CASS Client Assets Sourcebook

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CASS 1

Application and general provisions

CASS 1.1

Application and purpose

01/12/2004

Application

CASS 1.1.1

CASS applies to a firm as specified in the remainder of this chapter.

01/12/2004

Purpose

CASS 1.1.2

The purpose of this chapter is to set out to whom, for what activities, and within what territorial limits the rules, evidential provisions and guidance in CASS apply.

01/12/2004

CASS 1.2

General application: who? what?

01/12/2004

General application: who?

CASS 1.2.1

The rules in CASS 1.2 set out the maximum scope of this sourcebook. The application of CASS is modified for certain activities by 1 CASS 1.4. Also particular chapters or sections of CASS may have provisions which limit their application.

01/12/2004

CASS 1.2.2

CASS applies to every firm, except as provided for in CASS 1.2.3 R, with respect to the carrying on of:

(1) all regulated activities except to the extent that a provision of CASS provides for a narrower application; and
(2) unregulated activities to the extent specified in any provision of CASS.

01/12/2004

CASS 1.2.3

CASS does not apply to:

(1) an ICVC; or
(2) an incoming EEA firm other than an insurer, with respect to its passported activities; or
(3) a UCITS qualifier.

01/12/2004

CASS 1.2.4

With the exception of this chapter and the insurance client money chapter, CASS does not apply to:

(1) an authorised professional firm with respect to its non-mainstream regulated activities; or
(2) the Society.

01/11/2007
Past version of CASS 1.2.4 before 01/11/2007

CASS 1.2.5

The insurance client money chapter does not apply to an authorised professional firm with respect to its non-mainstream regulated activities, which are insurance mediation activities, if:

(1) the firm's designated professional body has made rules which implement article 4 of the Insurance Mediation Directive;
(2) those rules have been approved by the FSA under section 332(5) of the Act; and
(3) the firm is subject to the rules in the form in which they were approved.

01/11/2007
Past version of CASS 1.2.5 before 01/11/2007

General application: what?

CASS 1.2.7

(1) The approach in CASS is to ensure that the rules in a chapter are applied to firms in respect of particular regulated activities or unregulated activities.
(2) The scope of the regulated activities to which CASS applies is determined by the description of the activity as it is set out in the Regulated Activities Order. Accordingly, a firm will not generally be subject to CASS in relation to any aspect of its business activities which fall within an exclusion found in the Regulated Activities Order. The definition of designated investment business includes, however, activities within the exclusion from dealing in investments as principal in article 15 of the Regulated Activities Order (Absence of holding out etc).
(3) The custody chapter and the client money chapter apply in relation to regulated activities, conducted by firms, which fall within the definition of MiFID business and/or designated investment business.
(3A) The collateral rules apply in relation to regulated activities, conducted by firms, which fall within the definition of designated investment business (including MiFID business).
(4) The insurance client money chapter applies in relation to regulated activities, conducted by firms, which fall within the definition of insurance mediation activities.
(5) [deleted]
(6) The mandate rules apply in relation to regulated activities, conducted by firms, which fall within the definition of designated investment business (including MiFID business) and insurance mediation activity, except where it relates to a reinsurance contract.

01/01/2009
Past version of CASS 1.2.7 before 01/01/2009

Application for retail clients, professional clients and eligible counterparties

CASS 1.2.8

(1) CASS applies directly in respect of activities conducted with or for all categories of clients.
(2) [deleted]
(3) The insurance client money chapter does not generally distinguish between different categories of client. However, the term consumer is used for those to whom additional obligations are owed, rather than the term retail client. This is to be consistent with the client categories used in the Insurance: New Conduct of Business sourcebook.
(4) Each provision in the custody chapter and the client money chapter makes it clear whether it applies to activities carried on for retail clients, professional clients or both. There is no further modification of the rules in these chapters in relation to activities carried on for eligible counterparties. Such clients are treated in the same way as other professional clients for the purposes of these rules.

01/01/2009
Past version of CASS 1.2.8 before 01/01/2009

Investments and money held under different regimes

CASS 1.2.11

Where a firm is subject to the client money chapter and the insurance client money chapter, it must ensure segregation between money held under each chapter, including that money held under different chapters is held, in different, separately designated, client bank accounts or client transaction accounts.

01/01/2009
Past version of CASS 1.2.11 before 01/01/2009

CASS 1.2.12

The purpose of the rules regarding the segregation of investments and money held under different regimes is to reduce the risk of confusion between assets held under different regimes either on an on-going basis or on the failure of a firm or a third party holding those assets.

01/11/2007

CASS 1.2.13

A firm may opt to hold under a single chapter money that would otherwise be held under different chapters (see CASS 5.1.1 R (3) and CASS 7.1.3 R).

01/01/2009
Past version of CASS 1.2.13 before 01/01/2009

CASS 1.3

General application: where?

01/12/2004

CASS 1.3.1

The rules in CASS 1.3 set out the maximum territorial scope of this sourcebook. Particular rules may have express territorial limitations.

01/12/2004

UK establishments: general

CASS 1.3.2

Except as provided for in CASS 1.2.3 R (2), CASS applies to every firm, in relation to regulated activities carried on by it from an establishment in the United Kingdom.

01/12/2004

UK firms: passported activities from EEA branches

CASS 1.3.3

CASS applies to every UK firm, other than an insurer, in relation to passported activities carried on by it from a branch in another EEA State.

01/12/2004

CASS 1.3.4

CASS does not apply to an incoming ECA provider acting as such.

01/11/2007

CASS 1.4

Application: particular activities

01/12/2004

Occupational pension scheme firms (OPS firms)

CASS 1.4.1

In the case of OPS activity undertaken by an OPS firm, CASS applies with the following general modifications:

(1) references to customer are to the OPS or welfare trust, whichever fits the case, in respect of which the OPS firm is acting or intends to act, and with or for the benefit of which the relevant activity is to be carried on; and
(2) if an OPS firm is required by any rule in CASS to provide information to, or obtain consent from, a customer, that firm must ensure that the information is provided to, or consent obtained from, each of the trustees of the OPS or welfare trust in respect of which that firm is acting, unless the context requires otherwise.

01/12/2004

Stock lending activity with or for clients

CASS 1.4.2

(1) The custody chapter and the client money chapter apply in respect of any stock lending activity that is undertaken with or for a client by a firm.
(2) The collateral rules apply, where relevant, in respect of stock lending activity.

01/01/2009
Past version of CASS 1.4.2 before 01/01/2009

Corporate finance business

CASS 1.4.3

(1) The custody chapter and the client money chapter apply in respect of corporate finance business that is undertaken by a firm.
(2) The collateral rules apply, where relevant, in respect of corporate finance business.

01/01/2009
Past version of CASS 1.4.3 before 01/01/2009

Oil market activity and energy market activity

CASS 1.4.4

(1) The custody chapter and the client money chapter apply in respect of oil market activity and other energy market activity that is undertaken by a firm.
(2) The collateral rules apply, where relevant, in respect of energy market activity.

01/01/2009
Past version of CASS 1.4.4 before 01/01/2009

Appointed representatives and tied agents

CASS 1.4.5

(1) Although CASS does not apply directly to a firm's appointed representatives, a firm will always be responsible for the acts and omissions of its appointed representatives in carrying on business for which the firm has accepted responsibility (section 39(3) of the Act). In determining whether a firm has complied with any provision of CASS, anything done or omitted by a firm's appointed representative (when acting as such) will be treated as having been done or omitted by the firm (section 39(4) of the Act ). Equally, CASS does not apply directly to tied agents. A MiFID investment firm will be fully and unconditionally responsible for the acts and omission of the tied agents that it appoints.
(2) Firms should also refer to SUP 12 (Appointed representatives), which sets out requirements which apply to firms using appointed representatives and tied agents.

01/11/2007
Past version of CASS 1.4.5 before 01/11/2007

Depositaries

CASS 1.4.6

The client money chapter does not apply to a depositary when acting as such.

01/01/2009
Past version of CASS 1.4.6 before 01/01/2009

CASS 1.4.7

The remainder of CASS applies to a depositary, when acting as such, with the following general modifications:

(1) except in the mandate rules, 'client' means 'trustee', 'trust' or 'collective investment scheme' as appropriate; and
(2) in the mandate rules, 'client' means 'trustee' 'collective investment scheme' or 'collective investment scheme instrument' as appropriate.

01/11/2007
Past version of CASS 1.4.7 before 01/11/2007

CASS 1.4.8

(1) Other than the mandate rules, CASS does not apply to a trustee firm which is not a depositary, or the trustee of a personal pension scheme or stakeholder pension scheme, unless MiFID applies to it, in which case the custody chapter and the client money chapter do apply.
(2) In the custody chapter, the client money chapter and the mandate rules, 'client' means 'trustee', 'trust', 'trust instrument' or 'beneficiary', as appropriate.

01/01/2009
Past version of CASS 1.4.8 before 01/01/2009

Auction regulation bidding

CASS 1.4.9

Where a firm carries on auction regulation bidding it may elect to comply with CASS (but not CASS 5) in respect of this activity, subject to the general modifications in CASS 1.4.10 R.

27/07/2012

CASS 1.4.10

Where a firm has made an election in accordance with CASS 1.4.9 R, CASS is modified so that in relation to that firm:

(1) each reference to:

(a) designated investments;
(b) safe custody assets; and
(c) contingent liability investments;

includes a reference to a two-day emissions spot;
(2) each reference to designated investment business includes auction regulation bidding;
(3) each reference to safeguarding and administering investments, including safeguarding and administration of assets (without arranging) and arranging safeguarding and administration of assets, includes those activities where they are carried on in relation to a two-day emissions spot; and
(4) the reference in CASS 6.2.3A R to an 'emissions auction product that is a financial instrument' includes a two-day emissions spot;

27/07/2012

CASS 1.4.11

The effect of CASS 1.4.10 R is that when a firm makes an election in accordance with CASS 1.4.9 R:

(1) a two-day emissions spot falls within the scope of each chapter in CASS (save for CASS 5), for example:

(a) the reference in CASS 6.1.1 R (1)(b) to safeguarding and administering investments is modified to include the activity of safeguarding and administering a two-day emissions spot; and
(b) any money that the firm receives or holds for or on behalf of a client in the course of or in connection with its auction regulation bidding activities will be treated as client money and so will need to be dealt with in accordance with the client money rules; and

(2) that election also has effect in relation to rules and guidance elsewhere in the Handbook, including:

(a) COBS 3 (Client categorisation);
(b) COBS 6.1.7 R (Information concerning safeguarding of designated investments belonging to clients and client money);
(c) COBS 6.1.11 R (Timing of disclosure);
(d) COBS 16.4 (Statements of client designated investments or client money);
(e) SUP 3 (Auditors);
(f) SUP 10A.4.4 R (the table of controlled functions) and SUP 10A.7.9 R (CASS operational oversight function (CF10a)); and
(g) SUP 16.14 (Client money and asset return).

27/07/2012

CASS 1.4.12

The option to elect to comply with CASS set out in CASS 1.4.9 R only applies to the extent the firm is carrying on auction regulation bidding. Where a firm is carrying on MiFID business bidding, CASS applies to it in accordance with the general application rules in CASS for a firm that is carrying on MiFID business.

27/07/2012

CASS 1.4.13

Where a firm makes an election in accordance with CASS 1.4.9 R it must:

(1) make a written record of the election, including the date from which the election is to be effective, on the date it makes the election;
(2) keep that record from the date that it is made for a period of five years after ceasing to use the opt in.

27/07/2012

CASS 1.4.14

Where a firm that has opted in to CASS under CASS 1.4.9 R subsequently decides to cease its use of that opt in it must:

(1) make a written record of this decision, including the date from which the decision is to be effective, on the date it takes the decision;
(2) keep that record from the date that it is made for a period of five years after the date it is to be effective; and
(3) discharge any outstanding fiduciary obligations that had arisen because the firm had elected to comply with CASS.

27/07/2012

CASS 1.5

Application: electronic media and E-Commerce

01/12/2004

Application to electronic media

CASS 1.5.1

GEN 2.2.14 R (References to writing) has the effect that electronic media may be used to make communications that are required by the Handbook to be "in writing" unless a contrary intention appears.

