You are viewing CASS 16.6 Appointment of third parties as it appeared on 25/10/2027. The current version of CASS 16.6 Appointment of third parties was last updated on 25/10/2027.

CASS 16.6 Appointment of third parties

25/10/2027R

A firm must appoint:

  1. (1) one or more third parties to provide it with one or more backing funds accounts; and
  2. (2) where it proposes to hold assets in addition to money in a backing asset pool, one or more third parties to provide it with one or more backing assets accounts.
25/10/2027R
  1. (1) A firm must exercise all due skill, care and diligence:
    1. (a) in the selection, appointment and periodic review of third parties that provide backing funds accounts or backing assets accounts; and
    2. (b) in the arrangements for the holding and protection of money and assets in the backing asset pool.
  2. (2) A firm must consider the need for diversification as part of its due diligence under (1).
25/10/2027G

A firm should ensure that its consideration of a third party under CASS 16.6.2R focuses on the specific legal entity in question and not simply that person’s group as a whole.

25/10/2027G

CASS 16.6.2R(2) requires firms to consider the need for diversification in respect of their arrangements with third parties generally. Firms will also need to comply with the requirement in CASS 16.6.8R in respect of intra-group third parties where it applies.

25/10/2027R

When a firm selects, appoints, and conducts a periodic review of a third party, it must take into account:

  1. (1) the expertise and market reputation of the third party, with a view to ensuring the protection of holders’ rights and interests as beneficiaries of the trust established by CASS 16.5; and
  2. (2) any legal or regulatory requirements or market practices relating to the holding of money or assets in a backing asset pool that could adversely affect holders’ rights or interests as beneficiaries of the trust established by CASS 16.5. 
25/10/2027G

In discharging its obligations under CASS 16.6.5R, a firm should also consider, as appropriate, together with any other relevant matters:

  1. (1) the third party’s performance of its services to the firm;
  2. (2) the arrangements the third party has in place for safeguarding the money or assets in a backing funds account or backing assets account, including market practices relating to the safeguarding of the money or assets that could adversely affect the rights of the holders of the relevant qualifying stablecoin;
  3. (3) current industry standard reports – for example, ‘Assurance reports on internal controls of service organisations made available to third parties’ made in line with Technical Release AAF 01/20 of the Institute of Chartered Accountants in England and Wales and available at https://www.icaew.com/technical/technical-releases/audit-technical-releases/tech-01-20-aaf-internal-controls, or equivalent;
  4. (4) the capital or financial resources of the third party;
  5. (5) the amount of core backing assets or expanded backing assets placed with the third party as a proportion of the third party’s capital and (where relevant) deposits;
  6. (6) the extent to which core backing assets or expanded backing assets that the firm deposits or holds with any third party would be protected under a deposit protection scheme or other compensation scheme;
  7. (7) the creditworthiness of the third party;
  8. (8) to the extent that the information is available, the level of risk in the investment and loan activities undertaken by the third party and affiliated companies; and
  9. (9) the arrangements referred to in CASS 16.3.2R.
25/10/2027R
  1. (1) Subject to (2), a firm must only:
    1. (a) deposit core backing assets in the backing asset pool with a third party in a jurisdiction which specifically regulates and supervises the safeguarding of assets, including core backing assets for the account of another person with a third party who is subject to such regulation; and
    2. (b) deposit expanded backing assets in the backing asset pool with a third party in a jurisdiction which specifically regulates and supervises the safeguarding of assets, including expanded backing assets for the account of another person with a third party who is subject to such regulation.
  2. (2) A firm may deposit core backing assets or expanded backing assets with a third party in a jurisdiction which does not regulate and supervise the safeguarding of core backing assets or expanded backing assets for the account of another person only where the nature of the core backing assets or expanded backing assets, or of the investment services connected with them, requires them to be deposited with a third party in that third country.
  3. (3) The requirements under (1) and (2) also apply when the third party has delegated any of its functions concerning the safeguarding of core backing assets or expanded backing assets to another third party. 
25/10/2027R
  1. (1) Subject to CASS 16.6.9R, this rule applies where a firm holds any money or assets in a backing asset pool with one or more persons in the same group as the firm.
  2. (2) The firm must not hold more than a total of 20% of the value of the backing asset pool with all such persons.
25/10/2027R
  1. (1) CASS 16.6.8R does not apply if, following an assessment, the firm considers it can demonstrate it would be disproportionate to comply with that rule because of:
    1. (a) the low value of the backing asset pool;
    2. (b) the nature, scale and complexity of its business; and
    3. (c) the safety offered by the persons.
  2. (2) A firm must periodically review any assessment made under (1) which concludes that  CASS 16.6.8R does not apply.
  3. (3) A firm must notify the FCA of the following in accordance with CASS 16.6.11R:
    1. (a) any assessment made under (1) which concludes that CASS 16.6.8R does not apply; and
    2. (b) the outcome of any periodic reviews under (2).
25/10/2027G

A review under CASS 16.6.9R(2) should be carried out if the firm is still relying on CASS 16.6.9R(1) and:

  1. (1) the firm becomes aware of a change in circumstances that might have led it to a different conclusion on its previous assessment; or
  2. (2) no such review has taken place for a year.
25/10/2027R
  1. (1) Where a firm considers that CASS 16.6.8R does not apply following an assessment under CASS 16.6.9R(1), it must give the FCA notice of that decision before it starts relying on CASS 16.6.9R(1).
  2. (2) When a firm decides whether to continue relying on CASS 16.6.9R(1) following a review under CASS 16.6.9R(2), it must give the FCA notice of that decision promptly.
25/10/2027G

Firms are reminded that they must also comply with any applicable requirements in SYSC 10 (Conflicts of interest), including when using third-party custodians in the same group.

25/10/2027R
  1. (1) A firm must periodically review its arrangements with third parties, including whether it is appropriate to diversify (or further diversify) the third parties with which it deposits, holds or invests money or assets in the backing asset pool.
  2. (2) Where it concludes it is appropriate to do so, a firm must make adjustments accordingly to the third parties it uses and to the amounts of money or amounts or types of assets in the backing asset pool deposited, held or invested with them.
25/10/2027G

CASS 16.6.13R requires firms to periodically review the need for diversification in respect of their arrangements with third parties generally. Firms will also need to comply with the requirement in CASS 16.6.9R(2) in respect of intra-group third parties where it applies.

25/10/2027G

In discharging its obligations under CASS 16.6.13R to periodically review its arrangements with third parties, a firm should have regard to: 

  1. (1) whether it would be appropriate to deposit money in the backing asset pool into backing funds accounts opened at a number of different approved banks;
  2. (2) whether it would be appropriate to limit the amount of money or assets the firm holds with third parties that are in the same group as each other;
  3. (3) whether risks arising from the firm’s business model create any need for diversification (or further diversification);
  4. (4) the market conditions at the time of the assessment;
  5. (5) the outcome of any due diligence carried out in accordance with CASS 16.6.2R; and
  6. (6) the arrangements referred to in CASS 16.3.2R.
25/10/2027R
  1. (1) A firm must make a record of:
    1. (a) the grounds on which it satisfies itself as to the appropriateness of its selection and appointment of a third party under CASS 16.6.2R;
    2. (b) each periodic review of its selection and appointment of a third party under CASS 16.6.2R, including its considerations and conclusions; and
    3. (c) each periodic review that it conducts under CASS 16.6.13R, including its considerations and conclusions.
  2. (2) A record under (1) must be made on the date the selection is made or the review completed (as the case may be) and kept for either 5 years from that date or 5 years from the date that the firm ceases to use the third party, if later.
Point In Time
25/10/2027