Related provisions for CASS 6.2.13

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CASS 6.6.1GRP
This section sets out the requirements a firm must meet when keeping records and accounts of the safe custody assets it holds for clients.
CASS 6.6.2RRP
A firm must keep such records and accounts as necessary to enable it at any time and without delay to distinguish safe custody assets held for one client from safe custody assets held for any other client, and from the firm's own applicable assets.[Note: article 16(1)(a) of the MiFID implementing Directive]
CASS 6.6.3RRP
A firm must maintain its records and accounts in a way that ensures their accuracy, and in particular their correspondence to the safe custody assets held for clients.[Note: article 16(1)(b) of the MiFID implementing Directive]
CASS 6.6.4RRP
A firm must maintain a client-specific safe custody asset record.
CASS 6.6.5GRP
The requirements in CASS 6.6.2 R to CASS 6.6.4 R are for a firm to keep internal records and accounts of clients'safe custody assets. Therefore any records falling under those requirements should be maintained by the firm, and should be separate to any records the firm may have obtained from any third parties, such as those with whom it may have deposited, or through whom it may have registered legal title to, clients'safe custody assets.
CASS 6.6.6RRP
A firm must keep a copy of every executed client agreement that includes that firm's right to use safe custody assets for its own account (see CASS 6.4.1 R), including in the case of a prime brokerage agreement the disclosure annex referred to in CASS 9.3.1 R.
CASS 6.6.8RRP
For each internal custody record check, each physical asset reconciliation and each external custody reconciliation carried out by a firm, it must make a record including:(1) the date it carried out the relevant process;(2) the actions the firm took in carrying out the relevant process; and(3) a list of any discrepancies the firm identified and the actions the firm took to resolve those discrepancies.
CASS 6.6.10GRP
(1) An internal custody record check is one of the steps a firm takes to satisfy its obligations under:(a) Principle 10 (Clients' assets);(b) CASS 6.2.2 R (Requirement to have adequate organisational arrangements);(c) CASS 6.6.2 R to CASS 6.6.4 R (Records and accounts); and(d) where relevant, SYSC 4.1.1 R (General requirements) and SYSC 6.1.1 R (Compliance).(2) An internal custody record check is a check as to whether the firm's records and accounts of the safe custody assets
CASS 6.6.11RRP
(1) A firm must perform an internal custody record check:(a) subject to (2), as regularly as is necessary but without allowing more than one month to pass between each internal custody record check; and(b) as soon as reasonably practicable after the date to which the internal custody record check relates.(2) A firm that holds no safe custody assets other than physical safe custody assets must perform an internal custody record check as regularly as necessary but, in any case,
CASS 6.6.12GRP
CASS 6.6.44 R sets out the matters which a firm must have regard to when determining the frequency at which to undertake an internal custody record check.
CASS 6.6.13RRP
A firm must perform an internal custody record check using either the internal custody reconciliation method or the internal system evaluation method. It must not use a combination of these methods.
CASS 6.6.14RRP
A firm must only use its internal records (for example its depot and client-specific ledgers for safe custody assets or other internal accounting records) in order to perform an internal custody record check.
CASS 6.6.15GRP
CASS 6.6.14 R means that a firm must not base its internal custody record checks on any records that the firm may have obtained from any third parties, such as those with whom it may have deposited, or through whom it may have registered legal title to, clients'safe custody assets.
CASS 6.6.16RRP
A firm may only use the internal custody reconciliation method if: (1) it separately maintains an aggregate safe custody asset record and a client-specific safe custody asset record; and(2) its aggregate safe custody asset record and its client-specific safe custody asset record are capable of being compared.
CASS 6.6.17RRP
The internal custody reconciliation method requires a firm to perform a comparison between its aggregate safe custody asset record and its client-specific safe custody asset record, as at the date of the internal custody record check.
CASS 6.6.18GRP
(1) The internal system evaluation method is available to any firm, including one that is not able to use the internal custody reconciliation method because it does not meet the requirements at CASS 6.6.16R (1) and CASS 6.6.16R (2).(2) The purpose of the internal system evaluation method is to detect weaknesses in a firm's systems and controls and any recordkeeping discrepancies. However, this method is not designed to substitute a firm's other measures for ensuring compliance
CASS 6.6.19RRP
The internal system evaluation method requires a firm to:(1) establish a process that evaluates: (a) the completeness and accuracy of the firm's internal records and accounts of safe custody assets held by the firm for clients, in particular whether sufficient information is being completely and accurately recorded by the firm to enable it to:(i) comply with CASS 6.6.4 R; and(ii) readily determine the total of all the safe custody assets that the firm holds for its clients; and(b)
CASS 6.6.20GRP
The evaluation process under CASS 6.6.19R (1) should verify that the firm's systems and controls correctly identify and resolve at least the following types or causes of discrepancies:(1) items in the firm's records and accounts that might be erroneously overstating or understating the safe custody assets held by a firm (for example, 'test' entries and 'balancing' entries);(2) negative balances;(3) processing errors;(4) journal entry errors (eg, omissions and unauthorised system
CASS 6.6.21GRP
(1) A physical asset reconciliation is a separate process to the internal custody record check. Firms that hold physical safe custody assets for clients are required to perform both processes. (2) The purpose of a physical asset reconciliation is to check that a firm's internal records and accounts of the physical safe custody assets kept by the firm for clients are accurate and complete, and to ensure any discrepancies are investigated and resolved.
CASS 6.6.22RRP
A firm that holds physical safe custody assets must perform a physical asset reconciliation for all the physical safe custody assets it holds for clients:(1) as regularly as is necessary but without allowing more than six months to pass between each physical asset reconciliation; and(2) as soon as reasonably practicable after the date to which the physical asset reconciliation relates.