01/12/2004

CASS 1.5.2

For any electronic communication with a customer, a firm should:

(1) have in place appropriate arrangements, including contingency plans, to ensure the secure transmission and receipt of the communication; it should also be able to verify the authenticity and integrity of the communication; the arrangements should be proportionate and take into account the different levels of risk in a firm's business;
(2) be able to demonstrate that the customer wishes to communicate using this form of media; and
(3) if entering into an agreement, make it clear to the customer that a contractual relationship is created that has legal consequences.

01/12/2004

CASS 1.5.3

Firms should note that GEN 2.2.14 R does not affect any other legal requirement that may apply in relation to the form or manner of executing a document or agreement.

01/12/2004

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Legal Instruments that change this Chapter Application and general provisions

CASS 1A

CASS firm classification and operational oversight

CASS 1A.1

Application

01/01/2011

CASS 1A.1.1

(1) Subject to (2), (3) and (4), this chapter applies to a firm to which either or both of CASS 6 (Custody rules) and CASS 7 (Client money rules) applies.
(2) In relation to a firm to which CASS 5 (Client money: insurance mediation activity) and CASS 7 (Client money rules) apply, this chapter does not apply in relation to client money that a firm holds in accordance with CASS 5.
(3) The rules and guidance in CASS 1A.2 apply to a firm even if at the date of the determination or, as the case may be, the notification, either or both of CASS 6 and CASS 7 do not apply to it, provided that:

(a) either or both of those chapters applied to it during part or all of the previous calendar year; or
(b) it projects that either or both will apply to it in the current calendar year.

(4) This chapter does not apply to a firm to which only CASS 6 applies, applied or is projected to apply, merely because it is, was, or is projected to be a firm which arranges safeguarding and administration of assets.

01/01/2013
Past version of CASS 1A.1.1 before 01/01/2013

CASS 1A.2

CASS firm classification

01/01/2011

CASS 1A.2.1

The application of certain rules in this chapter depends upon the 'CASS firm type' within which a firm falls. The 'CASS firm types' are defined in accordance with CASS 1A.2.7 R. The 'CASS firm type' within which a firm falls is also used to determine whether it is required to have the CASS operational oversight function described in CASS 1A.3.1A R and whether the reporting obligations in SUP 16.14 (Client money and asset return) apply to it.

01/01/2013
Past version of CASS 1A.2.1 before 01/01/2013

CASS 1A.2.2

(1) A firm must once every year, and by the time it is required to make a notification in accordance with CASS 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.
(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 or safe custody assets, calculate the higher of the highest total amount of client money and the highest total value of safe custody assets held during the previous calendar year ending on 31 December and use that figure to determine its 'CASS firm type';
(b) if it did not hold client money or safe custody assets in the previous calendar year but projects that it will do so in the current calendar year, calculate the higher of the highest total amount of client money and the highest total value of safe custody assets that it projects that it will hold during that year and use that figure to determine its 'CASS firm type'; but
(c) in either case, exclude from its calculation any client money held in accordance with CASS 5 (Client money: insurance mediation activity).

01/01/2013
Past version of CASS 1A.2.2 before 01/01/2013

CASS 1A.2.3

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 previous day's closing spot exchange rate; and
(3) in relation to safe custody assets only, calculate their total value using the previous day's closing mark to market valuation, or if in relation to a particular safe custody asset none is available, the most recent available valuation.

01/01/2011

CASS 1A.2.4

One of the consequences of CASS 1A.2.2 R is that a firm that determines itself to be a CASS small firm or a CASS medium firm will, at least if it exceeds during the course of a calendar year either of the limits in CASS 1A.2.7 R that applies to it, become in the next calendar year:

(1) in the case of a CASS small firm, a CASS medium firm or a CASS large firm; and
(2) in the case of a CASS medium firm, a CASS large firm.

01/01/2011

CASS 1A.2.5

(1) Notwithstanding CASS 1A.2.2 R, provided that the conditions in (2) are satisfied a firm may elect to be treated:

(a) as a CASS medium firm, in the case of a firm that is classed by the application of the limits in CASS 1A.2.7 R as a CASS small firm; and
(b) as a CASS large firm, in the case of a firm that is classed by the application of the limits in CASS 1A.2.7 R as a CASS medium firm.

(2) The conditions to which (1) refers are that in either case:

(a) the election is notified to the FSA in writing;
(b) the notification in accordance with (a) is made at least one week before the election is intended to take effect; and
(c) the FSA has not objected.

01/01/2013
Past version of CASS 1A.2.5 before 01/01/2013

CASS 1A.2.6

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.

01/01/2011

CASS 1A.2.7

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

01/01/2011

CASS 1A.2.8

In relation to the calendar year ending on 31 December 2011, a firm must notify the FSA in writing:

(1) by 31 January 2011 of the highest total amount of client money and the highest total value of safe custody assets held during the previous calendar year, if it held client money or safe custody assets in that previous year; or
(2) by 31 January 2011 of the highest total amount of client money and the highest total value of safe custody assets that the firm projects that it will hold during 2011, if it did not hold client money or safe custody assets in the previous calendar year but at the date of its notification to the FSA projects that it will do so in 2011; or
(3) in any other case, before the date on which the firm begins to hold client money or safe custody assets, of the highest total amount of client money and the highest total value of safe custody assets that the firm projects that it will hold during the remainder of 2011; and
(4) in every case, of its 'CASS firm type' classification.

01/01/2011

CASS 1A.2.8A

In addition, in relation to the calendar year ending on 31 December 2011, a CASS small firm must by 31 July 2011 notify the FSA in writing of:

(1) the highest total amount of client money and the highest total value of safe custody assets held during the period between 1 January 2011 and 30 June 2011; or
(2) if it did not hold client money or safe custody assets in that period, the highest total amount of client money and the highest total value of safe custody assets that the firm projects, as at the date of its notification to the FSA under this rule, it will hold between 1 July 2011 and 31 December 2011.

01/06/2011

CASS 1A.2.9

Once every calendar year a firm must notify to the FSA 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):

(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 than the fifteenth business day of January; or
(2) if it did not hold client money or safe custody assets in the previous calendar year but at any point up to the fifteenth business day of January the firm projects that it will do so in the current calendar year, the highest total amount of client money and the highest total value of safe custody assets that the firm projects that it will hold during the current calendar year, notification of which must be made no later than the fifteenth business day of January; or
(3) in any other case, the highest total amount of client money and the highest total value of safe custody assets that the firm projects that it will hold during the remainder of the current calendar year, notification of which must be made no later than the business day before the firm begins to hold client money or safe custody assets; and
(4) in every case, of its 'CASS firm type' classification, notification of which must be made at the same time the firm makes the notification under (1), (2) or (3).

01/01/2013
Past version of CASS 1A.2.9 before 01/01/2013

CASS 1A.2.10

For the purpose of the annual notification to which CASS 1A.2.9 R refers, a firm must apply the calculation rule in CASS 1A.2.3 R.

01/01/2013
Past version of CASS 1A.2.10 before 01/01/2013

CASS 1A.2.11

For the purpose of CASS 1A.2.9R (1), the FSA will treat that obligation as satisfied if a firm submitted a CMAR for each period within the previous calendar year in compliance with SUP 16.14.3 R.

01/01/2013
Past version of CASS 1A.2.11 before 01/01/2013

CASS 1A.2.12

A firm's 'CASS firm type' and any change to it takes effect:

(1) if the firm notifies the FSA 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 FSA 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 made under CASS 1A.2.5 R (2)(a) states that the election is intended to take effect.

01/01/2013

CASS 1A.2.13

Any written notification made to the FSA under this chapter should be marked for the attention of: "Client Assets Firm Classification".

01/01/2013

CASS 1A.3

Responsibility for CASS operational oversight

01/01/2011

CASS 1A.3.1

A CASS small firm must allocate to a director performing a significant influence function or a senior manager performing a significant influence function responsibility for:

(1) oversight of the firm's operational compliance with CASS; and
(2) reporting to the firm's governing body in respect of that oversight.

01/01/2013
Past version of CASS 1A.3.1 before 01/01/2013

CF10a: the CASS operational oversight function

CASS 1A.3.1A

A CASS medium firm and a CASS large firm must allocate to a director or senior manager the function of:

(1) oversight of the operational effectiveness of that firm's systems and controls that are designed to achieve compliance with CASS;
(2) reporting to the firm's governing body in respect of that oversight; and
(3) completing and submitting a CMAR to the FSA in accordance with SUP 16.14.

01/10/2011

CASS 1A.3.1B

CASS 1A.3.1A R describes the controlled function known as the CASS operational oversight function. The table of controlled functions in SUP 10.4.5 R together with SUP 10.7.9 R specify the CASS operational oversight function as a required function for a firm to which CASS 1A.3.1A R applies.

01/10/2011

CASS 1A.3.1C

If, at the time a firm becomes a CASS medium firm or a CASS large firm in accordance with CASS 1A.2.12 R (1) or CASS 1A.2.12 R (2), the firm is not able to comply with CASS 1A.3.1A R because it has no director or senior manager who is an approved person in respect of the CASS operational oversight function, the firm must:

(1) take the necessary steps to ensure that it complies with CASS 1A.3.1A R as soon as practicable, which must at least include submitting an application for a candidate in respect of the CASS operational oversight function within 30 business days of the firm becoming a CASS medium firm or a CASS large firm; and
(2) until such time as it is able to comply with CASS 1A.3.1A R, allocate to a director performing a significant influence function or a senior manager performing a significant influence function responsibility for:

(a) oversight of the firm's operational compliance with CASS;
(b) reporting to the firm's governing body in respect of that oversight; and
(c) completing and submitting the CMAR to the FSA in accordance with SUP 16.14.

01/01/2013

CASS 1A.3.3

(1) Subject to (2), a firm must make and retain an appropriate record of the person to whom responsibility is allocated in accordance with CASS 1A.3.1 R, CASS 1A.3.1A R or CASS 1A.3.1C R (2).
(2) A CASS small firm must make and retain such a record only where it allocates responsibility to a person other than the person in that firm who performs the compliance oversight function.
(3) A firm must ensure that the record made under this rule is retained for a period of five years after it is made.

01/01/2013
Past version of CASS 1A.3.3 before 01/01/2013

Export chapter as

Legal Instruments that change this Chapter CASS firm classification and operational oversight

CASS 3

Collateral

CASS 3.1

Application and Purpose

01/12/2004

Application

CASS 3.1.1

This chapter applies to a firm when it receives or holds assets in connection with an arrangement to secure the obligation of a client in the course of, or in connection with, its designated investment business, including MiFID business.

01/11/2007
Past version of CASS 3.1.1 before 01/11/2007

CASS 3.1.2

Firms are reminded that this chapter does not apply to an incoming EEA firm, other than an insurer, with respect to its passported activities. The application of this chapter is also dependent on the location from which the activity is undertaken (see CASS 1.3.2 R and CASS 1.3.3 R).

01/11/2007
Past version of CASS 3.1.2 before 01/11/2007

CASS 3.1.3

This chapter does not apply to a firm that has only a bare security interest (without rights to hypothecate) in the client's asset. In such circumstances, the firm must comply with the custody rules or client money rules as appropriate.

01/11/2007
Past version of CASS 3.1.3 before 01/11/2007

CASS 3.1.4

For the purpose of this chapter only, a bare security interest in the client's asset gives a firm the right to realise the assets only on a client's default and without the right to use other than in default.

01/11/2007
Past version of CASS 3.1.4 before 01/11/2007

Purpose

CASS 3.1.5

The purpose of this chapter is to ensure that an appropriate level of protection is provided for those assets over which a client gives a firm certain rights. The arrangements covered by this chapter are those under which the firm is given a right to use the asset, and the firm treats the asset as if legal title and associated rights to that asset had been transferred to the firm subject only to an obligation to return equivalent assets to the client upon satisfaction of the client's obligation to the firm. The rights covered in this chapter do not include those arrangements by which the firm has only a bare security interest in the client's asset (in which case the custody rules or client money rules apply).

01/11/2007
Past version of CASS 3.1.5 before 01/11/2007

CASS 3.1.6

Examples of the arrangements covered by this chapter include the taking of collateral by a firm, under the ISDA English Law (transfer of title) and the New York Law Credit Support Annexes (assuming the right to rehypothecate has not been disapplied).

