FCA Handbook - CASS 17 Cryptoasset safeguarding rules

You are viewing CASS 17 Cryptoasset safeguarding rules as it appeared on 25/10/2027. The current version of CASS 17 Cryptoasset safeguarding rules was last updated on 25/10/2027.

Rules

Guidance

Related resources

CASS 17.1 Application

Subject to CASS 17.1.3R, this chapter (the cryptoasset safeguarding rules) applies to a firm in relation to regulated activities carried on by it from an establishment in the UK.

(1) Specific sections within the cryptoasset safeguarding rules have a narrower application than that set out in CASS 17.1.1R.
(2) CASS 17.3 (Cryptoasset safeguarding trusts) applies to a firm when it is safeguarding cryptoassets. The rule at CASS 17.3.3R requires the firm to act as a trustee when it is safeguarding cryptoassets, subject to certain exceptions which are set out in subsequent rules in that section. The rule at CASS 17.3.20R permits the firm to hold other cryptoassets within the same trust or trusts, as an operational surplus, and subject to certain conditions. Cryptoassets that are required or permitted to be in trust under those provisions of CASS 17.3 (Cryptoasset safeguarding trusts) are termed ‘client cryptoassets’ in the cryptoasset safeguarding rules.
(3) CASS 17.2 (General safeguarding requirements), CASS 17.4 (Means of access) and CASS 17.5 (Records of cryptoassets and reconciliations) apply to a firm when it is, as a trustee under CASS 17.3.3R, safeguarding cryptoassets which are client cryptoassets (and therefore including any operational surplus that is permitted under CASS 17.3.20R).
(4) In addition, CASS 17.2 (General safeguarding requirements) and CASS 17.4 (Means of access) apply to a firm when it is safeguarding cryptoassets but not treating them as client cryptoassets, in reliance upon CASS 17.3.12R.
(5) CASS 17.6 (Appointing third parties to safeguard cryptoassets) applies to a firm when it is both safeguarding cryptoassets and arranging cryptoasset safeguarding in relation to the same client cryptoassets.
(6) CASS 17.7 (Arranging cryptoasset safeguarding) applies to a firm when it merely arranges cryptoasset safeguarding.

This chapter does not apply to a UK QCATP operator which is an overseas firm and whose Part 4A permission for cryptoasset safeguarding is subject to a requirement (or a requirement imposed under section 55L(5) of the Act) to:

(1) not carry on the regulated activity of cryptoasset safeguarding other than by having control of qualifying cryptoassets to facilitate the settlement of transactions executed on a UK QCATP; and
(2) in the course of carrying on the regulated activity of cryptoasset safeguarding in accordance with (1), not accept any qualifying cryptoassets from any UK user other than qualifying cryptoassets received via a member of its group who is subject to, and acting in accordance with, CASS 17.3.5R.

(1) The exemption at CASS 17.1.3R permits a UK QCATP operator whose settlement arrangements would involve the regulated activity of cryptoasset safeguarding (for example, because users of the UK QCATP have a right against the UK QCATP operator for the return of cryptoassets) to not have to treat qualifying cryptoassets which it controls as part of those settlement arrangements as client cryptoassets.
(2) The exemption at CASS 17.1.3R only applies to a UK QCATP operator if its Part 4A permission is subject to a requirement, either at the FCA’s own initiative or following the voluntary application by the firm, in the terms set out at CASS 17.1.3R(1) and (2).
(3) The effect of the part of that requirement which is set out at CASS 17.1.3R(2), together with CASS 17.3.5R, is to limit the amount of qualifying cryptoassets which would be owed to UK users in respect of which CASS 17 would not apply.

(1) The defined term ‘cryptoasset safeguarding class’ is an important concept in the cryptoasset safeguarding rules and rules related to safeguarding cryptoassets (for example, in the reporting requirements at SUP 16.35.7R). Examples and further guidance to show the effect of this term are set out below.
(2) For example, two qualifying stablecoins which are both instances of the same qualifying stablecoin product should not, for the purpose of the cryptoasset safeguarding rules and rules related to safeguarding cryptoassets, be considered to be in the same ‘cryptoasset safeguarding class’ unless they exist on the same network that uses distributed ledger technology (eg, blockchain).
(3) Similarly, two qualifying cryptoassets should not be considered as falling within the same ‘cryptoasset safeguarding class’ unless they are both instances of the same single product. This means that a wrapped token or a liquid staking token would not fall within the same ‘cryptoasset safeguarding class’ as the relevant underlying cryptoasset.
(4) A consequence of this is likely to be that if a firm is carrying on safeguarding cryptoassets in relation to a client cryptoasset of a particular cryptoasset safeguarding class, it would not, without the client’s agreement, be able to discharge its safeguarding obligations to its client by returning a cryptoasset that is identical to the one being safeguarded but for the fact that it exists on a different blockchain.
(5) Where the cryptoasset safeguarding rules require a firm to make a record or a notification that refers to a cryptoasset safeguarding class, the firm may be able to use the Digital Token Identifier system outlined in ISO standard 24165, provided that, in doing so, the relevant cryptoasset safeguarding class can be precisely distinguished.

Requirement to act compatibly with the Consumer Duty

(1) When applying the cryptoasset safeguarding rules in relation to a firm’s retail market business, the firm must act compatibly with the Consumer Duty.
(2) A contravention of (1) does not give rise to a right of action by a private person under section 138D of the Act (and CASS 17.1.6R(1) is specified under section 138D(3) of the Act as a provision giving rise to no such right of action).

Exception for relevant specified investment cryptoassets

This chapter (the cryptoasset safeguarding rules) does not apply to a firm in relation to any safeguarding cryptoassets activity or any arranging cryptoasset safeguarding activity where the cryptoassets in respect of which the firm is carrying on safeguarding cryptoassets or arranging cryptoasset safeguarding (as applicable) are relevant specified investment cryptoassets.

CASS 17.2 General safeguarding requirements

This section applies to a firm when it is:

(1) safeguarding cryptoassets which are client cryptoassets; or
(2) safeguarding cryptoassets which would be client cryptoassets but are not being treated by the firm as client cryptoassets in reliance upon CASS 17.3.12R.

Requirement for adequate organisational arrangements

A firm must, when safeguarding cryptoassets, introduce and maintain adequate organisational arrangements to:

(1) protect the relevant client’s rights in relation to the cryptoassets, including in the event of the firm’s insolvency; and
(2) minimise the risk of the loss or diminution of the cryptoassets, or of the rights in connection with those cryptoassets, as a result of the misuse of the cryptoassets, fraud, poor administration, inadequate record-keeping or negligence.

CASS 17.3 Cryptoasset safeguarding trusts

This section applies to a firm when it is safeguarding cryptoassets.