CASS 6.6.23GRP
CASS 6.6.44 R sets out the matters which a firm must have regard to when determining the frequency at which to undertake a physical asset reconciliation.
CASS 6.6.24RRP
When performing a physical asset reconciliation a firm must:(1) count all the physical safe custody assets held by the firm for clients as at the date to which the physical asset reconciliation relates; and(2) compare the count in (1) against what the firm's internal records and accounts state as being in the firm's possession as at the same date.
CASS 6.6.25RRP
A firm must perform each physical asset reconciliation under CASS 6.6.24 R using the total count method or the rolling stock method.
CASS 6.6.26GRP
Regardless of the method used, a firm should ensure that all safe custody assets held by the firm as physical safe custody assets for clients are subject to a physical asset reconciliation at the frequency required under CASS 6.6.22 R.
CASS 6.6.27RRP
If a firm completes a physical asset reconciliation in a single stage, such that the firm:(1) performs a single count under CASS 6.6.24R (1) which encompasses all the physical safe custody assets held by the firm for clients as at the date to which the physical asset reconciliation relates; and (2) compares that count against the firm's internal records and accounts in accordance with CASS 6.6.24R (2);then the firm will have used the total count method for that physical asset
CASS 6.6.28RRP
If a firm completes a physical asset reconciliation in two or more stages, such that the firm: (1) performs two or more counts under CASS 6.6.24R (1) (each on a separate occasion and relating to a different stock line or group of stock lines forming part of the firm's overall holdings of physical safe custody assets) which, once all of the counts are complete, encompass all the physical safe custody assets held by the firm for clients; and (2) compares each of those counts against
CASS 6.6.29GRP
(1) The rolling stock method allows a firm to perform its physical asset reconciliation in several stages, with each stage referring to a line of stock or group of stock lines in a designated investment selected by a firm (for example, all the shares with an issuer whose name begins with the letter 'A' or all the stock lines held in connection with a particular business line). (2) Where a firm uses the rolling stock method to perform a physical asset reconciliation, all the stages
CASS 6.6.30RRP
(1) If a firm wishes to use the rolling stock method to perform a physical asset reconciliation it must first establish and document in writing its reasons for concluding that the way in which it will carry out its physical asset reconciliations is adequately designed to mitigate the risk of the firm's records being manipulated or falsified.(2) A firm must retain any documents created under (1) for a period of at least five years after the date it ceases to use the rolling stock
CASS 6.6.31GRP
The documents under CASS 6.6.30R (1) should, for example, cover the systems and controls the firm will have in place to mitigate the risk of 'teeming and lading' in respect of all the physical safe custody assets held by the firm for clients and across all the firm's business lines.
CASS 6.6.32GRP
To meet the requirement to have adequate organisational arrangements under CASS 6.2.2 R, a firm should consider performing 'spot checks' as to whether title to an appropriate sample of physical safe custody assets that it holds is registered correctly under CASS 6.2.3 R (Registration and recording of legal title).
CASS 6.6.33GRP
The purpose of an external custody reconciliation is to ensure the completeness and accuracy of a firm's internal records and accounts of safe custody assets held by the firm for clients against those of relevant third parties.
CASS 6.6.34RRP
A firm must conduct, on a regular basis, reconciliations between its internal records and accounts of safe custody assets held by the firm for clients and those of any third parties by whom those safe custody assets are held.[Note: article 16(1)(c) of the MiFID implementing Directive]
CASS 6.6.35RRP
In CASS 6.6.34 R, the third parties whose records and accounts a firm is required to reconcile its own internal records and accounts with must include:(1) the third parties with which the firm has deposited clients'safe custody assets;3(2) where the firm has not deposited a client'ssafe custody asset with a third party:3(a) the third parties responsible for the registration of legal title to that safe custody asset; or33(b) a person acting as an operator for the purposes of any
CASS 6.6.37RRP
A firm must conduct external custody reconciliations:(1) as regularly as necessary but allowing2 no more than one month to pass2 between each external custody reconciliation; and(2) as soon as reasonably practicable after the date to which the external custody reconciliation relates.
CASS 6.6.38GRP
CASS 6.6.44 R sets out the matters which a firm must consider when determining the frequency at which to undertake an external custody reconciliation.
CASS 6.6.39GRP
Where a firm holds clients'safe custody assets electronically with a central securities depositary which is able to provide adequate information to the firm on its holdings on a daily basis, it is best practice under CASS 6.6.37R (1) for the firm to conduct an external custody reconciliation each business day in respect of those assets.
CASS 6.6.40GRP
Where a firm deposits safe custody assets belonging to a client with a third party or where a third party is responsible for the registration of legal title to that asset,2 in complying with the requirements of CASS 6.6.34 R, the firm should seek to ensure that the third party provides the firm with adequate information (for example in the form of a statement) as at a date specified by the firm which details the description and amounts of all the safe custody assets credited to
CASS 6.6.41GRP
If a firmacting as trustee or depositary of an AIF that is an authorised AIF deposits safe custody assets belonging to a client with a third party, under article 89(1)(c) (Safekeeping duties with regard to assets held in custody) of the AIFMD level 2 regulation, the firm should seek to ensure that the third party provides the firm with adequate information (for example in the form of a statement) as at a date or dates specified by the firm which details the description and amounts
CASS 6.6.42GRP
External custody reconciliations must be performed for each safe custody asset held by the firm for its clients, except for physical safe custody assets. A reconciliation of transactions involving safe custody assets, rather than of the safe custody assets themselves, will not satisfy the requirement under CASS 6.6.34 R.