01/11/2007
Past version of CASS 3.1.6 before 01/11/2007

CASS 3.1.7

This chapter recognises the need to apply a differing level of regulatory protection to the assets which form the basis of the two different types of arrangement described in CASS 3.1.5 G. Under the bare security interest arrangement, the asset continues to belong to the client until the firm's right to realise that asset crystallises (that is, on the client's default). But under a "right to use arrangement", the client has transferred to the firm the legal title and associated rights to the asset, so that when the firm exercises its right to treat the asset as its own, the asset ceases to belong to the client and in effect becomes the firm's asset and is no longer in need of the full range of client asset protection. The firm may exercise its right to treat the asset as its own by, for example, clearly so identifying the asset in its own books and records.

01/11/2007
Past version of CASS 3.1.7 before 01/11/2007

CASS 3.1.8

A prime brokerage firm is reminded of the additional obligations in CASS 9.3.1R which apply to prime brokerage agreements.

01/03/2011

CASS 3.2

Requirements

01/12/2004

Application

CASS 3.2.2

A firm that receives or holds a client's assets under an arrangement to which this chapter applies and which exercises its right to treat the assets as its own must ensure that it maintains adequate records to enable it to meet any future obligations including the return of equivalent assets to the client.

01/11/2007
Past version of CASS 3.2.2 before 01/11/2007

CASS 3.2.3

If the firm has the right to use the client's asset under a "right to use arrangement" but has not yet exercised its right to treat the asset as its own, the client money rules or the custody rules will continue to apply as appropriate until such time as the firm exercises its right, at which time CASS 3.2.2 R will apply.

01/12/2004

CASS 3.2.4

When appropriate, firms that enter into the arrangements with retail clients covered in this chapter will be expected to identify in the statement of custody assets sent to the client in accordance with COBS 16.4 (Statements of client designated investments or client money) details of the assets which form the basis of the arrangements. Where the firm utilises global netting arrangements, a statement of the assets held on this basis will suffice.

06/04/2010
Past version of CASS 3.2.4 before 06/04/2010

Export chapter as

Legal Instruments that change this Chapter Collateral

CASS 5

Client money: insurance mediation activity

CASS 5.1

Application

14/01/2005

CASS 5.1.1

(1) CASS 5.1 to CASS 5.6 apply, subject to (2), (3) and CASS 5.1.3 R to CASS 5.1.6 R, to a firm that receives or holds money in the course of or in connection with its insurance mediation activity.
(2) CASS 5.1 to CASS 5.6 do not, subject to (3), apply:

(a) to a firm to the extent that it acts in accordance with the client money chapter; or
(b) to a firm in carrying on an insurance mediation activity which is in respect of a reinsurance contract; or
(c) to an insurance undertaking in respect of its permitted activities; or
(d) to a managing agent when acting as such; or
(e) with respect to money held by a firm which:

(i) is an approved bank; and
(ii) has requisite capital under article 4(4)(b) of the Insurance Mediation Directive;

but only when held by the firm in an account with itself, in which case the firm must notify the client (whether through a client agreement, terms of business, or otherwise in writing) that:

(iii) money held for that client in an account with the approved bank will be held by the firm as banker and not as trustee (or in Scotland as agent); and
(iv) as a result, the money will not be held in accordance with CASS 5.1 to CASS 5.6.

(3) A firm may elect to comply with:

(a) CASS 5.1 to CASS 5.6 in respect of client money which it receives in the course of carrying on insurance mediation activity in respect of reinsurance contracts; and
(b) CASS 5.1, CASS 5.2 and CASS 5.4 to CASS 5.6 in respect of money which it receives in the course of carrying on an activity which would be insurance mediation activity, and which money would be client money, but for article 72D of the Regulated Activities Order (Large risks contracts where risk situated outside the EEA);

but the election must be in respect of all the firm's business which consists of that activity.
(4) A firm must keep a record of any election in (3).

06/04/2010
Past version of CASS 5.1.1 before 06/04/2010

CASS 5.1.2

A firm that is an approved bank, and relies on the exemption under CASS 5.1.1 R (2)(e), should be able to account to all of its clients for amounts held on their behalf at all times. A bank account opened with the firm that is in the name of the client would generally be sufficient. When money from clients deposited with the firm is held in a pooled account, this account should be clearly identified as an account for clients. The firm should also be able to demonstrate that an amount owed to a specific client that is held within the pool can be reconciled with a record showing that individual's client balance and is, therefore, identifiable at any time.

14/01/2005

CASS 5.1.3

An authorised professional firm regulated by The Law Society (of England and Wales), The Law Society of Scotland or The Law Society of Northern Ireland that, with respect to its regulated activities, is subject to the rules of its designated professional body as specified in CASS 5.1.4 R, in force on 14 January 2005, must comply with those rules and if it does so, it will be deemed to comply with CASS 5.2 to CASS 5.6.

09/12/2011
Past version of CASS 5.1.3 before 09/12/2011

CASS 5.1.4

For the purposes of CASS 5.1.3 R the relevant rules are:

(1) If regulated by the Law Society (of England and Wales);

(a) the Solicitors' Accounts Rules 1998; or
(b) where applicable, the Solicitors Overseas Practice Rules 1990;

(2) if regulated by the Law Society of Scotland, the Solicitors' (Scotland) Accounts, Accounts Certificate, Professional Practice and Guarantee Fund Rules 2001;
(3) if regulated by the Law Society of Northern Ireland, the Solicitors' Accounts Regulations 1998.

14/01/2005

CASS 5.1.4A

(1) A firm will, subject to (3), be deemed to comply with CASS 5.3 to CASS 5.6 if it receives or holds client money and it either:

(a) in relation to a service charge, complies with the requirement to segregate such money in accordance with section 42 of the Landlord and Tenant Act 1987 ("the 1987 Act"); or
(b) in relation to money which is clients' money for the purpose of the Royal Institution of Chartered Surveyors' Rules of Conduct ("RICS rules") in force as at 14 January 2005, it complies with the requirement to segregate and account for such money in accordance with the RICS Members' Accounts rules.

(2) Paragraph (1)(a) also applies to a firm in Scotland or in Northern Ireland if in acting as a property manager the firm receives or holds a service charge and complies (so far as practicable) with section 42 of the 1987 Act as if the requirements of that provision applied to it.
(3) In addition to complying with (1), a firm must ensure that an account in which money held pursuant to the trust fund mentioned in section 42(3) of the 1987 Act or an account maintained in accordance with the RICS rules satisfies the requirements in CASS 5.5.49 R to the extent that the firm will hold money as trustee or otherwise on behalf of its clients.

14/01/2005

CASS 5.1.5

Subject to CASS 5.1.5A R money is not client money when:

(1) it becomes properly due and payable to the firm:

(a) for its own account; or
(b) in its capacity as agent of an insurance undertaking where the firm acts in accordance with CASS 5.2; or

(2) it is otherwise received by the firm pursuant to an arrangement made between an insurance undertaking and another person (other than a firm) by which that other person has authority to underwrite risks, settle claims or handle refunds of premiums on behalf of that insurance undertaking outside the United Kingdom and where the money relates to that business.

14/01/2005

CASS 5.1.5A

CASS 5.1.5 R (1)(b) and CASS 5.1.5 R (2) do not apply, and hence money is client money, in any case where:

(1) in relation to an activity specified in CASS 5.2.3 R (1) (a) to CASS 5.2.3 R (1) (c), the insurance undertaking has agreed that the firm may treat money which it receives and holds as agent of the undertaking, as client money and in accordance with the provisions of CASS 5.3 to CASS 5.6; and
(2) the agreement in (1) is in writing and adequate to show that the insurance undertaking consents to its interests under the trusts (or in Scotland agency) in CASS 5.3.2 R or CASS 5.4.7 R being subordinated to the interests of the firm's other clients.

14/01/2005

CASS 5.1.6

Except where a firm and an insurance undertaking have (in accordance with CASS 5.1.5A R) agreed otherwise, for the purposes of CASS 5.1 to CASS 5.6 an insurance undertaking (when acting as such) with whom a firm conducts insurance mediation activity is not to be treated as a client of the firm.

14/01/2005

Purpose

CASS 5.1.7

(1) Principle 10 (Clients' assets) requires a firm to arrange adequate protection for clients' assets when the firm is responsible for them. An essential part of that protection is the proper accounting and handling of client money. The rules in CASS 5.1 to CASS 5.6 also give effect to the requirement in article 4.4 of the Insurance Mediation Directive that all necessary measures should be taken to protect clients against the inability of an insurance intermediary to transfer premiums to an insurance undertaking or to transfer the proceeds of a claim or premium refund to the insured.

(2) There are two particular approaches which firms can adopt which reflect options given in article 4.4. The first is to provide by law or contract for a transfer of risk from the insurance intermediary to the insurance undertaking (CASS 5.2). The second is that client money is strictly segregated by being transferred to client accounts that cannot be used to reimburse other creditors in the event of the firm's insolvency (CASS 5.3 and CASS 5.4 provide different means of achieving such segregation). CASS 5.1.5A R permits a firm subject to certain conditions to treat money which it collects as agent of an insurance undertaking as client money; the principle of strict segregation is, however, satisfied because such undertakings must agree to their interests being subordinated to the interests of the firm's other clients.

01/11/2007
Past version of CASS 5.1.7 before 01/11/2007

CASS 5.1.8

Firms which carry on designated investment business which may, for example, involve them handling client money in respect of life assurance business should refer to the non-directive client money chapter which includes provisions enabling firms to elect to comply solely with that chapter or with the insurance client money chapter in respect of that business. Firms that also carry on MiFID or equivalent third country business may elect to comply solely with the MiFID client money chapter with respect of client money in respect of which the non-directive client money chapter or the insurance client money chapter apply.

01/11/2007
Past version of CASS 5.1.8 before 01/11/2007

CASS 5.1.9

Firms are reminded that SUP 3 contains provisions which are relevant to the preparation and delivery of reports by auditors.

14/01/2005

CASS 5.2

Holding money as agent of insurance undertaking

14/01/2005

Introduction

CASS 5.2.1

If a firm holds money as agent of an insurance undertaking then the firm's clients (who are not insurance undertakings) will be adequately protected to the extent that the premiums which it receives are treated as being received by the insurance undertaking when they are received by the agent and claims money and premium refunds will only be treated as received by the client when they are actually paid over. The rules in CASS 5.2 make provision for agency agreements between firms and insurance undertakings to contain terms which make clear when money should be held by a firm as agent of an undertaking. Firms should refer to CASS 5.1.5 R to determine the circumstances in which they may treat money held on behalf of insurance undertakings as client money.

14/01/2005

CASS 5.2.2

(1) Agency agreements between insurance intermediaries and insurance undertakings may be of a general kind and facilitate the introduction of business to the insurance undertaking. Alternatively, an agency agreement may confer on the intermediary contractual authority to commit the insurance undertaking to risk or authority to settle claims or handle premium refunds (often referred to as "binding authorities"). CASS 5.2.3 R requires that binding authorities of this kind must provide that the intermediary is to act as the agent of the insurance undertaking for the purpose of receiving and holding premiums (if the intermediary has authority to commit the insurance undertaking to risk), claims monies (if the intermediary has authority to settle claims on behalf of the insurance undertaking) and premium refunds (if the intermediary has authority to make refunds of premium on behalf of the insurance undertaking). Accordingly such money is not, except where a firm and an insurance undertaking have in compliance with CASS 5.1.5A R agreed otherwise, client money for the purposes of CASS 5.
(2) Other introductory agency agreements may also, depending on their precise terms, satisfy some or all of the requirements of the type of written agreement described in CASS 5.2.3 R. It is desirable that an intermediary should, before informing its clients (in accordance with CASS 5.2.3 R (3)) that it will receive money as agent of an insurance undertaking, agree the terms of that notification with the relevant insurance undertakings.

14/01/2005

Requirement for written agreement before acting as agent of insurance undertaking

CASS 5.2.3

(1) A firm must not agree to:

(a) deal in investments as agent for an insurance undertaking in connection with insurance mediation; or
(b) act as agent for an insurance undertaking for the purpose of settling claims or handling premium refunds; or
(c) otherwise receive money as agent of an insurance undertaking;
unless:
(d) it has entered into a written agreement with the insurance undertaking to that effect; and
(e) it is satisfied on reasonable grounds that the terms of the policies issued by the insurance undertaking to the firm's clients are likely to be compatible with such an agreement; and
(f)

(i) (in the case of (a)) the agreement required by (d) expressly provides for the firm to act as agent of the insurance undertaking for the purpose of receiving premiums from the firm's clients; and
(ii) (in the case of (b)) the agreement required by (d) expressly provides for the firm to act as agent of the insurance undertaking for the purpose of receiving and holding claims money (or, as the case may be, premium refunds) prior to transmission to the client making the claim (or, as the case may be, entitled to the premium refund) in question.