Context and purpose

(1) The scope of the regulated activity of safeguarding cryptoassets covers a range of legal relationships between the firm and the client in relation to a qualifying cryptoasset or relevant specified investment cryptoasset. It does not only apply where a cryptoasset that is controlled by a firm belongs to a client.
(2) Where the other conditions of the scope of the activity are met, the regulated activity of safeguarding cryptoassets is carried on in cases where the person on whose behalf the firm is safeguarding is the beneficial owner of the cryptoasset, and also in certain cases where that person has a right against the firm for return of a cryptoasset. The scope of the regulated activity for the latter type of case (where that person has a right for return) depends on whether the firm and that person have entered into a ‘title transfer collateral arrangement’ or repurchase agreement and on whether that person is a ‘consumer’ (as those terms are defined at Article 9N(5) of the RAO).
(3) The purpose of this section is to:
1. (a) set out a general requirement which would prohibit a firm from carrying on the regulated activity of safeguarding cryptoassets under any of those sorts of legal relationships that are within the scope of that regulated activity other than as a trustee;
2. (b) provide certain exemptions to that requirement to act as a trustee, subject to particular conditions being met; and
3. (c) set out other more specific requirements which a firm must meet when that requirement to act as a trustee applies.
(4)
1. (a) In the following guidance, the FCA sets out its policy rationale for the requirements and exemptions in this section concerning trusts.
2. (b) It is important that, in line with the requirements in CASS 17.2, clients’ rights to cryptoassets which are being safeguarded are adequately protected through the use of trusts which can withstand competing claims to those cryptoassets, for example in case of the insolvency of the firm which is carrying on the regulated activity of safeguarding cryptoassets. In the FCA’s view, this has market integrity advantages in the context of section 1D of the Act.
3. (c) Furthermore, in the FCA’s view, taking account of potential difficulties that a client may have in evidencing and asserting ownership claims to cryptoassets (particularly where the firm has full control over those cryptoassets), a trust arrangement has consumer protection advantages over other legal arrangements that might exist between a client and firm in the context of safeguarding cryptoassets (such as an absolute title transfer or an agency arrangement), in the context of section 1C of the Act.
4. (d) This general requirement to safeguard cryptoassets as a trustee is set out at CASS 17.3.3R.
  1. (i) That rule requires a firm to agree with its client that the firm will act as a trustee, so that this should clear to the client.
  2. (ii) That rule does not create a statutory trust; the FCA is of the view that firms to which that requirement applies should have some flexibility around how they create private trusts, subject to certain conditions being met (see CASS 17.3.14R to CASS 17.3.18G).
  3. (iii) Detailed and up-to-date records are also mandatory (see CASS 17.3.19R).
5. (e) However, certain other services which clients may engage a firm which is carrying on the regulated activity of safeguarding cryptoassets to provide in relation to cryptoassets would not be compatible with cryptoassets being safeguarded on trust. This is provided for at:
  1. (i) CASS 17.3.4R in relation to qualifying cryptoasset lending;
  2. (ii) CASS 17.3.5R in relation to the settlement of transactions executed on a UK QCATP; and
  3. (iii) CASS 17.3.6 in relation to other services.
6. (f) In addition, a firm may be released from the requirement to act as a trustee where its dealings with the relevant client would require that. This is provided for at:
  1. (i) CASS 17.3.8R in relation to a client’s instructions to transfer a cryptoasset to another person (including the firm); and
  2. (ii) CASS 17.3.10R in relation to a client’s indebtedness to the firm.
7. (g) Furthermore, the FCA is of the view that it is disproportionate to require a firm to be a trustee where it is engaged to only provide a backup solution where its client contemporaneously retains full control of the cryptoasset in question. This is provided for at CASS 17.3.12R.
8. (h) Firms should note that each of the exemptions referred to above are subject to conditions set out within those rules.
9. (i) Finally, and again provided certain conditions are met including that this is necessary in order to service clients, a firm may co-mingle ‘house’ cryptoassets in the same trust as client cryptoassets. See CASS 17.3.20R on operational surpluses.

Requirement to safeguard as a trustee

(1) Unless otherwise permitted in this section, a firm must ensure that wherever it carries on the regulated activity of safeguarding cryptoassets, it does so as a trustee of the relevant cryptoasset under trust arrangements which comply with CASS 17.3.14R.
(2) In so far as the requirement in (1) applies, a firm must ensure that its client on behalf of whom it is safeguarding cryptoassets has agreed to the firm safeguarding cryptoassets as a trustee (for example in any written agreement required under COBS 8.1 (Client agreements: non-MiFID designated investment business)).
(3) A firm must ensure that its client’s agreement under (2) addresses how the trust is to be established (for example in relation to legal title transferring to the firm pursuant to a transfer of the cryptoasset to the firm’s control).

Exemption from acting as a trustee for cryptoasset lending

(1) A firm is not required to safeguard cryptoassets as a trustee under CASS 17.3.3R or, if it is already carrying on safeguarding cryptoassets in respect of a client cryptoasset as a trustee under CASS 17.3.3R, the firm may cease to treat a cryptoasset as a client cryptoasset, where the client on behalf of whom the firm is carrying on safeguarding cryptoassets has engaged the firm to provide a qualifying cryptoasset lending service in relation to a cryptoasset.
(2) The exemption in (1) only applies during the period for which the qualifying cryptoasset lending service is being provided in relation to that cryptoasset.
(3) Once that qualifying cryptoasset lending service in relation to a cryptoasset has ended for any reason, including by prior agreement or if the client has exercised any right to require that service to cease in relation to a cryptoasset, the exemption in (1) no longer applies.
(4) A firm may not use the exemption in (1) in relation to any cryptoasset which represents qualifying cryptoasset borrowing collateral, whether the obligations which the cryptoasset secures are owed to the firm itself or to another authorised person who has, under CRYPTO 9.6.8R(1)(b), arranged for the firm to carry on the regulated activity of safeguarding cryptoassets.

Exemption from acting as a trustee for qualifying cryptoasset trading platforms

A firm may cease to treat a qualifying cryptoasset as a client cryptoasset (and therefore cease to carry on safeguarding cryptoassets as a trustee of the cryptoasset) where:

(1) the client on behalf of whom the firm is safeguarding the qualifying cryptoasset is also a user of a UK QCATP operated by the firm itself or another person in the firm’s group;
(2) that client is trading, or has made it clear to the firm that they intend to trade, with qualifying cryptoassets of that cryptoasset safeguarding class using that UK QCATP;
(3) as part of the day-to-day operation of that UK QCATP, the UK QCATP operator needs to take control of qualifying cryptoassets to facilitate the settlement of transactions executed on that UK QCATP;
(4) the firm has obtained the client’s prior informed consent, in accordance with CASS 17.3.11R, to the qualifying cryptoasset ceasing to be a client cryptoasset in order for transactions executed on the UK QCATP in that cryptoasset safeguarding class to settle; and
(5) at all times, the amount of cryptoassets of a particular cryptoasset safeguarding class which the firm is not treating as client cryptoassets under this rule for the client does not exceed 2% of the total amount of cryptoassets of that particular cryptoasset safeguarding class which remain in the firm’s trusteeship for that client under CASS 17.3.3R.

Exemption from acting as a trustee where necessary for other services

(1) A firm is not required to safeguard cryptoassets as a trustee under CASS 17.3.3R or, if it is already carrying on safeguarding cryptoassets in respect of a client cryptoasset as a trustee under CASS 17.3.3R, the firm may cease to treat that cryptoasset as a client cryptoasset, where:
1. (a) the client on behalf of whom the firm is carrying on safeguarding cryptoassets has engaged the firm to provide a service (other than services described in CASS 17.3.4R or CASS 17.3.5R);
2. (b) in order to provide that service to the client, the firm has concluded that it is necessary:
  1. (i) for the firm to have ownership of the cryptoasset; and/or
  2. (ii) for the firm to effect a transfer of ownership of the cryptoasset to another person; and
3. (c) the firm has obtained the client’s prior informed consent, in accordance with CASS 17.3.11R, to that transfer of ownership in order for the service to be provided.
(2) Where a service for which the firm has relied on (1) ends, or where it is no longer necessary for the firm or another person to have ownership of cryptoassets, the exemption in (1) no longer applies.
(3) For each distinct service for which the firm intends to rely on (1), and prior to providing that service to any client, the firm must make a record of the reasons for concluding that it is necessary for the firm to have ownership of cryptoassets, or to effect a transfer of ownership of cryptoassets to another person, in order to provide that service (the ‘client cryptoasset trust exemption record’).
(4) For the purposes of (3), a service must be considered ‘distinct’ if it has different technical features, a different purpose, or a different type of risk to the client to a service which has already been assessed by the firm.
(5) The firm must retain each client cryptoasset trust exemption record made under (3) for a period of 5 years after it has stopped providing the relevant service.
(6) A firm may not use the exemption in (1) in relation to any cryptoasset which represents qualifying cryptoasset borrowing collateral, whether the obligations which the cryptoasset secures are owed to the firm itself or to another authorised person who has, under CRYPTO 9.6.8R(1)(b), arranged for the firm to carry on the regulated activity of safeguarding cryptoassets.

(1) The reference to ‘distinct’ service in CASS 17.3.6R(3) should be interpreted on a granular basis, meaning that a firm should investigate and conclude that a transfer of ownership is necessary in relation to the specific features of the service. For example, if a firm intends to rely on CASS 17.3.6R(1) in order to carry on the activity of arranging qualifying cryptoasset staking, it should make a record under CASS 17.3.6R(3) for each staking protocol in relation to which it will provide services.
(2) For the purposes of CASS 17.3.6R(1), the term ‘service’ should not be limited to services which only comprise regulated activities.