CASS 6.6.43GRP
A firmacting as trustee or depositary of an AIF that is an authorised AIF should perform the reconciliation under article 89(1)(c) (Safekeeping duties with regard to assets held in custody) of the AIFMD level 2 regulation: (1) as regularly as is necessary having regard to the frequency, number and value of transactions which the firm undertakes in respect of safe custody assets, but with no more than one month between each reconciliation; and(2) as soon as reasonably practicable
CASS 6.6.44RRP
When determining the frequency at which it will undertake its internal custody record checks under CASS 6.6.11 R, physical asset reconciliations under CASS 6.6.22 R, and external custody reconciliations under CASS 6.6.37 R, a firm must have regard to: (1) the frequency, number and value of transactions which the firm undertakes in respect of clients'safe custody assets; and(2) the risks to which clients'safe custody assets are exposed, such as the nature, volume and complexity
CASS 6.6.45RRP
(1) A firm must make and retain records sufficient to show and explain any decision it has taken under CASS 6.6.44 R when determining the frequency of its internal custody record checks, physical asset reconciliations and external custody reconciliations. Subject to (2), such records must be retained indefinitely.(2) If any decision under CASS 6.6.44 R is superseded by a subsequent decision under that rule then the record of that earlier decision retained in accordance with (1)
CASS 6.6.46RRP
(1) Subject to (3), a firm must review the frequency at which it conducts internal custody record checks, physical asset reconciliations and external custody reconciliations at least annually to ensure that it continues to comply with CASS 6.6.11 R, CASS 6.6.22 R and CASS 6.6.37 R, respectively, and has given due consideration to the matters in CASS 6.6.44 R.(2) For each review a firm undertakes under (1), it must record the date and the actions it took in reviewing the frequency
CASS 6.6.48GRP
In this section, a discrepancy should not be considered to be resolved until it is fully investigated and corrected, and any associated shortfall is made good by way of the firm ensuring that:(1) it is holding (under the custody rules) each of the safe custody assets that the firm ought to be holding for each of its clients; and(2) its own records, and the records of any relevant other person (such as a third party with whom the firm deposited the safe custody assets) accurately
CASS 6.6.49RRP
When a firm identifies a discrepancy as a result of carrying out an internal custody record check, physical asset reconciliation or external custody reconciliation, the firm must:2(1) promptly investigate the reason for the discrepancy and resolve it without undue delay; and2(2) take appropriate steps under CASS 6.6.54 R for the treatment of any shortfalls until that discrepancy is resolved.2
CASS 6.6.50RRP
When a firm identifies a discrepancy outside of its processes for an internal custody record check, physical asset reconciliation or external custody reconciliation, the firm must:2(1) take all reasonable steps both to investigate the reason for the discrepancy and to resolve it; and2(2) take appropriate steps under CASS 6.6.54 R for the treatment of shortfalls until that discrepancy is resolved.2
CASS 6.6.54RRP
(1) This rule applies where a firm identifies a discrepancy as a result of, or that reveals, a shortfall, which the firm has not yet resolved.(2) Subject to (3), until the discrepancy is resolved a firm must do one of the following:(a) appropriate a sufficient number of its own applicable assets to cover the value of the shortfall and hold them for the relevant clients under the custody rules in such a way that the applicable assets, or the proceeds of their liquidation, will
CASS 6.6.56GRP
(1) The value of a shortfall for the purposes of CASS 6.6.54 R may be determined by the previous day's closing mark to market valuation, or if in relation to a particular safe custody asset none is available, the most recently available valuation.(2) Where a firm is taking the measures under CASS 6.6.54R (2) in respect of a particular shortfall it should, as regularly as necessary, and having regard to Principle 10:(a) review the value of the shortfall in line with (1); and(b)
CASS 6.6.57RRP
A firm must inform the FCA in writing without delay if:(1) its internal records and accounts of the safe custody assets held by the firm for clients are materially out of date, or materially inaccurate or invalid, so that the firm is no longer able to comply with the requirements in CASS 6.6.2 R to CASS 6.6.4 R; or(2) if it is a firmacting as trustee or depositary of an AIF and has not complied with, or is materially unable to comply with, the requirements in CASS 6.6.2 R or in
CASS 6.1.1RRP
This chapter (the custody rules) applies to a firm:21(1) [deleted]22(a) [deleted]22(b) [deleted]22(1A) 2when it holds financial instruments belonging to a client in the course of its MiFID business;7(1B) 2when it is safeguarding and administering investments, in the course of business that is not MiFID business;7(1C) when it is acting as trustee or depositary of an AIF; 79(1D) when it is acting as trustee or depositary of a UCITS; and97(1E) in respect of any arrangement for a
CASS 6.1.1AGRP
2The regulated activity of safeguarding and administering investments covers both the safeguarding and administration of assets (without arranging) andarranging safeguarding and administration of assets,5 when those assets are either safe custody investments or custody assets. A safe custody investment is, in summary, a designated investment which a firm receives or holds on behalf of a client. Custody assets include designated investments, and any other assets that the firm holds
CASS 6.1.1BRRP
(1) Firms to which the custody rules apply by virtue of CASS 6.1.1R (1B) or (1E) 12must also apply the custody rules to those custody assets which are not safe custody investments in a manner appropriate to the nature and value of those custody assets.10(2) Firms to which the custody rules apply by virtue of CASS 6.1.1R (1C) must also apply the custody rules:10(a) to those custody assets which are not AIF custodial assets but are safe custody investments; and(b) in a manner appropriate
CASS 6.1.1CGRP
2In accordance with article 42 of the Regulated Activities Order, a firm ("I") will not be arranging safeguarding and administration of assets if it introduces a client to another firm whose permitted activities include the safeguarding and administration of investments, or to an exempt person acting as such, with a view to that other firm or exempt person:(1) providing a safe custody service in the United Kingdom; or(2) arranging for the provision of a safe custody service in