(2) A firm must retain a copy of any agreement it enters pursuant to (1) for a period of at least six years from the date on which it is terminated.
(3) Where a firm holds, or is to hold, money as agent for an insurance undertaking it must ensure that it informs those of its clients which are not insurance undertakings and whose transactions may be affected by the arrangement (whether in its terms of business, client agreements or otherwise in writing) that it will hold their money as agent of the insurance undertaking and if necessary the extent of such agency and whether it includes all items of client money or is restricted, for example, to the receipt of premiums.
(4) A firm may (subject to the consent of the insurance undertaking concerned) include in an agreement in (1) provision for client money received by its appointed representative, field representatives and other agents to be held as agent for the insurance undertaking (in which event it must ensure that the representative or agent provides the information to clients required by (3)).

06/04/2010
Past version of CASS 5.2.3 before 06/04/2010

CASS 5.2.4

Firms are reminded that CASS 5.1.5A R provides that, if the insurance undertaking has agreed in writing, money held in accordance with an agreement made under CASS 5.2.3 R may be treated as client money and may (but not otherwise) be kept in a client bank account.

14/01/2005

CASS 5.2.5

A firm which provides for the protection of a client(which is not an insurance undertaking) under CASS 5.2 is relieved of the obligation to provide protection for that client under CASS 5.3 or CASS 5.4 to the extent of the items of client money protected by the agency agreement.

14/01/2005

CASS 5.2.6

A firm may, in accordance with CASS 5.2.3 R (4), arrange for an insurance undertaking to accept responsibility for the money held by its appointed representatives, field representatives, and other agents, in which event CASS 5.5.18 R to CASS 5.5.25 G will not apply.

14/01/2005

CASS 5.2.7

A firm may operate on the basis of an agency agreement as provided for by CASS 5.2.3 R for some of its clients and with protection provided by a client money trust in accordance with CASS 5.3 or CASS 5.4 for other clients. A firm may also operate on either basis for the same client but in relation to different transactions. A firm which does so should be satisfied that its administrative systems and controls are adequate and, in accordance with CASS 5.2.4 G, should ensure that money held for both types of client and business is kept separate.

14/01/2005

CASS 5.3

Statutory trust

14/01/2005

CASS 5.3.1

Section 139(1) of the Act (Miscellaneous ancillary matters) provides that rules may make provision which results in client money being held by a firm on trust (England and Wales and Northern Ireland) or as agent (Scotland only). CASS 5.3.2 R creates a fiduciary relationship between the firm and its client under which client money is in the legal ownership of the firm but remains in the beneficial ownership of the client. In the event of failure of the firm, costs relating to the distribution of client money may have to be borne by the trust.

14/01/2005

CASS 5.3.2

A firm (other than a firm acting in accordance with CASS 5.4) receives and holds client money as trustee (or in Scotland as agent) on the following terms:

(1) for the purposes of and on the terms of CASS 5.3, CASS 5.5 and the client money (insurance) distribution rules;
(2) subject to (4), for the clients (other than clients which are insurance undertakings when acting as such) for whom that money is held, according to their respective interests in it;
(3) after all valid claims in (2) have been met, for clients which are insurance undertakings according to their respective interests in it;
(4) on the failure of the firm, for the payment of the costs properly attributable to the distribution of the client money in accordance with (2) and (3); and
(5) after all valid claims and costs under (2) to (4) have been met, for the firm itself.

14/01/2005

CASS 5.3.3

(1) A firm which holds client money can discharge its obligation to ensure adequate protection for its clients in respect of such money by complying with CASS 5.3 which provides for such money to be held by the firm on the terms of a trust imposed by the rules.
(2) The trust imposed by CASS 5.3 is limited to a trust in respect of client money which a firm receives and holds. The consequential and supplementary requirements in CASS 5.5 are designed to secure the proper segregation and maintenance of adequate client money balances. In particular, CASS 5.5 does not permit a firm to use client money balances to provide credit for clients (or potential clients) such that, for example, their premium obligations may be met in advance of the premium being remitted to the firm. A firm wishing to provide credit for clients may however do so out of its own funds.

14/01/2005

CASS 5.4

Non-statutory client money trust

14/01/2005

Introduction

CASS 5.4.1

(1) CASS 5.4 permits a firm, which has adequate resources, systems and controls, to declare a trust on terms which expressly authorise it, in its capacity as trustee, to make advances of credit to the firm's clients. The client money trust required by CASS 5.4 extends to such debt obligations which will arise if the firm, as trustee, makes credit advances, to enable a client's premium obligations to be met before the premium is remitted to the firm and similarly if it allows claims and premium refunds to be paid to the client before receiving remittance of those monies from the insurance undertaking.
(2) CASS 5.4 does not permit a firm to make advances of credit to itself out of the client money trust. Accordingly, CASS 5.4 does not permit a firm to withdraw commission from the client money trust before it has received the premium from the client in relation to the non-investment insurance contract which generated the commission.

06/04/2010
Past version of CASS 5.4.1 before 06/04/2010

Voluntary nature of this section

CASS 5.4.2

A firm may elect to comply with the requirements in this section, and may do so for some of its business whilst complying with CASS 5.3 for other parts.

14/01/2005

CASS 5.4.3

A firm is not subject to CASS 5.3 when and to the extent that it acts in accordance with this section.

14/01/2005

Conditions for using the non-statutory client money trust

CASS 5.4.4

A firm may not handle client money in accordance with the rules in this section unless each of the following conditions is satisfied:

(1) the firm must have and maintain systems and controls which are adequate to ensure that the firm is able to monitor and manage its client money transactions and any credit risk arising from the operation of the trust arrangement and, if in accordance with CASS 5.4.2 R a firm complies with both the rules in CASS 5.3 and CASS 5.4, such systems and controls must extend to both arrangements;
(2) the firm must obtain, and keep current, written confirmation from its auditor that it has in place systems and controls which are adequate to meet the requirements in (1);
(3) the firm must designate a manager with responsibility for overseeing the firm's day to day compliance with the systems and controls in (1) and the rules in this section;
(4) the firm (if, under the terms of the non-statutory trust, it is to handle client money for retail customers) must have and at all times maintain capital resources of not less than £50,000 calculated in accordance with MIPRU 4.4.1 R; and
(5) in relation to each of the clients for whom the firm holds money in accordance with CASS 5.4, the firm must take reasonable steps to ensure that its terms of business or other client agreements adequately explain, and obtain the client's informed consent to, the firm holding the client's money in accordance with CASS 5.4 (and in the case of a client which is an insurance undertaking (when acting as such) there must be an agreement which satisfies CASS 5.1.5A R).

01/01/2007
Past version of CASS 5.4.4 before 01/01/2007

CASS 5.4.5

The amount of a firm's capital resources maintained for the purposes of MIPRU 4.2.11 R will also satisfy (in whole or in part) the requirement in CASS 5.4.4 R (4).

01/01/2007
Past version of CASS 5.4.5 before 01/01/2007

Client money to be received under the non-statutory client money trust

CASS 5.4.6

Except to the extent that a firm acts in accordance with CASS 5.3, a firm must not receive or hold any client money unless it does so as trustee (or, in Scotland, as agent) and has properly executed a deed (or equivalent formal document) to that effect.

14/01/2005

Contents of trust deed

CASS 5.4.7

The deed referred to in CASS 5.4.6 R must provide that the money (and, if appropriate, designated investments) are held:

(1) for the purposes of and on the terms of:

(a) CASS 5.4;
(b) the applicable provisions of CASS 5.5; and
(c) the client money (insurance) distribution rules

(2) subject to (4), for the clients (other than clients which are insurance undertakings when acting as such) for whom that money is held, according to their respective interests in it;
(3) after all valid claims in (2) have been met for clients which are insurance undertakings according to their respective interests in it;
(4) on failure of the firm, for the payment of the costs properly attributable to the distribution of the client money in accordance with (2) and (3); and
(5) after all valid claims and costs under (2) to (4) have been met, for the firm itself.

14/01/2005

CASS 5.4.8

The deed (or equivalent formal document) referred to in CASS 5.4.6 R may provide that:

(1) the firm, acting as trustee (or, in Scotland, as agent), has power to make advances or give credit to clients or insurance undertakings from client money, provided that it also provides that any debt or other obligation of a client or resulting obligation of an insurance undertaking, in relation to an advance or credit, is held on the same terms as CASS 5.4.7 R;
(2) the benefit of a letter of credit or unconditional guarantee provided by an approved bank on behalf of a firm to satisfy any shortfall in the firm's client money resource (as calculated under CASS 5.5.65 R) when compared with the firm's client money requirement (as calculated under CASS 5.5.66 R or as appropriate CASS 5.5.68 R), is held on the same terms as CASS 5.4.7 R.

14/01/2005

CASS 5.5

Segregation and the operation of client money accounts

14/01/2005

Application

CASS 5.5.1

Unless otherwise stated each of the provisions in CASS 5.5 applies to firms which are acting in accordance with CASS 5.3 (Statutory trust) or CASS 5.4 (Non-statutory trust).

14/01/2005

CASS 5.5.2

One purpose of CASS 5.5 is to ensure that, unless otherwise permitted, client money is kept separate from the firm's own money. Segregation, in the event of a firm's failure, is important for the effective operation of the trust that is created to protect client money. The aim is to clarify the difference between client money and general creditors' entitlements in the event of the failure of the firm.

14/01/2005

Requirement to segregate

CASS 5.5.3

A firm must, except to the extent permitted by CASS 5.5, hold client money separate from the firm's money.

14/01/2005

Money due to a client from a firm

CASS 5.5.4

If a firm is liable to pay money to a client, it must as soon as possible, and no later than one business day after the money is due and payable:

(1) pay it into a client bank account, in accordance with CASS 5.5.5 R; or
(2) pay it to, or to the order of, the client.

14/01/2005

Segregation

CASS 5.5.5

A firm must segregate client money by either:

(1) paying it as soon as is practicable into a client bank account; or
(2) paying it out in accordance with CASS 5.5.80 R.

14/01/2005

CASS 5.5.6

The FSA expects that in most circumstances it will be practicable for a firm to pay client money into a client bank account by not later than the next business day after receipt.

14/01/2005

CASS 5.5.7

Where an insurance transaction involves more than one firm acting in a chain such that for example money is transferred from a "producing" broker who has received client money from a consumer to an intermediate broker and thereafter to an insurance undertaking, each broker firm will owe obligations to its immediate client to segregate client money which it receives (in this example the producing broker in relation to the consumer and the intermediate broker in relation to the producing broker). A firm which allows a third party broker to hold or control client money will not thereby be relieved of its fiduciary obligations (see CASS 5.5.34 R).

06/01/2008
Past version of CASS 5.5.7 before 06/01/2008

CASS 5.5.8

A firm may segregate client money in a different currency from that of receipt. If it does so, the firm must ensure that the amount held is adjusted at intervals of not more than twenty five business days to an amount at least equal to the original currency amount (or the currency in which the firm has its liability to its clients, if different), translated at the previous day's closing spot exchange rate.

14/01/2005

CASS 5.5.9

A firm must not hold money other than client money in a client bank account unless it is:

(1) a minimum sum required to open the account, or to keep it open; or
(2) money temporarily in the account in accordance with CASS 5.5.16 R (Withdrawal of commission and mixed remittance); or
(3) interest credited to the account which exceeds the amount due to clients as interest and has not yet been withdrawn by the firm.

14/01/2005

CASS 5.5.10

If it is prudent to do so to ensure that client money is protected (and provided that doing so would otherwise be in accordance with CASS 5.5.63 R (1)(b)(ii)), a firm may pay into, or maintain in, a client bank account money of its own, and that money will then become client money for the purposes of CASS 5 and the client money (insurance) distribution rules.

