CASS 6.4 Use of safe custody assets

1. (-1) This rule applies in relation to activity carried on by a firm which is not retail market business.

2. (1)

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

   1. (a)

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

   2. (b)

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

3. (2)

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

   1. (a)

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

   2. (b)

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

4. (3)

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

5. (4)

    [deleted]

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

1. (1) This rule applies to a firm’s retail market business.
2. (2) A firm must not enter into arrangements for securities financing transactions in respect of safe custody assets held by it on behalf of a client, unless:
   1. (a) the client has given express prior consent to the use of the safe custody assets on specified terms;
   2. (b) the use of that client’s safe custody assets is restricted to the specified terms to which the client consents; and
   3. (c) entering into such arrangements, including the process of obtaining express prior consent and drawing up those specified terms, is compatible with the Consumer Duty.
3. (3) A firm must not enter into arrangements for securities financing transactions in respect of safe custody assets held by it on behalf of a client in an omnibus account maintained by a third party, unless, in addition to the conditions set out in (2):
   1. (a) each client whose safe custody assets are held together in an omnibus account has given express prior consent in accordance with (2)(a); or
   2. (b) the firm has in place systems and controls which ensure that only safe custody assets belonging to clients who have given express prior consent in accordance with (2)(a) are so used.
4. (4) Subject to (5), other than as a direct consequence of arrangements that it makes for securities financing transactions in accordance with this rule, a firm must not otherwise use safe custody assets held by it on behalf of a client for its own account or the account of any other person or client of the firm.
5. (5) A firm will not breach the prohibition in (4) where:
   1. (a) it is using a commercial settlement system to settle transactions in safe custody assets;
   2. (b) the firm is using one or more omnibus accounts for that purpose;
   3. (c) the potential breach arises purely as an operational consequence of that commercial settlement system; and
   4. (d) it has adequate organisational arrangements to minimise the occurrences of such breaches and to mitigate the risk of loss or diminution of those safe custody assets as a result of such breaches.

1. (1) A contravention of CASS 6.4.1BAR(2)(c) does not give rise to a right of action by a private person under section 138D of the Act (and CASS 6.4.1BAR(2)(c) is specified under section 138D(3) of the Act as a provision giving rise to no such right of action).
2. (2) A contravention of any other aspect of CASS 6.4.1BAR(2) is not affected by paragraph (1).

1. (1) This guidance applies to both CASS 6.4.1R and CASS 6.4.1BAR.
2. (2) Where a firm is acting on a client instruction to lend safe custody assets and where this constitutes consent to entering into the transaction, the firm should hold evidence to demonstrate this.

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

1. (1)

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

2. (2)

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

3. (3)

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

4. (4)

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

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

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

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

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

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