Exemption from acting as a trustee to act on client instructions to transfer

A firm may cease to treat a cryptoasset as a client cryptoasset where:

(1) the relevant client has given the firm an express and specific instruction to effect a transfer of an amount or value of their client cryptoassets to another person, to the firm or to the client themselves; and
(2) the firm has given effect to that instruction.

(1) The reference to an ‘express and specific instruction’ at CASS 17.3.8R(1) means that the rule cannot be relied on where the client has given the firm a mandate in relation to their client cryptoassets without any specific instruction for any particular transfer (for example, a discretionary investment mandate). For such a service where there is no express and specific client instruction, a firm may be able to rely on CASS 17.3.6R provided that the conditions in that rule are met.
(2) Following a transfer under CASS 17.3.8R to another person (the ‘transferee’), the firm would be required to continue to safeguard cryptoassets in accordance with the requirements in this section if it is carrying on the regulated activity of safeguarding cryptoassets on behalf of the transferee in relation to that cryptoasset. This may mean that the firm will be required to safeguard cryptoassets as a trustee on behalf of the transferee.

Exemption from acting as a trustee where the client is indebted to the firm

A firm may cease to treat a cryptoasset as a client cryptoasset where:

(1) the relevant client has given the firm a right, through a written binding agreement, to take ownership of their cryptoassets in order to discharge an obligation that the client owes to the firm; and
(2) the firm has exercised that right in accordance with the terms of that written agreement in relation to those client cryptoassets.

Obtaining a client’s consent

(1) This rule sets out steps which a firm must take in the course of obtaining a client’s prior informed consent under CASS 17.3.5R(4) or CASS 17.3.6R(1)(c).
(2) For any retail market business, the firm’s process for obtaining prior informed consent must be compatible with the Consumer Duty.
(3) In the course of seeking consent, the firm must specifically and clearly explain to the client the risks to the client of the cryptoasset not being within a trust, including in the event of the firm’s failure.
(4) Any consent provided by a client must be obtained in writing and a record of it (the ‘client cryptoasset trust exemption consent record’) must be retained for a period of 5 years after the firm has stopped relying on the consent to use the exemption at CASS 17.3.5R(1) or CASS 17.3.6R(1), as applicable.
(5) If a client withdraws their consent, the firm can no longer rely on the exemption at CASS 17.3.5R(1) or CASS 17.3.6R(1), as applicable, from the time at which the client’s withdrawal of consent takes effect (taking into account any agreed notice period).
(6) A contravention of (2) does not give rise to a right of action by a private person under section 138D of the Act (and CASS 17.3.11R(2) is specified under section 138D(3) of the Act as a provision giving rise to no such right of action).
(7) A contravention of any other aspect of this rule is not affected by (6).

Exemption from acting as a trustee where providing a backup solution

A firm is not required to safeguard cryptoassets as a trustee under CASS 17.3.3R where all the following conditions are met:

(1) the firm has good reason to believe that the client on whose behalf the firm is carrying on safeguarding cryptoassets in respect of a particular cryptoasset has its own means of access which would enable the client to transact using the cryptoasset without relying on the firm;
(2) where that client is a firm that is itself also carrying on safeguarding cryptoassets in relation to that cryptoasset, that client has confirmed to the firm to which this rule applies that it is itself carrying on safeguarding cryptoassets in respect of that cryptoasset as a trustee under CASS 17.3.3R (as it applies to that client);
(3) the firm has not been appointed to provide any service in relation to that cryptoasset other than:
1. (a) undertaking one or more of the activities set out at CASS 17.4.2R in relation to the relevant means of access to the cryptoasset for which it is carrying on safeguarding cryptoassets; and
2. (b) undertaking those activities at CASS 17.4.2R only for the purposes of assisting the client in the event that the client’s own means of access becomes lost, inoperable, inaccessible or irrecoverable; and
(4) when carrying on that limited safeguarding cryptoassets service, the firm does not also carry on the activity of arranging cryptoasset safeguarding in relation to that cryptoasset.

(1) It may be possible for a firm to rely on the exemption at CASS 17.3.12R where it has been appointed to provide a backup and recovery solution for a client (and no other service).
(2) The client in the situation described in (1) may itself be another firm (or an unauthorised cryptoasset service provider) which has engaged the firm to provide that backup and recovery solution in order to make its own service more robust. The condition at CASS 17.3.12R(2) is only relevant where the client is a is another firm which is itself carrying on safeguarding cryptoassets in respect of the relevant cryptoasset.
(3) Where the client is another firm which is not carrying on safeguarding cryptoassets in respect of the relevant cryptoasset (for example, because it owns the cryptoasset outright for the purposes of dealing in qualifying cryptoassets as principal, and no other person has a right for the return of it) then the condition at CASS 17.3.12R(2) would not be relevant.
(4) Likewise, where the client is simply the investor in the cryptoasset (and provides no service to any other person) then the condition at CASS 17.3.12R(2) would not be relevant.
(5) To meet the condition at CASS 17.3.12R(1), it should not be necessary for the firm to prove (cryptographically or otherwise) that the client has their own means of access, but the firm should be able to explain the basis of its belief that the client is in that position. For example, this may be a point which is addressed in the firm’s agreement with the client.
(6) The client’s own means of access referred to at CASS 17.3.12R(1) may be a duplicate copy of the firm’s means of access or may be an alternative means of access which co-exists with the firm’s means of access.

Setting up and operating client cryptoasset trusts

For any client cryptoasset, the firm must ensure that:

(1) the trust that is required under CASS 17.3.3R is created and operated by the firm in accordance with applicable legal requirements for trusts in the UK;
(2) the terms of any such trust are clearly documented with the effect that it is clear the trust is intended and it is clear what the terms are; and
(3) the terms and operation of the trust by the firm deliver the objectives and include the provisions set out in CASS 17.3.17R.

To comply with CASS 17.3.14R(2) a firm may, for example, execute a deed or similar formal instrument.

A firm must retain any document required under CASS 17.3.14R(2) setting out the terms of a trust, and details of any amendments which were made to the terms after the trust was first created, from the point at which the trust is created or the terms of the trust amended, and until 5 years after the trust has been brought to an end.

A firm must ensure that the terms and operation of any trust that is required under CASS 17.3.3R deliver the objectives at (1) and (2) and include the provisions at (3) and (4):

(1) The firm must act as a trustee in relation to the client cryptoassets as well as in relation to any rights which can be exercised by virtue of the firm safeguarding cryptoassets, and in particular:
1. (a) the firm must be required to respond to the lawful instructions of the relevant client in relation to the client cryptoassets; and
2. (b) save for having the necessary powers to comply with any applicable rules or legal requirements, or unless otherwise agreed with the client, the firm must not have any discretion in applying, investing or otherwise using any client cryptoassets which are trust property.
(2) Subject to CASS 17.3.20R, the firm’s operation of the trust ensures that the client cryptoassets within the trust are not co-mingled with, and are identifiable separately from, any other assets (for example, any assets for which the firm is not carrying on safeguarding cryptoassets, any assets for which the firm is relying on an exemption to act as a trustee under this section, and any assets which pertain to any other separate trust that is created to meet CASS 17.3.3R).
(3) Where there is, or is intended to be, more than one client on whose behalf the firm is safeguarding cryptoassets within a single trust, the terms of that trust must set out how any shortfalls in the trust, whether within a particular cryptoasset safeguarding class or across all cryptoasset safeguarding classes of client cryptoassets within the trust, are to be allocated between the clients.
(4) The terms of the trust must set out whether or not the client cryptoassets within the trust may be applied towards funding the distribution costs of the trust on the failure of the trustee and, if the terms do provide for this, the basis on which that funding will be deducted from the entitlements of the clients.