14/01/2005

CASS 5.5.11

A firm, when acting in accordance with CASS 5.3 (statutory trust), must ensure that the total amount of client money held for each client in any of the firm's client money bank accounts is positive and that no payment is made from any such account for the benefit of a client unless the client has provided the firm with cleared funds to enable the payment to be made.

14/01/2005

CASS 5.5.11A

When a firm acts in accordance with CASS 5.3 (Statutory trust) it should not make a payment from the client bank account unless it is satisfied on reasonable grounds that the client has provided it with cleared funds. Accordingly, a firm should normally allow a reasonable period of time for cheques to clear. If a withdrawal is made and the client's cheque is subsequently dishonoured it will be the firm's responsibility to make good the shortfall in the account as quickly as possible (and without delay whilst a cheque is re-presented).

14/01/2005

CASS 5.5.12

If client money is received by the firm in the form of an automated transfer, the firm must take reasonable steps to ensure that:

(1) the money is received directly into a client bank account; and
(2) if money is received directly into the firm's own account, the money is transferred into a client bank account no later than the next business day after receipt.

14/01/2005

CASS 5.5.13

A firm can hold client money in either a general client bank account (CASS 5.5.38 R) or a designated client bank account (CASS 5.5.39 R). A firm holds all client money in general client bank accounts for its clients as part of a common pool of money so those particular clients do not have a claim against a specific sum in a specific account; they only have a claim to the client money in general. A firm holds client money in designated client bank accounts for those clients who requested that their client money be part of a specific pool of money, so those particular clients do have a claim against a specific sum in a specific account; they do not have a claim to the client money in general unless a primary pooling event occurs. If the firm becomes insolvent, and there is (for whatever reason) a shortfall in money held for a client compared with that client's entitlements, the available funds will be distributed in accordance with the client money (insurance) distribution rules.

14/01/2005

Non-statutory trust - segregation of designated investments

CASS 5.5.14

(1) A firm which handles client money in accordance with the rules for a non-statutory trust in CASS 5.4 may, to the extent it considers appropriate, but subject to (2), satisfy the requirement to segregate client money by segregating or arranging for the segregation of designated investments with a value at least equivalent to such money as would otherwise have been segregated into a client bank account.
(2) A firm may not segregate designated investments unless it:

(a) takes reasonable steps to ensure that any consumers whose client money interests may be protected by such segregation are aware that the firm may operate such an arrangement and have (whether through its terms of business, client agreements, or otherwise in writing) an adequate opportunity to give their informed consent;
(b) ensures that the terms on which it will segregate designated investments include provision for it to take responsibility for meeting any shortfall in its client money resource which is attributable to falls in the market value of a segregated investment;
(c) provides in the deed referred to in CASS 5.4.6 R for designated investments which it segregates to be held by it on the terms of the non-statutory trust; and
(d) takes reasonable steps to ensure that the segregation is at all times in conformity with the range of permitted investments, general principles and conditions in CASS 5 Annex 1 R.

06/01/2008
Past version of CASS 5.5.14 before 06/01/2008

CASS 5.5.15

A firm which takes advantage of CASS 5.5.14 R will need to consider whether its permission should include the permitted activity of managing investments. If the firm is granted a power to manage with discretion the funds over which it is appointed as trustee under the trust deed required by CASS 5.4 then it will be likely to need a permission to manage investments. It is unlikely to need such a permission, however, if it is merely granted a power to invest but the deed stipulates that the funds may only be managed with discretion by another firm (which has the necessary permission). Such an arrangement would not preclude the firm holding client money as trustee from appointing another firm (or firms) as manager and setting an appropriate strategy and overall asset allocation, subject to the limits set out in CASS 5 Ann 1 R. A firm may also need to consider whether it needs a permission to operate a collective investment scheme if any of its clients are to participate in the income or gains arising from the acquisition or disposal of designated investments.

14/01/2005

Withdrawal of commission and mixed remittance

CASS 5.5.16

(1) A firm may draw down commission from the client bank account if:

(a) it has received the premium from the client (or from a third party premium finance provider on the client's behalf); and
(b) this is consistent with the firm's terms of business which it maintains with the relevant client and the insurance undertaking to whom the premium will become payable;

and the firm may draw down commission before payment of the premium to the insurance undertaking, provided that the conditions in (a) and (b) are satisfied.
(2) If a firm receives a mixed remittance (that is part client money and part other money), it must:

(a) pay the full sum into a client bank account in accordance with CASS 5.5.5 R; and
(b) pay the money that is not client money out of the client bank account as soon as reasonably practicable and in any event by not later than twenty-five business days after the day on which the remittance is cleared (or, if earlier, when the firm performs the client money calculation in accordance with CASS 5.5.63 R (1)).

14/01/2005

CASS 5.5.17

(1) As soon as commission becomes due to the firm (in accordance with CASS 5.5.16 R (1)) it must be treated as a remittance which must be withdrawn in accordance with CASS 5.5.16 R (2). The procedure required by CASS 5.5.16 R will also apply where money is due and payable to the firm in respect of fees due from clients (whether to the firm or other professionals).
(2) Firms are reminded that money received in accordance with CASS 5.2 must not, except where a firm and an insurance undertaking have (in accordance with CASS 5.1.5A R) agreed otherwise, be kept in a client bank account. Client money received from a third-party premium finance provider should, however, be segregated into a client bank account.
(3) Where a client makes payments of premium to a firm in instalments, CASS 5.5.16 R (1) applies in relation to each instalment.
(4) If a firm is unable to match a remittance with a transaction it may be unable to immediately determine whether the payment comprises a mixed remittance or is client money. In such cases the remittance should be treated as client money while the firm takes steps to match the remittance to a transaction as soon as possible.

14/01/2005

Appointed representatives, field representatives and other agents

CASS 5.5.18

(1) Subject to (4), a firm must in relation to each of its appointed representatives, field representatives and other agents comply with CASS 5.5.19 R to CASS 5.5.21 R (Immediate segregation) or with CASS 5.5.23 R (Periodic segregation and reconciliation).
(2) A firm must in relation to each representative or other agent keep a record of whether it is complying with CASS 5.5.19 R to CASS 5.5.21 R or with CASS 5.5.23 R.
(3) A firm is, but without affecting the application of CASS 5.5.19 R to CASS 5.5.23 R, to be treated as the recipient of client money which is received by any of its appointed representatives, field representatives or other agents.
(4) Paragraphs (1) to (3) do not apply in relation to an appointed representative, field representative or other agent to which (if it were a firm) CASS 5.1.4AR (1) or CASS 5.1.4AR (2) would apply, but subject to the representative or agent maintaining an account which satisfies the requirements of CASS 5.5.49 R to the extent that the representative or agent will hold client money on trust or otherwise on behalf of its clients.

06/04/2010
Past version of CASS 5.5.18 before 06/04/2010

Immediate segregation

CASS 5.5.19

A firm must establish and maintain procedures to ensure that client money received by its appointed representatives, field representatives, or other agents of the firm is:

(1) paid into a client bank account of the firm in accordance with CASS 5.5.5 R; or
(2) forwarded to the firm, or in the case of a field representative forwarded to a specified business address of the firm, so as to ensure that the money arrives at the specified business address by the close of the third business day.

14/01/2005

CASS 5.5.20

For the purposes of CASS 5.5.19 R, the client money received on business day one should be forwarded to the firm or specified business address of the firm no later than the next business day after receipt (business day two) in order for it to reach that firm or specified business address by the close of the third business day. Procedures requiring the client money to be sent to the firm or the specified business address of the firm by first class post no later than the next business day after receipt would meet the requirements of CASS 5.5.19 R.

14/01/2005

CASS 5.5.21

If client money is received in accordance with CASS 5.5.19 R, the firm must ensure that its appointed representatives, field representatives or other agents keep client money (whether in the form of premiums, claims money or premium refunds) separately identifiable from any other money (including that of the firm) until the client money is paid into a client bank account or sent to the firm.

14/01/2005

CASS 5.5.22

A firm which acts in accordance with CASS 5.5.19 R to CASS 5.5.21 R need not comply with CASS 5.5.23 R.

14/01/2005

Periodic segregation and reconciliation

CASS 5.5.23

(1) A firm must, on a regular basis, and at reasonable intervals, ensure that it holds in its client bank account an amount which (in addition to any other amount which it is required by these rules to hold) is not less than the amount which it reasonably estimates to be the aggregate of the amounts held at any time by its appointed representatives, field representatives, and other agents.
(2) A firm must, not later than ten business days following the expiry of each period in (1):

(a) carry out, in relation to each such representative or agent, a reconciliation of the amount paid by the firm into its client bank account with the amount of client money actually received and held by the representative or other agent; and
(b) make a corresponding payment into, or withdrawal from, the account.

14/01/2005

CASS 5.5.24

(1) CASS 5.5.23 R allows a firm with appointed representatives, field representatives and other agents to avoid the need for the representative to forward client money on a daily basis but instead requires a firm to segregate into its client money bank account amounts which it reasonably estimates to be sufficient to cover the amount of client money which the firm expects its representatives or agents to receive and hold over a given period. At the expiry of each such period, the firm must obtain information about the actual amount of client money received and held by its representatives so that it can reconcile the amount of client money it has segregated with the amounts actually received and held by its representatives and agents. The frequency at which this reconciliation is to be performed is not prescribed but it must be at regular and reasonable intervals having regard to the nature and frequency of the insurance business carried on by its representatives and agents. For example, a period of six months might be appropriate for a representative which conducts business involving the receipt of premiums only infrequently whilst for other representatives a periodic reconciliation at monthly intervals (or less) may be appropriate.
(2) Where a firm operates on the basis of CASS 5.5.23 R, the money which is segregated into its client bank account is client money and will be available to meet any obligations owed to the clients of its representatives who for this purpose are treated as the firm's clients.

14/01/2005

CASS 5.5.25

A firm which acts in accordance with CASS 5.5.23 R need not comply with CASS 5.5.19 R to CASS 5.5.21 R.

14/01/2005

Client entitlements

CASS 5.5.26

A firm must take reasonable steps to ensure that it is notified promptly of any receipt of client money in the form of client entitlements.

14/01/2005

CASS 5.5.27

The 'entitlements' mentioned in CASS 5.5.26 R refer to any kind of miscellaneous payment which the firm receives on behalf of a client and which are due to be paid to the client.

14/01/2005

CASS 5.5.28

When a firm receives a client entitlement on behalf of a client, it must pay any part of it which is client money:

(1) for client entitlements received in the United Kingdom, into a client bank account in accordance with CASS 5.5.5 R; or
(2) for client entitlements received outside the United Kingdom, into any bank account operated by the firm, provided that such client money is:

(a) paid to, or in accordance with, the instructions of the client concerned; or
(b) paid into a client bank account in accordance with CASS 5.5.5 R (1), as soon as possible but no later than five business days after the firm is notified of its receipt.

14/01/2005

CASS 5.5.29

A firm must take reasonable steps to ensure that a client entitlement which is client money is allocated within a reasonable period of time after notification of receipt.

14/01/2005

Interest and investment returns

CASS 5.5.30

(1) In relation to consumers, a firm must, subject to (2), take reasonable steps to ensure that its terms of business or other client agreements adequately explain, and where necessary obtain a client's informed consent to, the treatment of interest and, if applicable, investment returns, derived from its holding of client money and any segregated designated investments.
(2) In respect of interest earned on client bank accounts, (1) does not apply if a firm has reasonable ground to be satisfied that in relation to insurance mediation activities carried on with or for a consumer the amount of interest earned will be not more than £20 per transaction.

06/01/2008
Past version of CASS 5.5.30 before 06/01/2008

CASS 5.5.31

If no interest is payable to a consumer, that fact should be separately identified in the firm's client agreement or terms of business.

06/01/2008
Past version of CASS 5.5.31 before 06/01/2008

CASS 5.5.32

If a firm outlines its policy on its payment of interest, it need not necessarily disclose the actual rates prevailing at any particular time; the firm should disclose the terms, for example, LIBOR plus or minus 'x' percentage points.

14/01/2005

Transfer of client money to a third party

CASS 5.5.33

CASS 5.5.34 R sets out the requirements a firm must comply with when it transfers client money to another person without discharging its fiduciary duty owed to that client. Such circumstances arise when, for example, a firm passes client money to another broker for the purposes of the client's transaction being effected. A firm can only discharge itself from its fiduciary duty by acting in accordance with, and in the circumstances permitted by, CASS 5.5.80 R.

