status of safe custody assets.

  2. (2)

    Clients’ consent may be given once at the start of the commercial relationship, as long as it is sufficiently clear that the client has consented to the use of their safe custody assets.

  3. (3)

    Where a firm is acting on a client instruction to lend safe custody assets and where this constitutes consent to entering into the transaction, the firm should hold evidence to demonstrate this.

[Note: recital 10 to the MiFID Delegated Directive]

CASS 6.4.1CRRP

6A firm must take appropriate measures to prevent the unauthorised use of safe custody assets for its own account or the account of any other person, such as:

  1. (1)

    the conclusion of agreements with clients on measures to be taken by the firm in case the client does not have enough provision on its account on the settlement date, such as borrowing of the corresponding securities on behalf of the client or unwinding the position;

  2. (2)

    the close monitoring by the firm of its projected ability to deliver on the settlement date;

  3. (3)

    the putting in place of remedial measures if the firm cannot deliver on the settlement date; and

  4. (4)

    the close monitoring and prompt requesting of undelivered securities outstanding on the settlement day and beyond.

[Note: article 5(3) of the MiFID Delegated Directive]

CASS 6.4.1DG

6Examples of remedial measures in CASS 6.4.1CR(3)7 can be found in CASS 6.6.54R.

CASS 6.4.2GRP

Firms are reminded of the client's best interests rule, which requires the firm to act honestly, fairly and professionally in accordance with the best interests of their clients. For any transactions involving retail clients carried out under this section the FCA expects that:5

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  1. (1)

    the firm ensures that relevant collateral is provided by the borrower in favour of the client;

  2. (2)

    the current realisable value of the safe custody asset 2 and of the relevant collateral is monitored daily; and

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  3. (3)

    the firm provides relevant collateral to make up the difference where the current realisable value of the collateral falls below that of the safe custody asset 2 , unless otherwise agreed in writing by the client.

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CASS 6.4.2ARRP

6A firm must adopt specific arrangements for all clients to ensure that the borrower of client safe custody assets provides the appropriate collateral and that the firm monitors the continued appropriateness of such collateral and takes the necessary steps to maintain the balance with the value of the client safe custody assets.

[Note: article 5(4) of the MiFID Delegated Directive]

CASS 6.4.2BGRP

6The requirement to monitor collateral under CASS 6.4.2AR applies to a firm where it is party to a securities financing transaction, including when acting as an agent for the conclusion of a securities financing transaction or in the case of a tripartite transaction between a borrower, a client and the firm.

[Note: recital 9 to the MiFID Delegated Directive]

CASS 6.4.3RRP

Where a firm uses safe custody assets 2 as permitted in this section, the records of the firm must include details of the client on whose instructions the use of the safe custody assets 2 has been effected, as well as the number of safe custody assets 2 used belonging to each client who has given consent, so as to enable the correct allocation of any loss.

[Note: article 5(2), second sub-paragraph of the MiFID Delegated Directive6]

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