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CASS 6.3 Depositing assets with third parties

CASS 6.3.1 R RP
  1. (1)

    1A firm may deposit financial instruments 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 financial instruments.

  2. (2)

    A firm must take the necessary steps to ensure that any client'sfinancial instruments deposited with a third party, in accordance with this rule are identifiable separately from the financial instruments belonging to the firm and from the financial instruments 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.

  3. (3)

    When a firm makes the selection, appointment and conducts the periodic review referred under 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 financial instruments that could adversely affect clients' rights.

  4. (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 financial instruments belonging to clients.

[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 financial instrument has been lodged by the firm with the third party, the third party's performance of its services to the firm;

  2. (2)

    the arrangements that the third party has in place for holding and safeguarding the financial instrument;

  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 financial instruments belonging to a client. The following terms are examples of the issues firms should address in this agreement:

  1. (1)

    that the title of the account indicates that any financial instrument credited to it does not belong to the firm;

  2. (2)

    that the third party will hold or record a financial instrument belonging to the firm'sclient separately from any financial instrument belonging to the firm or to the third party;

  3. (3)

    the arrangements for registration or recording of the financial instrument if this will not be registered in the client's name;

  4. (4)

    the restrictions over the third party's right to claim a lien, right of retention or sale over any financial instrument standing to the credit of the account;

  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 financial instrument caused by the fraud, wilful default or negligence of the third party or an agent appointed by him.

CASS 6.3.4 R RP
  1. (1)

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

  2. (2)

    A firm must not deposit financial instruments 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 financial instruments for the account of another person unless:

    1. (a)

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

    2. (b)

      the financial instruments 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.

  3. (3)

    In the case of activities a firm has opted into this chapter under CASS 6.1.17R (1) and (2) do not apply. However, the firm must deposit financial instruments belonging to clients pursuant to such activities with a custodian and must hold any document of title to a financial instrument either in the physical possession of the firm or:

    1. (a)

      for a retail client, with a custodian;

    2. (b)

      for a professional client, with one or more of the following:

      1. (i)

        a custodian;

      2. (ii)

        any person whom the firm has taken reasonable steps to determine is a person whose business includes the provision of appropriate safe custody services; or

      3. (iii)

        in accordance with the professional client's specific written instructions.

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