14/01/2005

CASS 5.5.34

A firm may allow another person, such as another broker to hold or control client money, but only if:

(1) the firm transfers the client money for the purpose of a transaction for a client through or with that person; and
(2) in the case of a consumer, that customer has been notified (whether through a client agreement, terms of business, or otherwise in writing) that the client money may be transferred to another person.

06/01/2008
Past version of CASS 5.5.34 before 06/01/2008

CASS 5.5.35

In relation to the notification required by CASS 5.5.34 R (2), there is no need for a firm to make a separate disclosure in relation to each transfer made.

14/01/2005

CASS 5.5.36

A firm should not hold excess client money with another broker. It should be held in a client bank account.

14/01/2005

Client bank accounts

CASS 5.5.37

The FSA generally requires a firm to place client money in a client bank account with an approved bank. However, a firm which is an approved bank must not (subject to CASS 5.1.1 R (2)(e)) hold client money in an account with itself.

14/01/2005

CASS 5.5.38

(1) A firm must ensure that client money is held in a client bank account at one or more approved banks.
(2) If the firm is a bank, it must not hold client money in an account with itself.

14/01/2005

CASS 5.5.39

A firm may open one or more client bank accounts in the form of a designated client bank account. Characteristics of these accounts are that:

(1) the account holds money of one or more clients;
(2) the account includes in its title the word 'designated';
(3) the clients whose money is in the account have each consented in writing to the use of the bank with which the client money is to be held; and
(4) in the event of the failure of that bank, the account is not pooled with any other type of account unless a primary pooling event occurs.

14/01/2005

CASS 5.5.40

(1) A firm may operate as many client accounts as it wishes.
(2) A firm is not obliged to offer its clients the facility of a designated client bank account.
(3) Where a firm holds money in a designated client bank account, the effect upon either:

(a) the failure of a bank where any other client bank account is held; or
(b) the failure of a third party to whom money has been transferred out of any other client bank account in accordance with CASS 5.5.34 R;
(each of which is a secondary pooling event) is that money held in the designated client bank account is not pooled with money held in any other account. Accordingly clients whose money is held in a designated client bank account will not share in any shortfall resulting from a failure of the type described in (a) or (b).

(4) Where a firm holds client money in a designated client bank account, the effect upon the failure of the firm (which is a primary pooling event) is that money held in the designated client bank account is pooled with money in every other client bank account of the firm. Accordingly, clients whose money is held in a designated client bank account will share in any shortfall resulting from a failure of the firm.

14/01/2005

CASS 5.5.41

A firm may hold client money with a bank that is not an approved bank if all the following conditions are met:

(1) the client money relates to one or more insurance transactions which are subject to the law or market practice of a jurisdiction outside the United Kingdom;
(2) because of the applicable law or market practice of that overseas jurisdiction, it is not possible to hold the client money in a client bank account with an approved bank;
(3) the firm holds the money with such a bank for no longer than is necessary to effect the transactions;
(4) the firm notifies each relevant client and has, in relation to a consumer, a client agreement, or terms of business which adequately explain that:

(a) client money will not be held with an approved bank;
(b) in such circumstances, the legal and regulatory regime applying to the bank with which the client money is held will be different from that of the United Kingdom and, in the event of a failure of the bank, the client money may be treated differently from the treatment which would apply if the client money were held by an approved bank in the United Kingdom; and
(c) if it is the case, the particular bank has not accepted that it has no right of set-off or counterclaim against money held in a client bank account, in respect of any sum owed on any other account of the firm, notwithstanding the firm's request to the bank as required by CASS 5.5.49 R; and

(5) the client money is held in a designated bank account.

06/01/2008
Past version of CASS 5.5.41 before 06/01/2008

A firm's selection of a bank

CASS 5.5.42

A firm owes a duty of care to a client when it decides where to place client money. The review required by CASS 5.5.43 R is intended to ensure that the risks inherent in placing client money with a bank are minimised or appropriately diversified by requiring a firm to consider carefully the bank or banks with which it chooses to place client money. For example, a firm which is likely only to hold relatively modest amounts of client money will be likely to be able to satisfy this requirement if it selects an authorised UK clearing bank.

14/01/2005

CASS 5.5.43

Before a firm opens a client bank account and as often as is appropriate on a continuing basis (and no less than once in each financial year), it must take reasonable steps to establish that the bank is appropriate for that purpose.

14/01/2005

CASS 5.5.44

A firm should consider diversifying placements of client money with more than one bank where the amounts are, for example, of sufficient size to warrant such diversification.

14/01/2005

CASS 5.5.45

When considering where to place client money and to determine the frequency of the appropriateness test under CASS 5.5.43 R, a firm should consider taking into account, together with any other relevant matters:

(1) the capital of the bank;
(2) the amount of client money placed, as a proportion of the bank's capital and deposits;
(3) the credit rating of the bank (if available); and
(4) to the extent that the information is available, the level of risk in the investment and loan activities undertaken by the bank and its affiliated companies.

14/01/2005

CASS 5.5.46

A firm will be expected to perform due diligence when opening a client bank account with a bank that is authorised by an EEA regulator. Any continuing assessment of that bank may be restricted to verification that it remains authorised by an EEA regulator.

14/01/2005

Group banks

CASS 5.5.47

Subject to CASS 5.5.41 R, a firm that holds or intends to hold client money with a bank which is in the same group as the firm must:

(1) undertake a continuous review in relation to that bank which is at least as rigorous as the review of any bank which is not in the same group, in order to ensure that the decision to use a group bank is appropriate for the client;
(2) disclose in writing to its client at the outset of the client relationship (whether by way of a client agreement, terms of business or otherwise in writing) or, if later, not less than 20 business days before it begins to hold client money of that client with that bank:

(a) that it is holding or intends to hold client money with a bank in the same group;
(b) the identity of the bank concerned; and
(c) that the client may choose not to have his money placed with such a bank.

01/11/2007
Past version of CASS 5.5.47 before 01/11/2007

CASS 5.5.48

If a client has notified a firm in writing that he does not wish his money to be held with a bank in the same group as the firm, the firm must either:

(1) place that client money in a client bank account with another bank in accordance with CASS 5.5.38 R; or
(2) return that client money to, or pay it to the order of, the client.

14/01/2005

Notification and acknowledgement of trust (banks)

CASS 5.5.49

When a firm opens a client bank account, the firm must give or have given written notice to the bank requesting the bank to acknowledge to it in writing:

(1) that all money standing to the credit of the account is held by the firm as trustee (or if relevant in Scotland, as agent) and that the bank is not entitled to combine the account with any other account or to exercise any right of set-off or counterclaim against money in that account in respect of any sum owed to it on any other account of the firm; and
(2) that the title of the account sufficiently distinguishes that account from any account containing money that belongs to the firm, and is in the form requested by the firm.

14/01/2005

CASS 5.5.50

In the case of a client bank account in the United Kingdom, if the bank does not provide the acknowledgement referred to in CASS 5.5.49 R within 20 business days after the firm dispatched the notice, the firm must withdraw all money standing to the credit of the account and deposit it in a client bank account with another bank as soon as possible.

14/01/2005

CASS 5.5.51

In the case of a client bank account outside the United Kingdom, if the bank does not provide the acknowledgement referred to in CASS 5.5.49 R within 20 business days after the firm dispatched the notice, the firm must notify the client of this fact as set out in CASS 5.5.53 R.

14/01/2005

CASS 5.5.52

Firms are reminded of the provisions of CASS 5.5.41 R (4), which sets out the notification and consents required when using a bank that is not an approved bank.

14/01/2005

Notification to clients: use of an approved bank outside the United Kingdom

CASS 5.5.53

A firm must not hold, for a consumer, client money in a client bank account outside the United Kingdom, unless the firm has previously disclosed to the consumer (whether in its terms of business, client agreement or otherwise in writing):

(1) that his money may be deposited in a client bank account outside the United Kingdom but that the client may notify the firm that he does not wish his money to be held in a particular jurisdiction;
(2) that in such circumstances, the legal and regulatory regime applying to the approved bank will be different from that of the United Kingdom and, in the event of a failure of the bank, his money may be treated in a different manner from that which would apply if the client money were held by a bank in the United Kingdom; and
(3) if it is the case, that a particular bank has not accepted that it has no right of set-off or counterclaim against money held in a client bank account in respect of any sum owed on any other account of the firm, notwithstanding the firm's request to the bank as required by CASS 5.5.49 R.

06/01/2008
Past version of CASS 5.5.53 before 06/01/2008

CASS 5.5.54

There is no need for a firm to make a separate disclosure under CASS 5.5.53 R (1) and CASS 5.5.53 R (2) in relation to each jurisdiction.

14/01/2005

CASS 5.5.55

Firms are reminded of the provisions of CASS 5.5.41 R (4), which sets out the notification and consents required when using a bank that is not an approved bank.

14/01/2005

CASS 5.5.56

If a client has notified a firm in writing before entering into a transaction that client money is not to be held in a particular jurisdiction, the firm must either:

(1) hold the client money in a client bank account in a jurisdiction to which the client has not objected; or
(2) return the client money to, or to the order of, the client.

14/01/2005

CASS 5.5.57

Firms are reminded of the provisions of CASS 5.5.41 R (4), which sets out the notification and consents required when using a bank that is not an approved bank.

14/01/2005

Notification to consumers: use of broker or settlement agent outside the United Kingdom

CASS 5.5.58

A firm must not undertake any transaction for a consumer that involves client money being passed to another broker or settlement agent located in a jurisdiction outside the United Kingdom, unless the firm has previously disclosed to the consumer (whether in its terms of business, client agreement or otherwise in writing):

(1) that his client money may be passed to a person outside the United Kingdom but the client may notify the firm that he does not wish his money to be passed to a money in a particular jurisdiction; and
(2) that, in such circumstances, the legal and regulatory regime applying to the broker or settlement agent will be different from that of the United Kingdom and, in the event of a failure of the broker or settlement agent, this money may be treated in a different manner from that which would apply if the money were held by a broker or settlement agent in the United Kingdom.

06/01/2008
Past version of CASS 5.5.58 before 06/01/2008

CASS 5.5.59

There is no need for a firm to make a separate disclosure under CASS 5.5.58 R in relation to each jurisdiction.

14/01/2005

CASS 5.5.60

If a client has notified a firm before entering into a transaction that he does not wish his money to be passed to another broker or settlement agent located in a particular jurisdiction, the firm must either:

(1) hold the client money in a client bank account in the United Kingdom or a jurisdiction to which the money has not objected and pay its own money to the firm's own account with the broker, agent or counterparty; or
(2) return the money to, or to the order of, the client.

14/01/2005

Notification to the FSA: failure of a bank, broker or settlement agent

CASS 5.5.61

On the failure of a third party with which client money is held, a firm must notify the FSA:

(1) as soon as it becomes aware, of the failure of any bank, other broker or settlement agent or other entity with which it has placed, or to which it has passed, client money; and
(2) as soon as reasonably practical, whether it intends to make good any shortfall that has arisen or may arise and of the amounts involved.

14/01/2005

Client money calculation and reconciliation

CASS 5.5.62

(1) In order that a firm may check that it has sufficient money segregated in its client bank account (and held by third parties) to meet its obligations to clients it is required periodically to calculate the amount which should be segregated (the client money requirement) and to compare this with the amount shown as its client money resource. This calculation is, in the first instance, based upon the firm's accounting records and is followed by a reconciliation with its banking records. A firm is required to make a payment into the client bank account if there is a shortfall or to remove any money which is not required to meet the firm's obligations.
(2) For the purpose of calculating its client money requirement two alternative calculation methods are permitted, but a firm must use the same method in relation to CASS 5.3 and CASS 5.4. The first refers to individual client cash balances; the second to aggregate amounts of client money recorded on a firm business ledgers.