(1) A firm should decide on an approach to settling and operating trusts under the rules in this section which is suitable for its business model, its client base and the types of client cryptoassets in respect of which it will be safeguarding cryptoassets. In particular:
1. (a) a firm may decide whether to operate separate trusts for each client or one or more ‘omnibus’ trusts for a particular class of clients (which may include all clients);
2. (b) a firm may decide whether to operate separate trusts for different cryptoasset safeguarding classes; and
3. (c) a firm may decide whether to operate separate trusts distinctly, using separate virtual addresses or devices, or to combine client cryptoassets at different virtual addresses or devices into the same trust.
(2) (a) A firm should consider whether the objective in CASS 17.3.17R(2) can be achieved through the use of different virtual addresses, with regard to the operation of the relevant network.
1. (b) A particular network relevant to a type of client cryptoasset may affect the choices available to a firm in deciding how to implement a trust which complies with the rules in this section.
2. (c) Where the network relies on another network for its functioning, a firm should ensure that the ownership of the client cryptoassets cannot be challenged or reversed through the operation of technology.
3. (d) Allocating client cryptoassets which exist at the same single virtual addresses or on the same single device into different trusts would not meet the requirement at CASS 17.3.17R(2) in relation to co-mingling.
(3) (a) A firm may decide how any shortfall in a trust should be allocated between clients, but in doing so, a firm should consider the requirement at CASS 17.1.6R.
1. (b) The FCA would generally expect a shortfall in a particular cryptoasset safeguarding class within a trust to be borne ‘pro rata’ by all clients for whom the firm is safeguarding cryptoassets of that particular cryptoasset safeguarding class in that particular trust, in proportion to their respective interests in those cryptoassets.
(4) The way in which a firm decides to set up its trust environment and the way in which it achieves the required segregation should be recorded in the firm’s client cryptoasset trust records.

The client cryptoasset trust record

(1) A firm must make and keep updated a record of each trust that it has created under CASS 17.3.3R which sets out the following details for that trust (the ‘client cryptoasset trust record’):
1. (a) a unique identifier code for the trust;
2. (b) the means by which the firm achieves the obligation at CASS 17.3.17R(2) including, where applicable:
3. (i) each relevant virtual address or device controlled by the firm at which cryptoassets pertaining to the trust are being safeguarded by the firm;
4. (ii) the name of each third party who has been appointed to safeguard cryptoassets pertaining to the trust under CASS 17.6; and
5. (iii) the identifier of the relevant network for the trust property;
(c) the name of each client who has an interest in the trust;
(d) the cryptoasset safeguarding class(es) in the trust, identified using the name of the cryptoasset or an identification code, in either case from which the relevant cryptoasset safeguarding class can be precisely distinguished;
(e) the location of the record of the terms of the trust required under CASS 17.3.16R;
(f) whether or not the firm has decided for the trust to include an operational surplus under CASS 17.3.20R; and
(g) if the trust has been brought to an end, the date of that occurring and the reason why it was brought to an end.

(2) A client cryptoasset trust record must be made at the same time as the relevant trust is created, and it must be updated immediately:
1. (a) upon making any changes to that trust; and
2. (b) as necessary following any client cryptoasset reconciliation under CASS 17.5.
(3) A client cryptoasset trust record must be retained for a period of 5 years after the relevant trust has been brought to an end.

Permitted operational surplus in trusts

A firm may include, within any trust required to be created under CASS 17.3.3R, an amount of additional qualifying cryptoassets or relevant specified investment cryptoassets funded from the firm’s own resources in order to meet the firm’s operational needs (an ‘operational surplus’), provided the following conditions are met:

(1) An operational surplus in a trust is only permitted if it is necessary in order for the firm to provide services to one or more clients for whom the firm is safeguarding cryptoassets.
(2) Subject to (3), the operational surplus must be in the same cryptoasset safeguarding class as that in relation to which the firm is providing the services that necessitate the operational surplus.
(3) As an exception to (2), the operational surplus may be in a different cryptoasset safeguarding class where that would be necessary due to a technical limitation or feature of those services which the firm intends to provide.
(4) The amount of cryptoassets which form the operational surplus in any trust must not exceed a level that would be reasonably expected to be necessary, taking into account those services.
(5) The terms of the trust required under CASS 17.3.14R(2) and CASS 17.3.17R(3) must clearly set out that the firm’s claim in the trust to the operational surplus in a particular cryptoasset safeguarding class is always and unconditionally subordinated to the claims of clients to client cryptoassets of that cryptoasset safeguarding class in the trust.
(6) When deciding to use a operational surplus in any trust that a firm operates under CASS 17.3.3R, the firm must make and retain a written record of the reason for the operational surplus to be necessary in order for the firm to provide services to one or more clients for whom the firm is safeguarding cryptoassets in the same trust (the ‘per-trust operational surplus record’).
(7) The firm must not remove or reduce an operational surplus unless the amount removed represents an excess, and is removed following a client cryptoasset reconciliation, in accordance with CASS 17.5.12R.

A firm must retain any per-trust operational surplus record made under CASS 17.3.20R(4) for a period of 5 years until after the firm ceases to use the operational surplus in that particular trust.

(1) An example of where a firm may wish to use an operational surplus under CASS 17.3.20R(1) includes where the firm’s service involves qualifying cryptoasset staking and, for example:
1. (a) it is necessary for the firm to contribute an amount of its own assets to meet the minimum threshold required by the staking protocol; or
2. (b) the staking rewards which are attributable to the firm (rather than any client) are received at a digital address pertaining to the trust.
(2) An example of where the exception at CASS 17.3.20R(3) may be relied on is to allow the firm to satisfy a requirement to pay transaction charges such as ‘gas fees’ in the cryptoasset safeguarding class that is required by the network when the transaction for which the firm is providing a service involves other cryptoasset safeguarding classes.

Guidance on trusts and appointing third parties

(1) In cases where a firm appoints a third party to carry on the activity of safeguarding cryptoassets in accordance with CASS 17.6, the effect of CASS 17.3.3R and CASS 17.3.17R(1) means that the firm’s contractual rights against that third party in relation to the relevant client cryptoassets should be held on trust, because these are rights which can be exercised by virtue of the firm safeguarding cryptoassets.
(2) A firm in the position referred to in (1) should also comply with the other requirements of CASS 17.6.

CASS 17.4 Means of access

This section applies to a firm when it is:

(1) safeguarding cryptoassets which are client cryptoassets; or
(2) safeguarding cryptoassets which would be client cryptoassets but are not being treated by the firm as client cryptoassets in reliance upon CASS 17.3.12R.

The rules in this section apply where a firm undertakes any of the following activities in relation to the means of access to a cryptoasset in respect of which the firm is safeguarding cryptoassets:

(1) generating or creating the means of access, or any similar process;
(2) storing the means of access, in any form or medium of storage;
(3) exercising any form of control over the means of access;
(4) subjecting the means of access to any type of process; and
(5) destroying the means of access.

(1) Because the rules in this section apply where a firm is safeguarding cryptoassets, this means that they do not apply where the firm does not have the requisite degree of ‘control’ as described at article 9N(4) of the Regulated Activities Order.
(2) The definition of means of access includes any means of which a person would need possession or knowledge to bring about a transfer of the benefit of a cryptoasset to another person.
(3) The scope of CASS 17.4.2R is broad and therefore the provisions in this section will apply to a range of activities and aspects of safeguarding cryptoassets, for example:
1. (a) using ‘hot’ or ‘cold’ devices or facilities to store the means of access;
2. (b) making and storing written records of the means of access; and
3. (c) processing the means of access by dividing a private cryptographic key into parts (‘shards’), and (if relevant) distributing the shards amongst the firm’s staff or other persons outside of the firm.
(4)
1. (a) If a person is, at a particular point in time, safeguarding only a single part of a private cryptographic key (eg, a ‘shard’) then, as a consequence of that fact by itself, they may be unlikely to have the requisite degree of ‘control’ as described at article 9N(4) of the Regulated Activities Order (assuming safeguarding just that one shard does not afford them the requisite degree of ‘control’ as described at article 9N(4)).
2. (b) However, if that person was previously in the position to create that shard and all the other shards from a private cryptographic key, then at that point they would have had the requisite degree of ‘control’ – even if after sharding the key they proceeded to distribute the other shards to other persons. Because they would have subjected the means of access to a process (the ‘sharding’ process), then as a result of CASS 17.4.2R(4) and the fact that they had the requisite degree of control at the time of the sharding, and assuming they are a firm, the requirements of this section would apply to that firm.
3. (c) Continuing from the example in (b) of a firm sharding a private cryptographic key and distributing it: if, after distributing the shards to other persons the firm can still require those other persons to return their shards under a binding agreement (or require their assistance to convene sufficient shards in order to digitally sign a transaction), then also as a result of CASS 17.4.2R(3), this section would apply to that firm.
4. (d) If any of the recipients of the shards had sufficient shards to themselves have the requisite degree of ‘control’ as described at article 9N(4) of the Regulated Activities Order then, assuming they are firms, as a result of CASS 17.4.2R(2), this section would apply to them also.
(5) In scenarios involving shards, the record required at CASS 17.4.8R(1)(d) should explain how the firm can exercise ‘control’, for example by setting out any relevant technical criteria which the firm is able to meet in order to digitally sign a transaction (such as a reconstruction or confirmation threshold), as well as how the firm is able to meet those criteria (for example, by a combination of retrieval from cold storage and requiring an appointed shard-holder to take certain steps).