CASS 6.1.5GRP
For example, this chapter does not apply where a firm borrows safe custody assets2 from a client as principal under a stock lending agreement.2
CASS 6.1.6RRP
24(1) The custody rules do not apply where a client transfers full ownership of a safe custody asset to a firm for the purpose of securing or otherwise covering present or future, actual, contingent or prospective obligations.[Note: recital 27 to MiFID]4(2) 4Excepted from (1) is a transfer of the full ownership of a safe custody asset:(a) belonging to a retail client;(b) whose purpose is to secure or otherwise cover that client's present or future, actual, contingent or prospective
CASS 6.1.6BRRP
(1) 9A firm must ensure that any arrangement relating to the transfer of full ownership of a client'ssafe custody asset to the firm for the purposes set out in CASS 6.1.6R (1) and CASS 6.1.6AR (1) is the subject of a written agreement made on a durable medium between the firm and the client.(2) Regardless of the form of the agreement in (1) (which may have additional commercial purposes), it must cover the client's agreement to: (a) the terms for the arrangement relating to the
CASS 6.1.6CGRP
9The terms referred to in CASS 6.1.6BR (2)(b) may include, for example, terms under which the arrangement relating to the transfer of full ownership of the safe custody asset to the firm is not in effect from time to time, or is contingent on some other condition.
CASS 6.1.8ARRP
(1) 9If a client communicates to a firm that it wishes (whether pursuant to a contractual right or otherwise) to terminate an arrangement relating to the transfer of full ownership of its safe custody asset to a firm for the purposes set out in CASS 6.1.6R (1) and CASS 6.1.6AR (1) and the client's communication is not in writing, the firm must make a written record of the client's communication which also records the date the communication was received.(2) A firm must keep a client's
CASS 6.1.8BGRP
9CASS 6.1.8AR (3)(a) refers only to a firm's agreement to terminate an existing arrangement relating to the transfer of full ownership of a client'ssafe custody asset to the firm. Such agreement by a firm does not necessarily need to amount to the termination of its entire agreement with the client.
CASS 6.1.8CGRP
9When a firm notifies a client under CASS 6.1.8AR (3)(a) of when the termination of an arrangement relating to the transfer of full ownership of the safe custody asset to a firm is to take effect, it should take into account:(1) any relevant terms relating to such a termination that have been agreed with the client; and(2) the period of time it reasonably requires to return the safe custody asset to the client or to update the registration under (Holding of client assets) CASS
CASS 6.1.8DRRP
9If an arrangement relating to the transfer of full ownership of safe custody assets to a firm for the purposes set out in CASS 6.1.6R (1) and CASS 6.1.6AR (1) is terminated, then the exemption at CASS 6.1.6R (1) no longer applies.
CASS 6.1.8EGRP
(1) 9Following the termination of an arrangement relating to the transfer of full ownership of safe custody assets to a firm for the purposes set out in CASS 6.1.6R (1) and CASS 6.1.6AR (1), where a firm does not immediately return the safe custody assets to the client the firm should consider whether the custody rules apply in respect of the safe custody assets pursuant to CASS 6.1.1R (1A) to CASS 6.1.1R (1C).(2) Where the custody rules apply to a firm for safe custody assets
CASS 6.1.12RRP
(1) Subject to (2) and CASS 6.1.12B R and with the written agreement of the relevant client, a9firm need not treat this chapter as applying in respect of a delivery versus payment transaction through a commercial settlement system if:9929(a) in respect of a client's purchase, the firm intends for the asset in question to be due to the client within one business day following the client's fulfilment of its payment obligation to the firm;9 or9(b) in respect of a client's sale, the
CASS 6.1.12AGRP
(1) 9The amount of client money a firm segregates for the purposes of CASS 6.1.12R (3) may be determined by the previous day's closing mark to market valuation of the relevant safe custody asset or, if in relation to a particular safe custody asset none is available, the most recent available valuation.(2) Where a firm is segregating money for the purposes of CASS 6.1.12R (3) it should, as regularly as necessary, and having regard to Principle 10:(a) review the value of the safe
CASS 6.1.12CGRP
9Where a firm does not meet the requirements in CASS 6.1.12 R or CASS 6.1.12B R for use of the exemption in CASS 6.1.12 R, the firm is subject to the custody rules in respect of any safe custody asset it holds in connection with the delivery versus payment transaction in question.
CASS 6.1.12DGRP
(1) 9In line with CASS 6.1.12 R, where a firm receives a safe custody asset from a client in respect of a delivery versus payment transaction the firm is carrying out through a commercial settlement system in respect of a client's sale, and the firm has not fulfilled its payment obligation to the client by close of business on the third business day following the date of the client's fulfilment of its delivery obligation to the firm, the firm should consider whether the custody
CASS 6.1.12ERRP
(1) 9If a firm makes use of the exemption under CASS 6.1.12 R, it must obtain the client's written agreement to the firm's use of this exemption. (2) In respect of each client, the written agreement in (1) must be retained during the time that the firm makes use, or intends to make use, of the exemption under CASS 6.1.12 R in respect of that client'ssafe custody assets.
CASS 6.1.15GRP
The custody rules do not apply if a firm temporarily handles a safe custody asset2 belonging to a client. A firm should temporarily handle a safe custody asset2 for no longer than is reasonably necessary. In most transactions this would be no longer than one business day, but it may be longer or shorter depending upon the transaction in question. For example, when a firm executes an order to sell shares which have not been registered on a de-materialised exchange, handling documents
CASS 6.1.16GRP
When a firm temporarily handles a safe custody asset,2 in order to comply with its obligation to act in accordance with Principle 10 (Clients' assets), the following are guides to good practice:2(1) a firm should keep the safe custody asset2 secure, record it as belonging to that client, and forward it to the client or in accordance with the client's instructions as soon as practicable after receiving it; and2(2) a firm should make and retain a record of the fact that the firm
CASS 6.1.16FRRP

