FCA Handbook - CASS 16.2 Managing and safeguarding backing assets

You are viewing CASS 16.2 Managing and safeguarding backing assets as it appeared on 25/10/2027. The current version of CASS 16.2 Managing and safeguarding backing assets was last updated on 25/10/2027.

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CASS 16.2 Managing and safeguarding backing assets

A firm must ensure that at all times, and separately in relation to each qualifying stablecoin product:

(1) it holds in a backing asset pool either:
1. (a) money; or
2. (b) money and assets;
(2) the relevant backing asset pool is:
1. (a) held in such a way that the money and assets it contains are segregated from the firm’s own money and assets and any other backing asset pools; and
2. (b) held in accounts which are backing funds accounts or backing assets accounts that meet the conditions in CASS 16.2.3R or CASS 16.2.4R as appropriate;
(3) subject to CASS 16.4.16R, the value of the relevant backing asset pool is equal to the reference value of the qualifying stablecoins in that qualifying stablecoin product multiplied by the relevant stablecoin pool; and
(4) it holds at least 5% of the backing asset pool in on-demand deposits (the on-demand deposit requirement).

A firm must not hold electronic money in a backing asset pool.

A backing funds account must be an account in which the firm can hold on-demand deposits and which meets the following conditions:

(1) it is provided by one of the following:
1. (a) a central bank;
2. (b) a CRD credit institution; or
3. (c) an approved bank;
(2) it is provided by another person (a ‘third party’) the appointment of which complied with the rules in CASS 16.6 (Appointment of third parties) and CASS 16.7 (Acknowledgement letters);
(3) it is expressly held in the name of the firm; and
(4) it includes in its title an appropriate description to distinguish the money in the account from the firm’s own money or money in the backing asset pool for another qualifying stablecoin product.

A backing assets account must meet the following conditions:

(1) it is used by a firm to hold core backing assets (excluding on-demand deposits) and expanded backing assets;
(2) it is provided by a third-party custodian the appointment of which meets the conditions set out in CASS 16.6 (Appointment of third parties) and CASS 16.7 (Acknowledgement letters);
(3) it is expressly held in the name of the firm; and
(4) it includes in its title an appropriate description to distinguish the assets in the account from the firm’s own assets and assets in the backing asset pool for another qualifying stablecoin product.

For the purposes of CASS 16.2.1R, the value of a backing asset pool is the aggregate value calculated in the reference currency of:

(1) all money held in a backing funds account; and
(2) all assets held in a backing assets account.

For the purposes of calculating the value of assets under CASS 16.2.5R(2), a firm must ensure that:

(1) any valuation of assets is performed with due skill, care and diligence;
(2) to value the assets, it uses:
1. (a) the market value of the relevant assets; or
2. (b) where a market value is not available for an asset, an alternative measure of fair value, which may include an estimated value calculated on a best-efforts basis;
(3) it bases calculations on its records at the close of business on the previous business day; and
(4) it records the process by which it has calculated the value of assets, including which method of valuation has been used.

For the purposes of CASS 16.2.6R, relevant assets in the context of a repurchase transaction are the assets, rights or money received or held as counterparty to that transaction.

A stablecoin pool is a number (X) of qualifying stablecoins in the qualifying stablecoin product to which the relevant backing asset pool relates, calculated as follows:
X = A – (B + C)
where:
• A is the number of such qualifying stablecoins that have ever been minted;
- • B is the number of such qualifying stablecoins that have ever been burned; and
- • C is the number of such qualifying stablecoins received in the course of carrying out, or in connection with, a redemption in the 24 hours preceding the point of calculation which have neither been recorded as part of the relevant stablecoin pool nor burned.

For the purposes of carrying out the calculation in CASS 16.2.8R, a firm should include stablecoins which are part of the qualifying stablecoin product in question which were minted or burned at any point, including before 25 October 2027, and including those which may have been minted, burned or received in respect of a redemption by a person other than the qualifying stablecoin issuer.

(1) A firm must at all times keep records of at least the following for each qualifying stablecoin product:
1. (a) the total number of qualifying stablecoins that have ever been minted; and
2. (b) the total number of qualifying stablecoins that have ever been burned.
(2) At least once in every 24-hour period a firm must calculate, and keep a record of, the value of C in CASS 16.2.8R for each qualifying stablecoin product.

Records kept under CASS 16.2.10R may include records about activities carried out by a firm directly as well as activities carried out by a third party on behalf of that firm, or by any other person who may be involved in the minting, burning, recording or redemption of a stablecoin which forms part of a qualifying stablecoin product.

Interest and income

(1) Save as set out in (3), a firm must not directly or indirectly pay interest or income to the holder of a qualifying stablecoin.
(2) For the purposes of (1), interest or income includes any incentive the provision or amount of which is connected to the length of time for which a person is the holder of a qualifying stablecoin.
(3) Firms may provide benefits that are unconnected to the length of time for which a person is the holder of a qualifying stablecoin, provided they do so in a manner which meets the conditions set out in Paragraph 3A of the Schedule to the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001 and Regulation 3A of the Alternative Investment Fund Managers Regulation 2013.

A firm may keep interest or income accruing from a backing asset pool for its own account, provided that it does so in accordance with CASS 16.4 (Records and reconciliations) and any other legal or regulatory obligations to which the firm is subject.