A firm must have robust security and organisational arrangements to ensure that, throughout the entire life cycle of any means of access to a client cryptoasset, the means of access are protected against the risks of inoperability, inaccessibility, loss, fraud and irrecoverability.

A firm must promptly identify incidents of inoperability, inaccessibility, loss, fraud and irrecoverability to any means of access to a client cryptoasset.

A firm must promptly resolve any incidents of inoperability, inaccessibility, loss, fraud and irrecoverability to any means of access to a client cryptoasset.

In complying with CASS 17.4.4R to CASS 17.4.6R, a firm should, for example, consider whether, as relevant:

(1) its security and organisational arrangements adhere to any relevant international and industry standard practices;
(2) it is addressing any vulnerabilities to hacking and other risks of fraud and theft, including risks which originate from among the firm’s own staff;
(3) it has a culture of detecting and acting on suspicious activity, including appropriate whistleblowing systems;
(4) it is addressing any:
1. (a) risks of ‘single point of failure’ (for example, as a result of a concentration of means of access with too few members of staff or on too few devices); and
2. (b) ‘dependency risk’ (for example as a result of distribution among too many members of staff or devices, or too much reliance on other persons);
(5) it has appropriate back-up and recovery systems;
(6) it has appropriate checks to ensure that the means of access remain accessible and operable, which themselves do not add undue security risks; and
(7) it employs random and non-deterministic methods as part of its security arrangements to minimise the risk of irreproducibility of any important data.

(1) For each means of access that a firm controls at any particular point in time, and from the point at which the firm has such control, the firm must make and maintain a record which sets out the following information (the ‘cryptoasset means of access record’):
1. (a) the location (whether digital or physical) at which that means of access is being held including, where relevant, the virtual address for that means of access;
2. (b) a summary of the security measures which the firm has deployed for that means of access in accordance with CASS 17.4.4R, which must include the name of any other persons involved;
3. (c) the name of any natural person, such as a member of staff of the firm, who, to the firm’s knowledge, is in a position to use that means of access;
4. (d) the way in which the means of access, whether by itself or in combination with other means of access, affords the firm ‘control’ over the relevant cryptoasset or cryptoassets in respect of which it is safeguarding cryptoassets; and
5. (e) whether the means of access has been destroyed (and, if so, when and the reason why it was destroyed).
(2) The cryptoasset means of access record under (1) must not contain or reproduce the means of access itself.
(3) The components of the cryptoasset means of access record under (1)(b) and (c) do not have to include the actual name of a person if doing so would compromise the firm’s ability to comply with CASS 17.4.4R, provided that the record includes sufficient information from which the person can be identified using other records maintained by the firm.

A firm must promptly update its cryptoasset means of access records required under CASS 17.4.8R as often as is necessary for the details within them to remain accurate.

A firm must ensure that each cryptoasset means of access record is retained for a period of 5 years starting from whichever is the later of:

(1) the date it was created; or
(2) the date it was most recently modified.

(1) A firm must create, retain and maintain a means of access policy document and a means of access procedures document which, taken together, explain the firm’s means of complying with the requirements in CASS 17.4.4R to CASS 17.4.6R and CASS 17.4.8R to CASS 17.4.10R in clear and non-technical terms.
(2) A firm must review the documents under (1) at least once every year and make any necessary changes.
(3) A firm must retain each version of the documents required under (1) for a period of 5 years until after that version has been superseded by a new version.

CASS 17.5 Records of cryptoassets and reconciliations

This section applies to a firm when it is safeguarding cryptoassets which are client cryptoassets.

General requirements

A firm must keep such records as necessary to enable it at any time and without delay to distinguish client cryptoassets in respect of which the firm is safeguarding cryptoassets on behalf of one client from client cryptoassets in respect of which the firm is safeguarding cryptoassets on behalf of any other client, and from any cryptoassets which are not client cryptoassets.

A firm must maintain its records in a way that ensures their accuracy, having regard to the business model of the firm and in particular the risks of:

(1) records becoming unreliable due to the nature of the firm’s services and the networks relevant to the client cryptoassets; and
(2) the firm breaching the rule at CASS 17.3.3R.

(1) A firm must establish and maintain systems and controls so that it can accurately determine the following and promptly identify and resolve any discrepancies in accordance with the rules in this section:
1. (a) for each trust that the firm has created under CASS 17.3.3R and in accordance with CASS 17.5.6R, the number of client cryptoassets of a particular cryptoasset safeguarding class in respect of which it is required to be safeguarding cryptoassets for a particular client (the per-trust/client/class cryptoasset requirement), taking into account its agreements with that client and any services that have been provided or are being provided to that client; and
2. (b) for each trust that the firm has created under CASS 17.3.3R and in accordance with CASS 17.5.7R, how many client cryptoassets of a particular cryptoasset safeguarding class it is safeguarding cryptoassets in relation to (the per-trust/class cryptoasset resource), whether itself or through the appointment of a third party under CASS 17.6.
(2) A firm’s systems and controls under (1) must be designed to minimise the risks of inaccuracy, taking into account in particular:
1. (a) the time of day at which any processes to comply with CASS 17.5.6R to CASS 17.5.10R are run; and
2. (b) its arrangements for obtaining information from any third party appointed under CASS 17.6 in order to comply with CASS 17.5.7R.
(3) A firm must create, retain and maintain a reconciliations policy document and a reconciliations procedures document which, taken together, explain and set out:
1. (a) the firm’s rationale for its procedures to comply with the rules in this section in clear and non-technical terms; and
2. (b) those procedures.
(4) A firm must review the documents under (3) at least once every year and make any necessary changes.
(5) A firm must retain each version of the documents required under (2) for a period of 5 years until after that version has been superseded by a new version.

(1) Depending on the way a firm has complied with the rules in CASS 17.3, it may be necessary for the firm, when complying with the rules in this section, to make distinctions between different trusts that it has created under CASS 17.3.3R, and between different aspects of those trusts (such as whether or not it has decided for a particular trust to include an operational surplus under CASS 17.3.20R).
(2) When maintaining its records under the rules in this section, a firm should be making the distinctions referred to in (1) on the basis of its client cryptoasset trust records, which are required to be kept up to date under CASS 17.3.19R(2).