14/01/2005

CASS 5.5.63

(1) A firm must, as often as is necessary to ensure the accuracy of its records and at least at intervals of not more than 25 business days:

(a) check whether its client money resource, as determined by CASS 5.5.65 R on the previous business day, was at least equal to the client money requirement, as determined by CASS 5.5.66 R or CASS 5.5.68 R, as at the close of business on that day; and
(b) ensure that:

(i) any shortfall is paid into a client bank account by the close of business on the day the calculation is performed; or
(ii) any excess is withdrawn within the same time period unless CASS 5.5.9 R or CASS 5.5.10 R applies to the extent that the firm is satisfied on reasonable grounds that it is prudent to maintain a positive margin to ensure the calculation in (a) is satisfied having regard to any unreconciled items in its business ledgers as at the date on which the calculations are performed; and

(c) include in any calculation of its client money requirement (whether calculated in accordance with CASS 5.5.66 R or CASS 5.5.68 R) any amounts attributable to client money received by its appointed representatives, field representatives or other agents and which, as at the date of calculation, it is required to segregate in accordance with CASS 5.5.19 R.

(2) A firm must within ten business days of the calculation in (a) reconcile the balance on each client bank account as recorded by the firm with the balance on that account as set out in the statement or other form of confirmation used by the bank with which that account is held.
(3) When any discrepancy arises as a result of the reconciliation carried out in (2), the firm must identify the reason for the discrepancy and correct it as soon as possible, unless the discrepancy arises solely as a result of timing differences between the accounting systems of the party providing the statement or confirmation and those of the firm.
(4) While a firm is unable to resolve a difference arising from a reconciliation, and one record or a set of records examined by the firm during its reconciliation indicates that there is a need to have a greater amount of client money than is in fact the case, the firm must assume, until the matter is finally resolved, that the record or set of records is accurate and either pay its own money into a relevant account or make a withdrawal of any excess.

14/01/2005

CASS 5.5.64

A firm must keep a record of whether it calculates its client money requirement in accordance with CASS 5.5.66 R or CASS 5.5.68 R and may only use one method during each annual accounting period (which method must be the same in relation to both CASS 5.3 and CASS 5.4).

14/01/2005

Client money resource

CASS 5.5.65

The client money resource, for the purposes of CASS 5.5.63 R (1)(a), is:

(1) the aggregate of the balances on the firm's client money bank accounts, as at the close of business on the previous business day and, if held in accordance with CASS 5.4, designated investments (valued on a prudent and consistent basis) together with client money held by a third party in accordance with CASS 5.5.34 R; and
(2) (but only if the firm is comparing the client money resource with its client's money (accruals) requirement in accordance with CASS 5.5.68 R) to the extent that client money is held in accordance with CASS 5.3 (statutory trust), insurance debtors (which in this case cannot include pre-funded items); and
(3) (but only if the firm is comparing the client money resource with its client's money (accruals) requirement in accordance with CASS 5.5.68 R) to the extent that client money is held in accordance with CASS 5.4 (non-statutory trust):

(a) all insurance debtors (including pre-funded items whether in respect of advance premiums, claims, premium refunds or otherwise) shown in the firm's business ledgers as amounts due from clients, insurance undertakings and other persons, such debts valued on a prudent and consistent basis to the extent required to meet any shortfall of the client money resource compared with the firm's client money requirement; and
(b) the amount of any letter of credit or unconditional guarantee provided by an approved bank and held on the terms of the trust (or, in Scotland, agency), limited to:

(i) the maximum sum payable by the approved bank under the letter of credit or guarantee; or
(ii) if less, the amount which would, apart from the benefit of the letter of credit or guarantee, be the shortfall of the client money resource compared with the client money requirement under CASS 5.5.66 R or CASS 5.5.68 R.

But a firm may treat a transaction with an insurance undertaking which is not a UK domestic firm as complete, and accordingly may (but only for the purposes of the calculation in (1)) disregard any unreconciled items of client money transferred to an intermediate broker relating to such a transaction, if:
(4) it has taken reasonable steps to ascertain whether the transaction is complete; and
(5) it has no reason to consider the transaction has not been completed; and
(6) a period of at least 12 months has elapsed since the money was transferred to the intermediate broker for the purpose of the transaction.

14/01/2005

Client money (client balance) requirement

CASS 5.5.66

A firm's client money (client balance) requirement is the sum of, for all clients, the individual client balances calculated in accordance with CASS 5.5.67 R but excluding any individual balances which are negative (that is, uncleared client funds).

14/01/2005

CASS 5.5.67

The individual client balance for each client must be calculated as follows:

(1) the amount paid by a client to the client (to include all premiums); plus
(2) the amount due to the client (to include all claims and premium refunds); plus
(3) the amount of any interest or investment returns due to the client;
(4) less the amount paid to insurance undertakings for the benefit of the client (to include all premiums and commission due to itself) (i.e. commissions that are due but have not yet been removed from the client account);
(5) less the amount paid by the firm to the client (to include all claims and premium refunds);

and where the individual client balance is found by the sum ((1) + (2) + (3)) - ((4) + (5)).

14/01/2005

Client money (accruals) requirement

CASS 5.5.68

A firm's client money (accruals) requirement is the sum of the following:

(1) all insurance creditors shown in the firm's business ledgers as amounts due to insurance undertakings, clients and other persons; plus
(2) unearned commission being the amount of commission shown as accrued (but not shown as due and payable) as at the date of the calculation (a prudent estimate must be used if the firm is unable to produce an exact figure at the date of the calculation).

14/01/2005

CASS 5.5.69

A firm which calculates its client money requirement on the preceding basis must in addition and within a reasonable period be able to match its client money resource to its requirement by reference to individual clients (with such matching being achieved for the majority of its clients and transactions).

14/01/2005

Failure to perform calculations or reconciliation

CASS 5.5.76

A firm must notify the FSA immediately if it is unable to, or does not, perform the calculation required by CASS 5.5.63 R (1).

14/01/2005

CASS 5.5.77

A firm must notify the FSA immediately it becomes aware that it may not be able to make good any shortfall identified by CASS 5.5.63 R (1) by the close of business on the day the calculation is performed and if applicable when the reconciliation is completed.

14/01/2005

Discharge of fiduciary duty

CASS 5.5.79

The purpose of CASS 5.5.80 R to CASS 5.5.83 R is to set out those situations in which a firm will have fulfilled its contractual and fiduciary obligations in relation to any client money held for or on behalf of its client, orin relation to the firm's ability to require repayment of that money from a third party.

06/07/2006
Past version of CASS 5.5.79 before 06/07/2006

CASS 5.5.80

Money ceases to be client money if it is paid:

(1) to the client, or a duly authorised representative of the client; or
(2) to a third party on the instruction of or with the specific consent of the client, but not if it is transferred to a third party in the course of effecting a transaction, in accordance with CASS 5.5.34 R; or
(3) into a bank account of the client (not being an account which is also in the name of the firm); or
(4) to the firm itself, when it is due and payable to the firm in accordance with CASS 5.1.5 R (1); or
(5) to the firm itself, when it is an excess in the client bank account as set out in CASS 5.5.63 R (1)(b)(ii).

14/01/2005

CASS 5.5.81

(1) A firm which pays professional fees (for example to a loss adjuster or valuer) on behalf of a client may do so in accordance with CASS 5.5.80 R (2) where this is done on the instruction of or with the consent of the client.
(2) When a firm wishes to transfer client money balances to a third party in the course of transferring its business to another firm, it should do so in compliance with CASS 5.5.80 R and a transferee firm will come under an obligation to treat any client money so transferred in accordance with these rules.
(3) Firms are reminded of their obligation, when transferring money to third parties in accordance with CASS 5.5.34 R, to use appropriate skill, care and judgment in their selection of third parties in order to ensure adequate protection of client money.
(4) Firms are reminded that, in order to calculate their client money resource in accordance with CASS 5.5.63 R to CASS 5.5.65 R, they will need to have systems in place to produce an accurate accounting record showing how much client money is being held by third parties at any point in time. For the purposes of CASS 5.5.63 R to CASS 5.5.65 R, however, a firm must assume that monies remain at an intermediate broker awaiting completion of the transaction unless it has received confirmation that the transaction has been completed.

14/01/2005

CASS 5.5.82

When a firm draws a cheque or other payable order to discharge its fiduciary duty under CASS 5.5.80 R, it must continue to treat the sum concerned as client money until the cheque or order is presented and paid by the bank.

14/01/2005

CASS 5.5.83

For the purposes of CASS 5.1.5 R, if a firm makes a payment to, or on the instructions of, a client, from an account other than a client bank account, until that payment has cleared, no equivalent sum will become due and payable to the firm or may be withdrawn from a client bank account by way of reimbursement.

14/01/2005

Records

CASS 5.5.84

A firm must ensure that proper records, sufficient to show and explain the firm's transactions and commitments in respect of its client money, are made and retained for a period of three years after they were made.

14/01/2005

CASS 5.6

Client money distribution

14/01/2005

Application

CASS 5.6.1

(1) CASS 5.6 (the client money (insurance) distribution rules) applies to a firm that in holding client money is subject to CASS 5.3 (statutory trust) or CASS 5.4 (Non-statutory trust) when a primary pooling event or a secondary pooling event occurs.
(2) In the event of there being any discrepancy between the terms of the trust as required by CASS 5.4.7 R (1)(c) and the provisions of CASS 5.6, the latter shall apply.

14/01/2005

CASS 5.6.2

(1) The client money (insurance) distribution rules have force and effect on any firm that holds client money in accordance with CASS 5.3 or CASS 5.4. Therefore, they may apply to a UK branch of a non-EEA firm. In this case, the UK branch of the firm may be treated as if the branch itself is a free-standing entity subject to the client money (insurance) distribution rules.
(2) Firms that act in accordance with CASS 5.4 (Non-statutory trust) are reminded that the client money (insurance) distribution rules should be given effect in the terms of trust required by CASS 5.4.

14/01/2005

Purpose

CASS 5.6.3

The client money (insurance) distribution rules seek to facilitate the timely return of client money to a client in the event of the failure of a firm or third party at which the firm holds client money.

14/01/2005

Failure of the authorised firm: primary pooling event

CASS 5.6.4

A primary pooling event triggers a notional pooling of all the client money, in every type of client money account, and the obligation to distribute it.

14/01/2005

CASS 5.6.5

A primary pooling event occurs:

(1) on the failure of the firm; or
(2) on the vesting of assets in a trustee in accordance with an 'assets requirement' imposed under section 48(1)(b) of the Act; or
(3) on the coming into force of a requirement for all client money held by the firm; or
(4) when the firm notifies, or is in breach of its duty to notify, the FSA, in accordance with CASS 5.5.77 R, that it is unable correctly to identify and allocate in its records all valid claims arising as a result of a secondary pooling event.

14/01/2005

CASS 5.6.6

CASS 5.6.5 R (4) does not apply so long as:

(1) the firm is taking steps, in consultation with the FSA, to establish those records; and
(2) there are reasonable grounds to conclude that the records will be capable of rectification within a reasonable period.

14/01/2005

Pooling and distribution

CASS 5.6.7

If a primary pooling event occurs:

(1) client money held in each client money account of the firm is treated as pooled;
(2) the firm must distribute that client money in accordance with CASS 5.3.2 R or, as appropriate, CASS 5.4.7 R, so that each client receives a sum which is rateable to the client money entitlement calculated in accordance with CASS 5.5.66 R; and
(3) the firm must, as trustee, call in and make demand in respect of any debt due to the firm as trustee, and must liquidate any designated investment, and any letter of credit or guarantee upon which it relies for meeting any shortfall in its client money resource and the proceeds shall be pooled together with other client money as in (1) and distributed in accordance with (2).

14/01/2005

CASS 5.6.8

A client's main claim is for the return of client money held in a client bank account. A client may claim for any shortfall against money held in a firm's own account. For that claim, the client will be an unsecured creditor of the firm.

14/01/2005

Client money received after the failure of the firm

CASS 5.6.9

Client money received by the firm (including in its capacity as trustee under CASS 5.4 (Non-statutory trust)) after a primary pooling event must not be pooled with client money held in any client money account operated by the firm at the time of the primary pooling event. It must be placed in a client bank account that has been opened after that event and must be handled in accordance with the client money rules, and returned to the relevant client without delay, except to the extent that:

(1) it is client money relating to a transaction that has not completed at the time of the primary pooling event; or
(2) it is money relating to a client, for whom the client money requirement, calculated in accordance with CASS 5.5.66 R or CASS 5.5.68 R, shows that money is due from the client to the firm including in its capacity as trustee under CASS 5.4 (Non-statutory trust) at the time of the primary pooling event.