2When a trustee firm or depositary acts as a custodian for a trust or collective investment scheme, (except for a firmacting as trustee or depositary of an AIF and a firmacting as trustee or depositary of a UCITS12), and:

7
  1. (1)

    the trust or scheme is established by written instrument; and

  2. (2)

    the trustee firm or depositary has taken reasonable steps to determine that the relevant law and provisions of the trust instrument or scheme constitution will provide protections at least equivalent to the custody rules for the trust property or scheme property;

the trustee firm or depositary need comply only with the custody rules listed in the table below.

Reference

Rule

CASS 6.1.1 R to CASS 6.1.9 G and CASS 6.1.15 G to CASS 6.1.16C R

Application

CASS 6.1.16E R to CASS 6.1.16I G

Trustees and depositaries

CASS 6.1.22 G to CASS 6.1.24 G

General purpose

CASS 6.2.1 R and CASS 6.2.2 R

Protection of clients' safe custody assets

CASS 6.2.3 R and CASS 6.2.3B G9

9

Registration and recording of legal title9

CASS 6.2.7 R

Holding9

9CASS 6.3.1 R to CASS 6.3.4B G9

9

Depositing safe custody assets with third parties

CASS 6.4.1 R and CASS 6.4.2 G

Use of safe custody assets

CASS 6.69

9

Records, accounts and reconciliations

CASS 6.1.22GRP
Principle 10 (Clients' assets) requires a firm to arrange adequate protection for clients' assets when it is responsible for them. As part of these protections, the custody rules require a firm to take appropriate steps to protect safe custody assets2 for which it is responsible.2
CASS 6.1.23GRP
The rules in this chapter are designed primarily to restrict the commingling of client and the firm's assets and minimise the risk of the client'ssafe custody assets2 being used by the firm without the client's agreement or contrary to the client's wishes, or being treated as the firm's assets in the event of its insolvency.2
CASS 6.2.1RRP
1A firm must, when holding safe custody assets2 belonging to clients, make adequate arrangements so as to safeguard clients' ownership rights, especially in the event of the firm's insolvency, and to prevent the use of safe custody assets2 belonging to a client on the firm's own account except with the client's express consent.[Note: article 13(7) of MiFID]22
CASS 6.2.2RRP
A firm must introduce adequate organisational arrangements to minimise the risk of the loss or diminution of clients' safe custody assets,2 or the rights in connection with those safe custody assets,2 as a result of the misuse of the safe custody assets,2 fraud, poor administration, inadequate record-keeping or negligence.[Note: article 16(1)(f) of the MiFID implementing Directive]222
CASS 6.2.3RRP
Subject to CASS 6.2.3A-1R, a9firm must effect appropriate registration or recording of legal title to a safe custody asset2 belonging to a client8 in the name of:62(1) the client, unless the client is an authorised person acting on behalf of its client, in which case it may be registered in the name of the client of that authorised person;6(2) a nominee company which is controlled by:(a) the firm;(b) an affiliated company;(c) a recognised investment exchange; or5(d) a third party
CASS 6.2.3A-1RRP
9A firm need not comply with CASS 6.2.3 R for any safe custody asset:(1) that it has deposited with a third party in accordance with CASS 6.3 (Depositing assets and arranging for assets to be deposited with third parties); and(2) for which, because of the arrangements with that third party for depositing the safe custody asset, it is not practicable for the firm to effect appropriate registration or recording of legal title itself.
CASS 6.2.3ARRP
4If:(1) the safe custody asset is an emission auction product that is a financial instrument; and(2) it is not practicable or possible for a firm to effect registration or recording of legal title in this asset in the manner set out in CASS 6.2.3 R, the firm must register or record legal title in its name provided it has notified the client in writing.
CASS 6.2.5RRP
A firm may only6 register or record legal title to its own applicable asset6 in the same name as that in which legal title to a client's6safe custody asset2 is registered or recorded if the firm'sapplicable asset is separately identified from the client'ssafe custody asset in the firm's records, and either or both of the conditions in (1) and (2) are met.6262(1) The firm's holding of its own applicable asset arises incidentally to:66(a) designated investment business it carries
CASS 6.2.6GRP
6(1) Consistent with a firm's requirements to protect clients'safe custody assets and have adequate organisation arrangements in place (CASS 6.2.1 R and CASS 6.2.2 R), before a firm registers or records legal title to its own applicable asset in the same name as that in which legal title to a client'ssafe custody asset is registered or recorded under CASS 6.2.5 R, it should consider whether there are any means to avoid doing so.(2) Examples of where the conditions under CASS 6.2.5R
CASS 6.2.7RRP
A firm must ensure that any documents of title to applicable assets2 in bearer form, belonging to the firm and which it holds in its physical possession, are kept separately from any document of title to a client's safe custody assets2 in bearer form.22
CASS 6.2.8GRP
6The purpose of CASS 6.2.10 R is to set out the requirements a firm must comply with if it chooses to divest itself of a client's unclaimed safe custody assets.
CASS 6.2.9GRP
6Before acting in accordance with CASS 6.2.10 R to CASS 6.2.16 G, a firm should consider whether its actions are permitted by law and consistent with the arrangements under which the safe custody assets are held. These provisions relate to a firm's obligations as an authorised person.
CASS 6.2.10RRP
6A firm may either (i) liquidate an unclaimed safe custody asset it holds for a client, at market value, and pay away the proceeds or (ii) pay away an unclaimed safe custody asset it holds for a client, in either case, to a registered charity of its choice provided:(1) this is permitted by law and consistent with the arrangements under which that safe custody asset is held; (2) it has held that safe custody asset for at least 12 years;(3) in the 12 years preceding the divestment
CASS 6.2.11ERP
(1) 6Taking reasonable steps in CASS 6.2.10R (4) includes following this course of conduct:(a) determining, as far as reasonably possible, the correct contact details for the relevant client;(b) writing to the client at the last known address either by post or by electronic mail to inform it: (i) of the name of the firm with which the client first deposited the safe custody asset in question; (ii) of the firm's intention to pay the safe custody asset to charity under CASS 6.2.10
CASS 6.2.14RRP
6Where a firm divests itself of a client'ssafe custody asset under CASS 6.2.10 R, it must comply with either (1)(a) or (1)(b) and, in either case, (2).(1) (a) The firm must unconditionally undertake to pay to the client concerned a sum equal to the value of the safe custody asset at the time it was liquidated or paid away in the event of the client seeking to claim the safe custody asset in future.(b) The firm must ensure that an unconditional undertaking in the terms set out
CASS 6.2.15RRP
(1) 6If a firm pays away a client's unclaimed safe custody assets to charity or liquidates a client's unclaimed safe custody assets and pays the proceeds to charity under CASS 6.2.10 R it must make and retain, or where the firm already has such records, retain:(a) records of all safe custody assets divested under CASS 6.2.10 R (including details of the value of each asset at that time and the identity of the client to whom the asset was allocated); (b) all relevant documentation
CASS 6.2.16GRP
6Any costs associated with the firm divesting itself of safe custody assets pursuant to CASS 6.2.10 R to CASS 6.2.15 R should be paid for from the firm's own funds, including:(1) any costs associated with the firm carrying out the steps in CASS 6.2.10R (4) or CASS 6.2.11 E; and(2) the cost of any insurance purchased by a firm or the relevant member of its group to cover any legally enforceable claim in respect of the assets divested under CASS 6.2.10 R.