The per-trust/client/class cryptoasset requirement

(1) A firm must calculate the per-trust/client/class cryptoasset requirement using the formula in (2) at least once each business day, with the result that, for each trust that the firm has created under CASS 17.3.3R, it produces, separately for each client that has an interest in that trust, the quantity of each client cryptoasset of each particular cryptoasset safeguarding class that the firm is required to hold for that client under that trust in accordance with the rules in CASS 17.3 (Cryptoasset safeguarding trusts).
(2) The per-trust/client/class cryptoasset requirement in (1) is calculated as (a) minus (b), where (a) and (b) are as follows:
1. (a) the sum of:
  1. (i) the firm’s previous per-trust/client/class cryptoasset requirement for the relevant trust, client and cryptoasset safeguarding class; and
  2. (ii) the total of the following, each for the relevant trust:
    1. (A) the number of client cryptoassets of the relevant cryptoasset safeguarding class which the firm has received from the client since the previous calculation;
    2. (B) the number of client cryptoassets of the relevant cryptoasset safeguarding class which the firm has received on behalf of that client from any other person since the previous calculation;
    3. (C) (to the extent not covered by (B)) the number of client cryptoassets of the relevant cryptoasset safeguarding class which have become due to the client, whether from the firm or earned in some other way, since the previous calculation; and
    4. (D) (to the extent not covered by (B) or (C)) the number of client cryptoassets of the relevant cryptoasset safeguarding class which were required to be reinstated into the trust since the previous calculation under the rules at CASS 17.3 (Cryptoasset safeguarding trusts), including because of the end of a particular service; and
2. (b) the total of the following, each for the relevant trust:
  1. (i) the number of client cryptoassets of the relevant cryptoasset safeguarding class which the client has withdrawn from the firm since the previous calculation;
  2. (ii) the number of client cryptoassets of the relevant cryptoasset safeguarding class which the firm has transferred to another person on the client’s instruction since the previous calculation;
  3. (iii) the number of client cryptoassets of the relevant cryptoasset safeguarding class which have become due to the firm since the previous calculation, in respect of which the firm has a right to take ownership of the cryptoasset under CASS 17.3.10R;
  4. (iv) the number of client cryptoassets of the relevant cryptoasset safeguarding class in respect of which the firm has relied on an exemption under CASS 17.3.4R, CASS 17.3.5R or CASS 17.3.6R to not hold the cryptoassets under the trust since the previous calculation;
  5. (v) (to the extent not covered by (iii) or (iv)) the number of client cryptoassets of the relevant cryptoasset safeguarding class which, since the previous calculation and as a result of services being provided by the firm, the client has been required to surrender; and
  6. (vi) the number of client cryptoassets of the relevant cryptoasset safeguarding class in respect of which, following an unresolved shortfall, the firm has agreed with its client that it will no longer have to carry on safeguarding cryptoassets.
(3) A firm must use its internal records of client instructions, transactions and services to calculate any per-trust/client/class cryptoasset requirement under this rule, and must not use information from an external source (such as information contained on a blockchain or distributed ledger technology).

The per-trust/class cryptoasset resource

(1) For each trust that a firm has created under CASS 17.3.3R, the firm must confirm the quantity of client cryptoassets of a particular cryptoasset safeguarding class in respect of which it is safeguarding cryptoassets under that trust at least once each business day (the ‘per-trust/class cryptoasset resource’).
(2) The confirmation required under (1) must take account of both:
1. (a) the client cryptoassets of that particular cryptoasset safeguarding class which the firm can access in virtual addresses or devices; and
2. (b) where the firm has, under CASS 17.6, appointed a third party to carry on the activity of safeguarding cryptoassets, the client cryptoassets for which either:
  1. (i) the third party has confirmed to the firm that it has the means of access to itself; or
  2. (ii) in cases where that third party has appointed a further third party with the firm’s consent under CASS 17.6.9R, the third party appointed by the firm has confirmed to the firm that the further third party has the means of access to.
(3) A firm must use external sources of information to confirm any per-trust/class cryptoasset resource under this rule, and must not use any internal source of information which the firm uses to calculate any per-trust/client/class cryptoasset requirement under CASS 17.5.6R

(1) The requirements at CASS 17.5.6R(3) and at CASS 17.5.7R(3) are to ensure that a firm’s client cryptoasset reconciliations use independent sources of information, with the effect that the client cryptoasset reconciliations will be effective in their purpose of identifying discrepancies.
(2) A firm may use information from an external source such as information contained on the appropriate distributed ledger technology network to confirm the information described at CASS 17.5.7R(2)(a).
(3) Although information contained on a blockchain or distributed ledger technology may give an indication as to the information described at CASS 17.5.7R(2)(b), a firm should only use information provided from a third party appointed under CASS 17.6 in order to confirm that information.
(4) The requirements at CASS 17.5.6R(3) and at CASS 17.5.7R(3) should not prevent a firm from investigating and resolving any discrepancy under CASS 17.5.10R(3) or CASS 17.5.11R(1).
(5) When a firm is ascertaining the quantity for the per-trust/class cryptoasset resource under CASS 17.5.7R, it should not make any adjustment or allowance for cryptoassets in the relevant trust environment that may be part of an operational surplus which the firm has decided to include under CASS 17.3.20R.

(1) Each time a firm calculates a per-trust/client/class cryptoasset requirement or confirms a per-trust/class cryptoasset resource, it must make a record of:
1. (a) the date and time it carried out that calculation or confirmation, as appropriate;
2. (b) the actions it took in order to carry out that calculation or confirmation, as appropriate; and
3. (c) the calculation result or confirmation outcome, as appropriate.
(2) A firm must retain each record made under (1) for a period of 5 years.

Client cryptoasset reconciliations

(1) For each trust that a firm has created under CASS 17.3.3R, a firm must perform a client cryptoasset reconciliation under this rule at least once each business day, to check whether it has breached the rules in CASS 17.3 to hold client cryptoassets on trust.
(2) For each cryptoasset safeguarding class in respect of which the firm is required to be safeguarding cryptoassets within the relevant trust, the firm must compare the total of the per-trust/client/class cryptoasset requirements for all clients who have an interest in that trust with the per-trust/class cryptoasset resource for that trust at the same point in time.
(3) If the firm identifies a discrepancy as a result of carrying out a client cryptoasset reconciliation, it must promptly investigate the reason for the discrepancy and resolve it without delay or, where there is a shortfall, in accordance with CASS 17.5.13R.
(4) Each time a firm performs a client cryptoasset reconciliation, it must make a record (a ‘client cryptoasset reconciliation record’) of:
1. (a) the date and time of the client cryptoasset reconciliation;
2. (b) whether or not the client cryptoasset reconciliation identified any discrepancies and, if so:
  1. (i) the extent of them; and
  2. (ii) the reasons for them; and
3. (c) any actions taken or attempted by the firm in relation to those discrepancies, including under CASS 17.5.12R and CASS 17.5.13R.
(5) A firm must retain each client cryptoasset reconciliation record made under (4) for a period of 5 years.

Other discrepancies

(1) If a firm identifies a discrepancy related to its safeguarding of client cryptoassets outside of its processes for a client cryptoasset reconciliation, it must promptly investigate the reason for the discrepancy and resolve it without delay or, where there is a shortfall, in accordance with CASS 17.5.13R.
(2) Each time a firm identifies a discrepancy under (1), it must make a record (a ‘client cryptoasset discrepancy record’) of:
1. (a) the date and time the discrepancy was identified;
2. (b) the reasons for the discrepancy and the extent of it; and
3. (c) any actions taken or attempted by the firm in relation to the discrepancy, including under CASS 17.5.12R and CASS 17.5.13R.
(3) A firm must retain each client cryptoasset discrepancy record made under (2) for a period of 5 years.

Client cryptoasset reconciliation excesses

(1) This rule applies where a firm’s client cryptoasset reconciliation for a particular trust shows that the firm, having investigated any discrepancies under CASS 17.5.10R(3) or CASS 17.5.11R(1), has confirmed there to be a greater amount of cryptoassets within that trust for a particular cryptoasset safeguarding class than the total of the per-trust/client/class cryptoasset requirements for all clients who have an interest in that trust for that cryptoasset safeguarding class.
(2) Subject to (3), the firm must, before its next client cryptoasset reconciliation for that trust, remove all the excess cryptoassets of that particular cryptoasset safeguarding class from that trust.
(3) The firm may only retain excess cryptoassets of that particular cryptoasset safeguarding class within that trust if:
1. (a) it had previously decided to use an operational surplus in that trust and in that cryptoasset safeguarding class of cryptoasset in accordance with CASS 17.3.20R;
2. (b) the firm’s retention of the excess does not cause the firm to be in breach of CASS 17.3.20R(2) or (3); and
3. (c) the amount of any excess that is withdrawn under this rule, and the amount of any excess that is retained under this rule, are recorded in the relevant client cryptoasset reconciliation record under CASS 17.5.10R(4)(c) or the relevant client cryptoasset discrepancy record under CASS 17.5.11R(2)(c), as appropriate.