Permissible backing assets in backing asset pools

A firm must hold all money and assets in a backing asset pool in the denominated reference currency of the qualifying stablecoin product.

Subject to CASS 16.2.16R, a firm may only hold core backing assets in a backing asset pool.

Conditions for holding expanded backing assets in a backing asset pool

A firm may hold expanded backing assets in addition to core backing assets in a backing asset pool if it meets the following requirements:

(1) it must notify the FCA of its intention to hold expanded backing assets using the online notification and application system;
(2) it must comply with the rules in CASS 16.2.17R to CASS 16.2.31R in respect of that backing asset pool; and
(3) it must ensure that money or assets held as counterparty under a repurchase transaction (whether as a repurchase agreement or reverse repurchase agreement) are not pledged or reused to engage in a further repurchase transaction or any other investment.

Expanded backing asset pool risk management

A firm must have in place a robust risk management framework that enables it to identify, measure and manage risks in relation to the backing asset pool, including at least the following:

(1) a liquidity risk management policy which:
1. (a) considers the nature and level of the liquidity risk to which the money or assets in the backing asset pool is or might be exposed;
2. (b) contains a clear statement of which days of the year will be redemption days and which will not;
3. (c) sets out how a firm will undertake liquidity stress testing, including:
  1. (i) risk tolerance limits on liquidity positions;
  2. (ii) the detailed methodology by which such limits will be calibrated; and
  3. (iii) the way in which the needs and availability of liquidity in the backing asset pool will be monitored;
4. (d) takes into account liquidity stress testing when considering potential measures which could be taken to strengthen the liquidity arrangements within the backing asset pool; and
5. (e) sets out the amount, type and profile of liquidity resource that it considers adequate to meet:
  1. (i) the obligations in CRYPTO 2.4.5R and CRYPTO 2.4.14R(3) in relation to redemption; and
  2. (ii) the backing asset composition requirement;
(2) a liquidity contingency funding plan, which describes the tools that will be used to monitor market conditions, and which addresses how additional liquidity would be sourced:
1. (a) in the event that the firm no longer meets its backing asset composition requirement; and
2. (b) in the event of wider market stress which may impact the number of redemptions anticipated; and
(3) a prudent custody policy which:
1. (a) addresses all aspects of who will provide custody for assets in the backing asset pool; and
2. (b) ensures prompt access to those assets when required.

Stress testing under a liquidity risk management policy which meets the requirements of CASS 16.2.17R(1) should not result in a minimum holding of core backing assets that is lower than that required by the backing asset composition requirement.

The liquidity contingency funding plan should outline strategies for addressing liquidity shortfalls and should set out which individual or individuals within the firm are responsible for its monitoring and execution. It should also describe the tools used to monitor market conditions to determine when exceptional circumstances might be present. The plan should include identified funding alternatives.

A prudent custody policy should ensure against concentration of assets or asset classes with a particular custodian or group of custodians, and ensure appropriate diversification between custodians (including compliance with CASS 16.6.8R).

All framework and policy documents in CASS 16.2.17R must make clear:

(1) the identity of the person who is responsible for their monitoring and execution within the firm;
(2) the way in which senior managers have oversight of their monitoring and execution; and
(3) the frequency with which they will be reviewed and updated.

A firm must have in place robust processes and systems to manage the backing asset pool effectively and prudently, including in line with its risk management framework, ensuring that risks associated with holding expanded backing assets are considered and addressed.

Governing body oversight: expanded backing assets

A firm’s governing body must oversee and approve:

(1) its risk management framework required by CASS 16.2.17R; and
(2) its processes and systems under that risk management framework relating to the effective and prudent management of the backing asset pool under CASS 16.2.22R.

A firm must ensure that its governing body’s oversight and approval of the matters in CASS 16.2.23R is appropriately documented and recorded.

Backing asset composition requirement

A firm must ensure that, at all times, the percentage of core backing assets in the backing asset pool is at least equal to the sum of the on-demand deposit requirement and the core backing asset requirement (the backing asset composition requirement).

A firm must calculate its backing asset composition requirement every redemption day.

Core backing asset requirement

A firm must ensure that, at all times, it holds a minimum percentage of core backing assets in the backing asset pool calculated in accordance with CASS 16.2.28R in addition to the on-demand deposit requirement (the core backing asset requirement).

The core backing asset requirement is calculated as the higher of:

(1) 5%; and
(2) the highest redemption percentage (see CASS 16.2.29R):
1. (a) for any of the previous 180 redemption days; or
2. (b) for any redemption day since the firm became subject to CASS 16 in respect of the qualifying stablecoin product if there have not been 180 redemption days since then.

The redemption percentage in CASS 16.2.28R(2) is the value of completed redemptions on any given redemption day expressed as a percentage of the value of the backing asset pool on that same day.

Notification of breach

Subject to CASS 16.2.31R, a firm must promptly notify the FCA if it ceases at any point to comply with CASS 16.2.17R.

A firm does not need to notify the FCA under CASS 16.2.30R if the failure to comply with CASS 16.2.17R arises from a need to rebalance the percentage of core backing assets held within the backing asset pool following a firm calculating a new backing asset composition requirement on a given day, and less than 1 business day has elapsed since that day.

Point In Time

25/10/2027