CASS 6.3.1RRP
(1) 1A firm may deposit safe custody assets2 held by it on behalf of its clients into an account or accounts opened with a third party, but only if it exercises all due skill, care and diligence in the selection, appointment and periodic review of the third party and of the arrangements for the holding and safekeeping of those safe custody assets.222(1A) [deleted]66(2) [deleted]66(3) When a firm makes the selection, appointment and conducts the periodic review referred to 2under
CASS 6.3.2GRP
In discharging its obligations under CASS 6.3.1 R,6 a firm should also consider, as appropriate,6 together with any other relevant matters:6(1) the third party's performance of its services to the firm;6(2) the arrangements that the third party has in place for holding and safeguarding the safe custody asset;22(3) current industry standard reports, for example "Assurance reports on internal controls of services organisations made available to third parties" made in line with Technical
CASS 6.3.2ARRP
(1) 6A firm must make a record of the grounds upon which it satisfies itself as to the appropriateness of its selection and appointment of a third party under CASS 6.3.1 R. The firm must make the record on the date it makes the selection or appointment and must keep it from that date until five years after the firm ceases to use the third party to hold safe custody assets belonging to clients.(2) A firm must make a record of each periodic review of its selection and appointment
CASS 6.3.4RRP
(1) Subject to (2), a6firm must only deposit safe custody assets2 with a third party in a jurisdiction which specifically regulates and supervises the safekeeping of safe custody assets2 for the account of another person with a third party who is subject to such regulation.622(2) A firm must not deposit safe custody assets2 held on behalf of a client with a third party in a country that is not an EEA State (third country) and which does not regulate the holding and safekeeping
CASS 6.3.4A-1RRP
6A firm must take the necessary steps to ensure that any client'ssafe custody assets deposited with a third party are identifiable separately from the applicable assets belonging to the firm and from the applicable assets belonging to that third party, by means of differently titled accounts on the books of the third party or other equivalent measures that achieve the same level of protection.[Note: article 16(1)(d) of the MiFID implementing Directive]
CASS 6.3.4ARRP
6A firm must have entered into a written agreement with any person with whom it deposits clients'safe custody assets under CASS 6.3.1 R, or with whom it arranges safeguarding and administration of assets which are clients'safe custody assets. 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 that arrangement; and(3) clearly set out the custody service(s) that the third party
CASS 6.3.4BGRP
6A firm should consider carefully the terms of any agreement entered into with a third party under CASS 6.3.4A R. The following terms are examples of the issues that should be addressed in these agreements (where relevant):(1) that the title of the account in the third party's books and records indicates that any safe custody asset credited to it does not belong to the firm;(2) that the third party will hold or record a safe custody asset belonging to the firm'sclient separately
CASS 9.5.3GRP
Subject to CASS 9.5.6 R, CASS 9.5.4 R and CASS 9.5.5 R require firms to comply with a client's request for information on the custody assets and/or client money the firm holds for a client under CASS 6 and/or CASS 7, and such request may be made by a client at any time.
CASS 9.5.4RRP
When a firm receives a request, made by a client, or on a client's behalf, for a statement of the custody assets and/or client money that the firm holds for that client, the firm must provide the client with the statement requested in a durable medium.
CASS 9.5.5RRP
When a firm receives a request, made by a client, or on a client's behalf, for a copy of any statement of custody assets and/or client money previously provided to that client, the firm must provide the client with the copy of the statement requested in a durable medium and within five business days following the receipt of the request.
CASS 9.5.8GRP
Consistent with the fair, clear and not misleading rule, a firm should ensure that, in any statements of custody assets and/or client money it provides to its clients, it is clear from the statement which assets and/or monies the firm reports as holding for the client are, or are not, protected under CASS 6 and/or CASS 7 (e.g. if the statement also includes information regarding assets and/or monies which are held by the firm for that client which are not subject to the custody
CASS 9.5.9GRP
Firms are reminded that under CASS 3.2.4 Gfirms that enter into arrangements with retail clients covered by CASS 3 (Collateral) should, when appropriate, identify in any statement of custody assets sent to the client under COBS 16.4 (Statements of client designated investments or client money) or this section the details of the assets which form the basis of that collateral arrangement.
CASS 6.4.1RRP
(1) 1A firm must not enter into arrangements for securities financing transactions in respect of safe custody assets2 held by it on behalf of a client or otherwise use such safe custody assets2 for its own account or the account of another client of the firm, unless:22(a) the client has given express prior consent to the use of the safe custody assets2 on specified terms; and2(b) the use of that client'ssafe custody assets2 is restricted to the specified terms to which the
CASS 6.4.1AGRP
5The FCA expects firms which enter into arrangements under CASS 6.4.1 R with retail clients to only enter into securities financing transactions and not otherwise use retail client'ssafe custody assets.
CASS 6.4.2GRP
Firms are reminded of the client's best interests rule, which requires the firm to act honestly, fairly and professionally in accordance with the best interests of their clients. For any transactions involving retail clients carried out under this section the FCA expects that:55(1) the firm ensures that relevant collateral is provided by the borrower in favour of the client;(2) the current realisable value of the safe custody asset2 and of the relevant collateral is monitored
CASS 6.4.3RRP
Where a firm uses safe custody assets2 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 assets2 has been effected, as well as the number of safe custody assets2 used belonging to each client who has given consent, so as to enable the correct allocation of any loss.[Note: article 19(2) of the MiFID implementing Directive]222
CASS 1A.2.2RRP
(1) A firm must once every year, and by the time it is required to make a notification in accordance with4CASS 1A.2.9R (4), determine whether it is a CASS large firm, CASS medium firm or a CASS small firm according to the amount of client money or safe custody assets which it holds, using the limits set out in the table in CASS 1A.2.7 R.4(2) For the purpose of determining its ‘CASS firm type’ in accordance with CASS 1A.2.7 R, a firm must:(a) if it currently holds client money
CASS 1A.2.3RRP
For the purpose of calculating the value of the total amounts of client money and safe custody assets that it holds on any given day during a calendar year a firm must:(1) in complying with CASS 1A.2.2R (2)(a), base its calculation upon internal reconciliations performed during the previous year;(2) in relation to client money or safe custody assets denominated in a currency other than sterling, translate the value of that money or that safe custody assets into sterling at the
CASS 1A.2.6GRP
CASS 1A.2.5 R provides a firm with the ability to opt in to a higher category of ‘CASS firm type’. This may be useful for a firm whose holding of client money and safe custody assets is near the upper categorisation limit for a CASS small firm or a CASS medium firm.
CASS 1A.2.7RRP