Client cryptoasset reconciliation shortfalls

(1) This rule applies where a firm’s client cryptoasset reconciliation for a particular trust identifies a discrepancy as a result of, or that reveals, a shortfall which the firm has not yet resolved.
(2) A shortfall for the purposes of this rule is a situation for a particular trust under CASS 17.3.3R in which the firm’s per-trust/class cryptoasset resource shows that there is a lesser amount of cryptoassets within that trust for a particular cryptoasset safeguarding class than the total of the per-trust/client/class cryptoasset requirements for all clients who have an interest in that trust in relation to that cryptoasset safeguarding class.
(3) This rule also applies where, outside of its processes for client cryptoasset reconciliations, a firm identifies a discrepancy as a result of, or that reveals, a shortfall which the firm has not yet resolved.
(4) The firm must address the shortfall by ensuring that, no later than 24 hours after identifying the discrepancy, the firm has the correct number of client cryptoassets on trust.
(5) Where necessary to comply with the requirement at (4), the firm must:
1. (a) appropriate its own cryptoassets in the relevant cryptoasset safeguarding class;
2. (b) acquire cryptoassets in the relevant cryptoasset safeguarding class using its own resources; or
3. (c) procure a third party appointed under CASS 17.6 to apply or acquire its own cryptoassets in the relevant cryptoasset safeguarding class to resolve the shortfall.
(6) Each measure taken by a firm to comply with (4) must be recorded in the relevant client cryptoasset reconciliation record under CASS 17.5.10R(4)(c) or the relevant client cryptoasset discrepancy record under CASS 17.5.11R(2)(c), as appropriate.
(7) A shortfall will not be considered to be addressed under (4) if cryptoassets of another cryptoasset safeguarding class, or some other type of asset (e.g. money), are placed in the trust.

(1) CASS 17.5.13R does not prevent a firm from setting aside an alternative asset for the relevant client(s), or paying/transferring an alternative asset to them, in an amount which would match any claim that they might have against the firm for the shortfall – for example, where doing so is required under the firm’s agreement with the client(s), is required by the FCA, or is considered by the firm to be required for another reason.
(2) Where a firm takes the action described in (1) involving an alternative asset, this does not have the automatic consequence that the firm will have addressed the shortfall as required under CASS 17.5.13R(4).
(3) However, it may put the firm and client in a position to agree that the firm need no longer carry on the activity of safeguarding cryptoassets in relation to the cryptoassets in shortfall, which may then be reflected in the per-trust/client/class cryptoasset requirement (see CASS 17.5.6R(2)(b)(vi)).
(4) In making any such agreement with a client in the course of retail market business, whether in advance or at the time of the shortfall, a firm should act compatibly with its obligations under the Consumer Duty.

Where a firm fails to address a shortfall as required by CASS 17.5.13R, it must immediately:

(1) notify each affected client in writing (including those who are affected because they have an interest in the relevant trust which has, under the terms of that trust, reduced); and
(2) notify the FCA in writing, setting out:
1. (a) the reasons for the shortfall and the reasons for the firm failing to address it;
2. (b) the name of each cryptoasset safeguarding class of cryptoasset for which there is a shortfall, identified using the name of the cryptoasset or an identification code, in either case from which the relevant cryptoasset safeguarding class can be precisely distinguished, and the amount of that shortfall in that cryptoasset safeguarding class;
3. (c) the number of clients in the relevant trust affected by the shortfall and by how much each affected client is affected;
4. (d) the firm’s expected timeframe for resolution of the shortfall, including detail on the steps which the firm and any third parties intend to follow to achieve resolution; and
5. (e) the approach the firm is taking in relation to client notifications under (1).

Other notification requirements

A firm must notify the FCA in writing without delay if either of the following apply:

(1) its internal records relating to safeguarding cryptoassets are materially out of date, or materially inaccurate or invalid; or
(2) it will be unable, or materially fails, to comply with CASS 17.5.6R, CASS 17.5.7R or CASS 17.5.10R.

CASS 17.6 Appointing third parties to safeguard cryptoassets

This section applies to a firm when it safeguards cryptoassets which are client cryptoassets and, in the course of carrying on that activity, it arranges cryptoasset safeguarding.

Purpose of this section

(1) Where a firm carries on the activity of safeguarding cryptoassets, it may be necessary for the firm to appoint a third party to carry on the activity of safeguarding cryptoassets under the firm’s direction in relation to a particular client cryptoasset or client cryptoassets of one or more cryptoasset safeguarding classses.
(2) That third party appointed by the firm may itself be a firm or may, for example, be a person who is overseas and who is not required to be authorised to carry on the activity of safeguarding cryptoassets in these circumstances.
(3) This section sets out the rules that apply to such an appointment by a firm of a third party to carry on that activity in order to address the risk of harm to the firm’s clients that might result from that appointment, particularly in cases where the third party is not itself authorised.
(4) In the FCA’s view, where a firm appoints a third party to carry on the activity of safeguarding cryptoassets in relation to any client cryptoasset, the firm will be carrying on the activities of both safeguarding cryptoassets and arranging cryptoasset safeguarding. In that situation, the firm, while remaining a trustee who is safeguarding cryptoassets, arranges for another person to safeguard cryptoassets under the firm’s direction.
(5) The scenario described in (4) is different to one in which a firm only carries on arranging cryptoasset safeguarding and does not itself carry on safeguarding cryptoassets. In that situation, in making the arrangements which will result in the client receiving the service of safeguarding cryptoassets from another person, the firm is not itself a trustee of the cryptoassets.
(6) This section would not apply to the scenario described in (5) in which a firm only carries on arranging cryptoasset safeguarding. The rules in CASS 17.7 apply to a firm that only carries on arranging cryptoasset safeguarding.
(7) This section would not apply where the firm appoints a third party to hold part of a means of access where the third party would not be safeguarding cryptoassets because it lacks the requisite degree of ‘control’. An example of this is where the firm appoints a third party to hold a shard of a private cryptographic key, but possession or knowledge of that shard, by itself, would not put the third party in a position to be able to transfer the benefit of the relevant client cryptoasset.

The conditions for appointing third parties to safeguard cryptoassets

(1) A firm may appoint and retain another person (a ‘third party’) to carry on the activity of safeguarding cryptoassets in respect of which the firm has undertaken to its client to carry on safeguarding cryptoassets, but only if the following conditions are met:
1. (a) the third party operates in a jurisdiction which specifically regulates the safeguarding of cryptoassets through mandatory requirements concerning financial and operational resilience, security of the means of access to cryptoassets, and record-keeping, and the activities of the third party pursuant to the appointment by the firm are supervised in that jurisdiction;
2. (b) the firm has concluded, having completed the due diligence and any periodic review required under CASS 17.6.5R, that the appointment of the third party would not increase the risk of loss or diminution of any client cryptoassets which are subject to the arrangement, having regard to the firm’s compliance with CASS 17.2.2R;
3. (c) in relation to a firm’s retail market business, the appointment of the third party is compatible with the Consumer Duty;
4. (d) prior to the appointment commencing, the firm has entered into an agreement with the third party in the form required at CASS 17.6.6R; and
5. (e) the firm has met the governance requirements at CASS 17.6.9R.
(2) A contravention of (1)(c) does not give rise to a right of action by a private person under section 138D of the Act (and CASS 17.6.3R(1)(c) is specified under section 138D(3) of the Act as a provision giving rise to no such right of action).
(3) A contravention of any other aspect of this rule is not affected by (2).

(1) Where a client has instructed a firm to appoint a particular third party, the firm should still ensure that the conditions for the appointment at CASS 17.6.3R are met.
(2) To meet the condition at CASS 17.6.3R(1)(a) it is not essential that the mandatory requirements of the other jurisdiction refer to the specific terms mentioned in that requirement (e.g. ‘financial and operational resilience’, ‘security of the means of access to cryptoassets’, and ‘record-keeping’) provided that they focus on all of those aspects in substance.