CASS firm types

CASS firm type

Highest total amount of client money held during the firm’s last calendar year or as the case may be that it projects that it will hold during the current calendar year

Highest total value of safe custody assets held by the firm during the firm's last calendar year or as the case may be that it projects that it will hold during the current calendar year

CASS large firm

more than £1 billion

more than £100 billion

CASS medium firm

an amount equal to or greater than £1 million and less than or equal to £1 billion

an amount equal to or greater than £10 million and less than or equal to £100 billion

CASS small firm

less than £1 million

less than £10 million

CASS 1A.2.9RRP
Once every calendar year a firm must notify to the FCA in writing the information specified in (1), (2) or (3) as applicable, and the information specified in (4), in each case no later than the day specified in (1) to (4):44(1) if it held client money or safe custody assets in the previous calendar year, the highest total amount of client money and the highest total value of safe custody assets held during the previous calendar year, notification of which must be made no later
CASS 1A.2.12RRP
4A firm's 'CASS firm type' and any change to it takes effect:(1) if the firm notifies the FCA in accordance with CASS 1A.2.9 R (1) or CASS 1A.2.9 R (2), on 1 February following the notification; or(2) if the firm notifies the FCA in accordance with CASS 1A.2.9 R (3), on the day it begins to hold client money or safe custody assets; or(3) if the firm makes an election under CASS 1A.2.5 R (1), and provided the conditions in CASS 1A.2.5 R (2) are satisfied, on the day the notification
CASS 9.4.2RRP
1A firm that holds custody assets or client money must:(1) provide the information in COBS 6.1.7 R for any custody assets the firm may hold for a client, including any custody assets which are not designated investments; and(2) provide the information in COBS 6.1.7 R and in (1) to each of its clients.
CASS 9.4.3GRP
1A firm should provide the information required in CASS 9.4.2 R to any client for whom it holds custody assets or client money, including a retail client, a professional client and an eligible counterparty.
CASS 7.14.5GRP
(1) Money arising from, or in connection with, the holding of a safe custody assets by a firm which is due to clients should, unless treated otherwise under the client money rules, be treated as client money by the firm. (2) Firms are reminded of the guidance in CASS 6.1.2 G.
CASS 7.14.6RRP
If a firm has deposited safe custody assets with a third party under CASS 6.3 and client money arises from, or in connection with, those safe custody assets then the firm must ensure that the third party either deposits the money in a client bank account of the firm or records it in a client transaction account for the benefit of the firmclients as appropriate.
CASS 7.14.8GRP
If the third party holding the safe custody assets under CASS 7.14.6 R is a bank with which the firm is permitted to deposit client money under CASS 7.13.3 R, then the client bank account referred to in CASS 7.14.6 R may be an account with that bank.
CASS 10.1.2GRP
The purpose of the CASS resolution pack is to ensure that a firm maintains and is able to retrieve information that would, in the event of its insolvency, assist an insolvency practitioner in achieving a timely return of client money and safe custody assets held by the firm to that firm'sclients.
CASS 10.1.9ERP
(1) For the purpose of CASS 10.1.7 R, the following documents and records should be retrievable immediately:(a) the document identifying the institutions referred to in CASS 10.2.1R (2);(b) the document identifying individuals pursuant to CASS 10.2.1R (4);(c) any written notification or acknowledgement letters3 referred to in CASS 10.2.1R (5);3(d) the most recent internal custody records checks3 referred to in CASS 10.3.1R (3);3(e) the most recent external custody reconciliations3
CASS 9.3.1RRP
(1) 1A firm must ensure that every prime brokerage agreement that includes its right to use safe custody assets for its own account includes a disclosure annex.(2) A firm must ensure that the disclosure annex sets out a summary of the key provisions within the prime brokerage agreement permitting the use of safe custody assets, including:(a) the contractual limit, if any, on the safe custody assets which a prime brokerage firm is permitted to use;(b) all related contractual definitions
CASS 9.3.2GRP
(1) Principle 10 (Clients’ assets) requires a firm to arrange adequate protection for client's assets when it is responsible for them. As part of these protections, the custody rules require a firm to take appropriate steps to protect safe custody assets for which it is responsible.(2) Subject to paragraph (3), a 3prime brokerage firm should not enter into “right to use arrangements” for a client'ssafe custody assets unless:13(a) in the case of a CASS small firm or a firm to
CASS 10.2.1RRP
A firm must include within its CASS resolution pack:(1) a master document containing information sufficient to retrieve each document in the firm'sCASS resolution pack;(2) a document which identifies the institutions the firm has appointed (including through an appointed representative, tied agent, field representative or other agent):(a) in the case of client money, for the placement of money in accordance with CASS 7.13.3 R1 or to hold client money in accordance with CASS 7.14.2
CASS 10.2.2GRP
For the purpose of CASS 10.2.1R (4), examples of individuals within the firm who are critical or important to the performance of operational functions include:(1) those necessary to carry out both internal and external client money and safe custody asset reconciliations and record checks1; and(2) those in charge of client documentation for business involving client money and safe custody assets.
CASS 10.3.1RRP
A firm must include, as applicable, within its CASS resolution pack the records required under:(1) CASS 6.3.2A R1 (safe custody assets: appropriateness of the firm’s selection of a third party);1(2) CASS 6.4.3 R (firm’s use of safe custody assets);(3) CASS 6.6.2 R and CASS 6.6.3 R (safe custody assets held for each client);11(4) CASS 6.6.6 R1 (client agreements: firm’s right to use);1(4A) CASS 6.6.8 R (internal custody record checks, physical asset reconciliations and external
CASS 7.16.22ERP
  1. (1)

    A firm may calculate either:

    1. (a)

      one individual client balance for each client,1 based on the total of the firm's holdings for that1client; or

    2. (b)

      a number of individual client balances for each client, equal to the number of products or business lines the firm operates for that client and each balance based on the total of the firm's holdings for that client in respect of the particular product or business line.1

  2. (2)

    Each individual client balance for a client should be calculated in accordance with this table:

    Individual client balance calculation

    Free money (sums held for a client free of sale or purchase (eg, see (3)(a)) and

    A

    sale proceeds due to the client:

    (a)

    for principal deals when the client has delivered the designated investments; and

    B

    (b)

    for agency deals, when:

    (i)

    the sale proceeds have been received by the firm and the client has delivered the designated investments; or

    C1

    (ii)

    the firm holds the designated investments for the client; and

    C2

    the cost of purchases:

    (c)

    for principal deals, paid for by the client when the firm has not delivered the designated investments to the client; and

    D

    (d)

    for agency deals, paid for by the client when:

    (i)

    the firm has not remitted the money to, or to the order of, the counterparty; or

    E1

    (ii)

    the designated investments have been received by the firm but have not been delivered to the client;

    E2

    Less

    money owed by the client for unpaid purchases by, or for, the client if delivery of those designated investments has been made to the client; and

    F

    proceeds remitted to the client for sales transactions by, or for, the client if the client has not delivered the designated investments.

    G

    Individual client balance 'X' = (A+B+C1+C2+D+E1+E2)-F-G

    X

  3. (3)

    When calculating an individual client balance for each client, a firm should also:

    1. (a)

      ensure it includes:

      1. (i)

        client money consisting of dividends received and interest earned and allocated (see CASS 7.11.32 R);

      2. (ii)

        client money consisting of dividends (actual or payments in lieu), stock lending fees and other payments received and allocated (see CASS 6.1.2 G);

      3. (iii)

        money the firm appropriates and segregates as client money to cover an unresolved shortfall in safe custody assets it identifies in its internal records which is attributable to an individual client (see CASS 6.6.54R (2)); and

      4. (iv)

        money the firm segregates as client money instead of an individual client's safe custody asset until such time as the relevant delivery versus payment transaction settles under CASS 6.1.12R (2); and

    2. (b)

      deduct any amounts due and payable by the client to the firm (see CASS 7.11.25 R).

  4. (4)

    Compliance with (1), (2) and (3)1 may be relied on as tending to establish compliance with CASS 7.16.21 R.

CASS 7.16.25RRP
When calculating the client money requirement under either of the methods in CASS 7.16.10 R, a firm must:(1) include any unallocated client money (see CASS 7.13.36 R) and unidentified receipts of money it considers prudent to segregate as client money (see CASS 7.13.37 R);(2) include any money the firm appropriates and holds as client money to cover an unresolved shortfall in safe custody assets identified in its internal records which is not attributable, or cannot be attributed
FEES 4.4.9DRP
3To the extent that a firm4 has provided the information required by FEES 4.4.7 D to the FCA as part of its compliance with another provision of the Handbook, it is deemed to have complied with the provisions of that direction.444
COND 2.4.4GRP
(1) [deleted]88(2) Relevant matters to which the FCA may have regard when assessing whether a firm will satisfy, and continue to satisfy, this threshold condition8may include but are not limited to:(a) (in relation to a firm other than a firm carrying on, or seeking to carry on, a PRA-regulated activity),8 whether there are any indications that the firm may have difficulties if the application is granted, at the time of the grant or in the future, in complying with any of the
SUP App 3.9.4GRP

1

Table 1: CRD activities6

6

Part II RAO Activities

Part III RAO Investments

1.

Taking6 deposits and other repayable funds from the public

6

Article 5

Article 74

2.

Lending

Article 61, 64

Article 88

3.

Financial leasing

4.

Money transmission services

5.

Issuing and administering means of payment (eg credit cards, travellers' cheques and bankers' drafts)

6.

Guarantees and commitments

7.

Trading for own account or for account of customers in:

(a) money market instruments

(b) foreign exchange

(c) financial futures and options

(d) exchange and interest rate instruments

(e) transferable securities

Article 14, 21, 25 (see Note 1), 64

Article 14, 21, 25, 64

Article 14, 21, 25, 64

Article 14, 21, 25, 64

Article 14, 21, 25, 64

Article 77, 78, 80, 83-85, 89

Article 83-85, 89

Article 83-85, 89

Article 83-85, 89

Article 76-81, 89

8.

Participation in share issues and the provision of services relating to such issues

Article 14, 21, 25, 53(1)10, 64

Article 76-81, 89

9.

Advice to undertakings on capital structure, industrial strategy and related questions and advice and services relating to mergers and the purchase of undertakings

Article 14, 21, 25, 53(1)10, 64

Article 76-80, 83-85, 89

10.

Money broking

Article 25, 64

Article 77, 78, 89

11.

Portfolio management and advice

Article 14, 21, 25, 37, 53(1)10, 64

Article 76-81, 83-85, 89

12.

Safekeeping and administration of securities

Article 40, 45, 64

Article 76-81, 83-85, 89

13.

Credit reference services

14.

Safe custody services

1 16

615.

Issuing electric money

Article 9B

Article 74A

3Note 12: The services and activities provided for in Sections A and B of Annex I of MiFID when referring to the financial instruments provided for in Section C of Annex I of that Directive are subject to mutual recognition according to the CRD from 1 January 2013.6See2 the table at SUP App 3.9.5 G below for mapping of MiFIDinvestment services and activities.For further details relating to this residual category, please see the "CRD"6section of the passporting forms entitled "Notification of intention to establish a branch in another EEA State" and "Notification of intention to provide cross border services in another EEA State".2

266
EG 19.14.2RP
1The FCA is responsible for monitoring and enforcing compliance with the Regulations not only by authorised firms who are within the Money Laundering Regulations’ scope, but also by what the Regulations describe as “Annex I financial institutions”. These are businesses which are not otherwise authorised by us but which carry out certain of the activities listed in Annex I of the Banking Consolidation Directive28, now Annex I of the CRD. The activities include lending (e.g. forfaiters