Mandatory due diligence

(1) A firm must exercise all due skill, care and diligence in the selection, appointment and periodic review of the third party and of the arrangements for the safeguarding of the relevant client cryptoassets, in order to conclude that the appointment of the third party would not increase the risk of loss or diminution of any client cryptoassets which are subject to the arrangement.
(2) When a firm makes the selection and appointment and conducts the periodic review referred to under this rule, it must take into account:
1. (a) whether the third party has the appropriate regulatory permissions to carry out the appointment;
2. (b) the arrangements that the third party has in place for safeguarding cryptoassets;
3. (c) the capacity and capability of the third party to provide the contracted services;
4. (d) the capital or financial resources of the third party;
5. (e) the creditworthiness of the third party;
6. (f) the potential impact on the contracted services of any other activities undertaken by the third party and, if relevant, any affiliated company;
7. (g) the expertise and market reputation of the third party;
8. (h) any legal requirements relating to the carrying on of safeguarding cryptoassets in respect of the relevant cryptoassets that could adversely affect the firm’s clients’ rights;
9. (i) market practices relating to the carrying on of safeguarding cryptoassets in respect of the cryptoassets that could adversely affect the firm’s clients’ rights;
10. (j) any relevant industry standard reports, including in relation to security; and
11. (k) where the third party appointed by the firm has appointed a further third party with the firm’s consent under CASS 17.6.9R, all the factors set out above in relation to that further third party.
(3) The firm must conduct the periodic review required under this rule at least once each year.

The agreement condition

A firm must have entered into a written agreement with any third party that it appoints to carry on the activity of safeguarding cryptoassets under CASS 17.6.3R. This agreement must, at minimum:

(1) set out the binding terms of the arrangement between the firm and the third party;
(2) be in force for the duration of the appointment;
(3) clearly set out the service(s) that the third party is contracted to provide;
(4) require the third party to seek and obtain the firm’s written consent prior to the third party being able to appoint a further, different third party to carry on the activity of safeguarding cryptoassets;
(5) in recognition that the firm is acting as a trustee in relation to the client cryptoassets that are subject to the appointment:
1. (a) require that any client cryptoassets that are subject to the appointment are not co-mingled with, and are identifiable separately from, any assets belonging to the third party;
2. (b) require that any client cryptoassets that are subject to the appointment are not co-mingled with, and are identifiable separately from, any assets belonging to the firm for which it is not acting as a trustee;
3. (c) require that any client cryptoassets that are subject to the appointment are not co-mingled with, and are identifiable separately from, any assets pertaining to any other appointment;
4. (d) require the third party to recognise that the firm acts for its clients as trustee over the client cryptoassets; and
5. (e) exclude any rights of the third party to exercise set-off or counterclaim against the client cryptoassets in respect of any debt owed to it or to any other person;
(6) require the third party to notify the firm whenever cryptoassets are no longer subject to the terms of the agreement for any reason;
(7) include provisions detailing the extent of the third party’s liability in the event of the loss of a client cryptoassets caused by the fraud, wilful default or negligence of the third party or an agent appointed by the third party; and
(8) set out the procedures and authorities for the passing of instructions to, or by, the firm.

A firm must take the necessary steps to ensure that both it and the third party adhere to the agreement referred to at CASS 17.6.6R at all times.

Consenting to safeguarding chains

(1) This rule applies where, under the mandatory term described at CASS 17.6.6R(4), a third party appointed by the firm seeks the firm’s consent to itself appoint a further, different third party to carry on the activity of safeguarding cryptoassets in relation to client cryptoassets which the firm has undertaken to its client to safeguard.
(2) The firm must withhold the consent referred to in (1) unless it is satisfied that:
1. (a) the further appointee operates in a jurisdiction which specifically regulates the safeguarding of cryptoassets through mandatory requirements concerning financial and operational resilience, security of the means of access to cryptoassets, and record-keeping, and the activities of the further appointee are supervised in that jurisdiction;
2. (b) the firm has concluded, having completed due diligence on the further appointee in line with the requirements under CASS 17.6.5R, that the further appointment would not increase the risk of loss or diminution of any client cryptoassets which are subject to the arrangement, having regard to the firm’s compliance with CASS 17.2.2R;
3. (c) in relation to a firm’s retail market business, the further appointment is compatible with the Consumer Duty; and
4. (d) the agreement under which the further appointment will be governed (as between the third party appointed directly by the firm and the further third party) contains terms which provide equivalent safeguards to those set out at CASS 17.6.6R(1) to (8).
(3) (a) The firm may approach its assessment under (2)(b) by requiring the third party it has appointed under CASS 17.6.3R to apply the factors set out at CASS 17.6.5R(2) in relation to the further appointee and to report its conclusions to the firm.
1. (b) Where a firm takes the approach in (a), it remains fully responsible for complying with the rules in this section in relation to the further appointment.
(4) Any consent given by the firm under this rule must be periodically reviewed, at least once each year.
(5) A contravention of (2)(c) does not give rise to a right of action by a private person under section 138D of the Act (and CASS 17.6.8R(2)(c) is specified under section 138D(3) of the Act as a provision giving rise to no such right of action).
(6) A contravention of any other aspect of this rule is not affected by (5).

The governance condition

(1) Each proposed appointment by the firm of a third party under CASS 17.6.3R and each proposed consent under CASS 17.6.8R, together with the firm’s considerations and conclusions to support that proposal, must be approved by the firm’s governing body before the appointment is made or the consent is given, or by a person or persons within the firm to whom the firm’s governing body has delegated that role (the ‘governing body’s delegate’).
(2) Where the governing body has delegated one or more persons for the purposes of the approval under (1), that delegation must include the SMF manager to whom the firm has appointed the FCA-prescribed senior management responsibility (Reference letter (z)) in the table in SYSC 24.2.6R (functions in relation to CASS).
(3) The outcome of each periodic review of a firm’s selection and appointment of a third party that it conducts under CASS 17.6.5R, together with the firm’s considerations and conclusions, must be approved by the firm’s governing body or the governing body’s delegate within 3 months of the review being concluded.

Policy on appointing third parties

(1) A firm must produce and maintain a written policy that sets out its methodology for any selections, appointments, periodic reviews and consents that are required under CASS 17.6.3R, CASS 17.6.5R and CASS 17.6.8R.
(2) A firm must retain the written policy under (1) until 5 years after it has been superseded by any new version of the written policy, or otherwise indefinitely.

Records

(1) A firm must make a record of how the requirements of CASS 17.6.3R(1) or CASS 17.6.8R(2) are met in relation to any appointment of a third party under CASS 17.6.3R or consent to a further appointment of a third party under CASS 17.6.8R. That record must include the conclusions of any due diligence exercise carried out in accordance with those rules, making explicit reference to the factors set out at CASS 17.6.5R(2)(a) to CASS 17.6.5R(2)(j) (a ‘client cryptoasset third party due diligence record’).
(2) A firm must make the record under (1) prior to the relevant appointment commencing or the relevant consent being given.
(3) Whenever a firm undertakes a periodic review of its selection and appointment of a third party under CASS 17.6.5R or of the firm’s consent to an appointment under CASS 17.6.8R(4), the firm must make a record of the conclusions of its review, making explicit reference to the factors set out at CASS 17.6.5R(2)(a) to CASS 17.6.5R(2)(j) (a ‘client cryptoasset third party review record’).
(4) A firm must make the record under (3) on the date it completes the review.
(5) A firm must make a record of each approval given by its governing body or its governing body’s delegate under CASS 17.6.9R(1) or (3) (a ‘client cryptoasset third party governance record’).
(6) A firm must make the record under (5) on the date of the governing body’s or its governing body’s delegate’s approval.
(7) A firm must retain the records under (1), (3) and (5) until 5 years after the relevant appointment ceases.

CASS 17.7 Arranging cryptoasset safeguarding

This section applies to a firm when it arranges cryptoasset safeguarding, but is not safeguarding cryptoassets in relation to which it is arranging cryptoasset safeguarding.

Agreements

Each time a firm, on behalf of a client, arranges cryptoasset safeguarding with another person, it must enter into an agreement with that other person. This agreement must, at minimum:

(1) set out the obligations between the firm and the other person, including any ongoing obligations of the firm;
(2) set out the basis for any payments or other consideration between the two parties; and
(3) include provisions detailing the extent of either party’s liability in the event of the loss of a cryptoasset.

Records

(1) When a firm arranges cryptoasset safeguarding, it must ensure that proper records of the arrangements are made at the time the arrangements are put in place, and at the time the arrangements are amended (a ‘cryptoasset safeguarding arrangement record’).
(2) A firm must retain the records made under (1) for a period of 5 years after they are made.

Point In Time

25/10/2027