06/07/2006
Past version of CASS 5.6.9 before 06/07/2006

CASS 5.6.10

Client money received after the primary pooling event relating to an incomplete transaction should be used to complete that transaction.

14/01/2005

CASS 5.6.11

If a firm receives a mixed remittance after a primary pooling event, it must:

(1) pay the full sum into the separate client bank account opened in accordance with CASS 5.6.9 R; and
(2) pay the money that is not client money out of that client bank account into the firm's own bank account within one business day of the day on which the remittance is cleared.

14/01/2005

CASS 5.6.12

Whenever possible the firm should seek to split a mixed remittance before the relevant accounts are credited.

14/01/2005

Failure of a bank, other broker or settlement agent: secondary pooling events

CASS 5.6.13

If both a primary pooling event and a secondary pooling event occur, the provisions of this section relating to a primary pooling event apply.

14/01/2005

CASS 5.6.14

A secondary pooling event occurs on the failure of a third party to which client money held by the firm has been transferred under CASS 5.5.34 R.

14/01/2005

CASS 5.6.15

CASS 5.6.20 R to CASS 5.6.31 R do not apply if, on the failure of the third party, the firm repays to its clients or pays into a client bank account, at an unaffected bank, an amount equal to the amount of client money which would have been held if a shortfall had not occurred at that third party.

14/01/2005

CASS 5.6.16

When client money is transferred to a third party, a firm continues to owe a fiduciary duty to the client. However, consistent with a fiduciary's responsibility (whether as agent or trustee) for third parties under general law, a firm will not be held responsible for a shortfall in client money caused by a third party failure if it has complied with those duties.

14/01/2005

CASS 5.6.17

To comply with its duties, the firm should show proper care:

(1) in the selection of a third party; and
(2) when monitoring the performance of the third party.

In the case of client money transferred to a bank, by demonstrating compliance with CASS 5.5.43 R, a firm should be able to demonstrate that it has taken reasonable steps to comply with its duties.

14/01/2005

Failure of a bank

CASS 5.6.18

When a bank fails and the firm decides not to make good the shortfall in the amount of client money held at that bank, a secondary pooling event will occur in accordance with CASS 5.6.20 R. The firm would be expected to reflect the shortfall that arises at the firm's bank in the periodic client money calculation by reducing the client money resource and client money requirement accordingly.

14/01/2005

CASS 5.6.19

The client money (insurance) distribution rules seek to ensure that clients who have previously specified that they are not willing to accept the risk of the bank that has fails, and who therefore requested that their client money be placed in a designated client bank account as a different bank, should not suffer the loss of the bank that has failed.

14/01/2005

Failure of a bank: pooling

CASS 5.6.20

If a secondary pooling event occurs as a result of the failure of a bank where one or more general client bank accounts are held, then:

(1) in relation to every general client bank account of the firm, the provisions of CASS 5.6.22 R and CASS 5.6.26 R to CASS 5.6.28 G will apply;
(2) in relation to every designated client bank account held by the firm with the failed bank, the provisions of CASS 5.6.24 R and CASS 5.6.26 R to CASS 5.6.28 G will apply; and
(3) any money held at a bank, other than the bank that has failed, in designated client bank accounts is not pooled with any other client money.

14/01/2005

CASS 5.6.21

If a secondary pooling event occurs as a result of the failure of a bank where one or more designated client bank accounts are held then in relation to every designated client bank account held by the firm with the failed bank, the provisions of CASS 5.6.24 R and CASS 5.6.26 R to CASS 5.6.28 G will apply.

14/01/2005

CASS 5.6.22

Money held in each general client bank account of the firm must be treated as pooled and:

(1) any shortfall in client money held, or which should have been held, in general client bank accounts, that has arisen as a result of the failure of the bank, must be borne by all the clients whose client money is held in a general client bank account of the firm, rateably in accordance with their entitlements;
(2) a new client money entitlement must be calculated for each client by the firm, to reflect the requirements in (1), and the firm's records must be amended to reflect the reduced client money entitlement;
(3) the firm must make and retain a record of each client's share of the client money shortfall at the failed bank until the client is repaid; and
(4) the firm must use the new client entitlements, calculated in accordance with (2), when performing the client money calculation in accordance with CASS 5.5.63 R to CASS 5.5.69 R.

14/01/2005

CASS 5.6.23

The term 'which should have been held' is a reference to the failed bank's failure (and elsewhere, as appropriate, is a reference to the other failed third party's failure) to hold the client money at the time of the pooling event.

14/01/2005

CASS 5.6.24

For each client with a designated client bank account held at the failed bank:

(1) any shortfall in client money held, or which should have been held, in designated client bank accounts that has arisen as a result of the failure, must be borne by all the clients whose client money is held in a designated client bank account of the firm at the failed bank, rateably in accordance with their entitlements;
(2) a new client money entitlement must be calculated for each of the relevant clients by the firm, and the firm's records must be amended to reflect the reduced client money entitlement;
(3) the firm must make and retain a record of each client's share of the client money shortfall at the failed bank until the client is repaid; and
(4) the firm must use the new client money entitlements, calculated in accordance with (2), when performing the periodic client money calculation, in accordance with CASS 5.5.63 R to CASS 5.5.69 R.

14/01/2005

CASS 5.6.25

A client whose money was held, or which should have been held, in a designated client bank account with a bank that has failed is not entitled to claim in respect of that money against any other client bank account or client transaction account of the firm.

14/01/2005

Client money received after the failure of a bank

CASS 5.6.26

Client money received by the firm after the failure of a bank, that would otherwise have been paid into a client bank account at that bank:

(1) must not be transferred to the failed bank unless specifically instructed by the client in order to settle an obligation of that client to the failed bank; and
(2) must be, subject to (1), placed in a separate client bank account that has been opened after the secondary pooling event and either:

(a) on the written instruction of the client, transferred to a bank other than the one that has failed; or
(b) returned to the client as soon as possible.

14/01/2005

CASS 5.6.27

If a firm receives a mixed remittance after the secondary pooling event which consists of client money that would have been paid into a general client bank account, a designated client bank account or a designated client fund account maintained at the bank that has failed, it must:

(1) pay the full sum into a client bank account other than one operated at the bank that has failed; and
(2) pay the money that is not client money out of that client bank account within one business day of the day on which the remittance is cleared.

14/01/2005

CASS 5.6.28

Whenever possible the firm should seek to split a mixed remittance before the relevant accounts are credited.

14/01/2005

Failure of an intermediate broker or settlement agent: pooling

CASS 5.6.29

If a secondary pooling event occurs as a result of the failure of another broker or settlement agent to whom the firm has transferred client's money then, in relation to every general client bank account of the firm, the provisions of CASS 5.6.26 R to CASS 5.6.28 G and CASS 5.6.30 R will apply.

14/01/2005

CASS 5.6.30

Money held in each general client bank account of the firm must be treated as pooled and:

(1) any shortfall in client money held, or which should have been held, in general client bank accounts, that has arisen as a result of the failure, must be borne by all the clients whose client money is held in a general client bank account of the firm, rateably in accordance with their entitlements;
(2) a new client money entitlement must be calculated for each client by the firm, to reflect the requirements of (1), and the firm's records must be amended to reflect the reduced client money entitlement;
(3) the firm must make and retain a record of each client's share of the client money shortfall at the failed intermediate broker or settlement agent until the client is repaid; and
(4) the firm must use the new client money entitlements, calculated in accordance with (2), when performing the periodic client money calculation, in accordance with CASS 5.5.63 R to CASS 5.5.69 R.

14/01/2005

Client money received after the failure of a broker or settlement agent

CASS 5.6.31

Client money received by the firm after the failure of another broker or settlement agent, to whom the firm has transferred client money that would otherwise have been paid into a client bank account at that broker or settlement agent:

(1) must not be transferred to the failed thirty party unless specifically instructed by the client in order to settle an obligation of that client to the failed broker or settlement agent; and
(2) must be, subject to (1), placed in a separate client bank account that has been opened after the secondary pooling event and either:

(a) on the written instruction of the client, transferred to a third party other than the one that has failed; or
(b) returned to the client as soon as possible.

14/01/2005

Notification on the failure of a bank, other broker or settlement agent

CASS 5.6.32

The provisions of CASS 5.5.61 R apply.

14/01/2005

CASS 5.7

Mandates

14/01/2005

CASS 5.8

Safe keeping of client's documents and other assets

14/01/2005

Application

CASS 5.8.1

(1) CASS 5.8 applies to a firm (including in its capacity as trustee under CASS 5.4) which in the course of insurance mediation activity takes into its possession for safekeeping any client title documents (other than documents of no value) or other tangible assets belonging to clients.
(2) CASS 5.8 does not apply to a firm when:

(a) carrying on an insurance mediation activity which is in respect of a reinsurance contract; or
(b) acting in accordance with CASS 6 (Custody rules).

06/04/2010
Past version of CASS 5.8.1 before 06/04/2010

Purpose

CASS 5.8.2

The rules in this section amplify the obligation in Principle 10 which requires a firm to arrange adequate protection for client's assets. Firms carrying on insurance mediation activities may hold, on a temporary or longer basis, client title documents such as policy documents (other than policy documents of no value) and also items of physical property if, for example, a firm arranges for a valuation. The rules are intended to ensure that firms make adequate arrangements for the safe keeping of such property.

14/01/2005

Requirement

CASS 5.8.3

(1) A firm which has in its possession or control documents evidencing a client's title to a contract of insurance or other similar documents (other than documents of no value) or which takes into its possession or control tangible assets belonging to a client, must take reasonable steps to ensure that any such documents or items of property:

(a) are kept safe until they are delivered to the client;
(b) are not delivered or given to any other person except in accordance with instructions given by the client; and that

a record is kept as to the identity of any such documents or items of property and the dates on which they were received by the firm and delivered to the client or other person.
(2) A firm must retain the record required in (1) for a period of three years after the document or property concerned is delivered to the client or other person.

14/01/2005

CASS 5 Annex 1

Segregation of designated investments: permitted investments, general principles and conditions (This Annex belongs to CASS 5.5.14 R)

14/01/2005

The general principles which must be followed when client money segregation includes designated investments:

(a)

there must be a suitable spread of investments;

(b)

investments must be made in accordance with an appropriate liquidity strategy;

(c)

the investments must be in accordance with an appropriate credit risk policy;

(d)

any foreign exchange risks must be prudently managed.

Table of permitted designated investments for the purpose of CASS 5.5.14 R (1).

Investment type

Qualification

1. Negotiable debt security (including a certificate of deposit)

(a) Remaining term to maturity of 5 years or less; and
(b) The issuer or investment must have a short-term credit rating of A1 by Standard and Poor's, or P1 by Moody's Investor Services, or F1 by Fitch if the instrument has a remaining term to maturity of 366 days or less; or a minimum long term credit rating of AA- by Standards and Poor's, or Aa3 by Moody's Investor Services or AA- by Fitch if the instrument has a term to maturity of more than 366 days.

2. A repo in relation to negotiable debt security

As for 1 above and where the credit rating of the counterparty also meets the criteria in 1.

3. Bond funds

(a) An authorised fund or a recognised scheme or an investment company which is registered by the Securities and Exchange Commission of the United States of America under the Investment Company Act 1940;
(b) A minimum credit rating and risk rating of Aaf and S2 respectively by Standard and Poor's or Aa and MR2 respectively by Moody's Investor Services or AA and V2 respectively by Fitch.

4. Money market fund

(a) An authorised fund or a recognised scheme;
(b) A minimum credit and risk rating of Aaa and MR1+ respectively by Moody's Investor Services or AAAm by Standard and Poor's or AAA and V1+ respectively by Fitch.

5. Derivatives

Only for the purpose of prudently managing foreign currency risks.

The general conditions which must be satisfied in the segregation of designated investments are:

(a)

any redemption of an investment must be by payment into the firm's client money bank account;

(b)

where the credit or risk rating of a designated investment falls below the minimum set out in the Table, the firm must dispose of the investment as soon as possible and in any event not later than 20 business days following the downgrade;

(c)

where any investment or issuer has more than one rating, the lowest shall apply.

14/01/2005

Export chapter as

Legal Instruments that change this Chapter Client money: insurance mediation activity

CASS 6

Custody rules

CASS 6.1

Application

01/11/2007

CASS 6.1.1

This chapter (the custody rules) applies to a firm:

(1) [deleted]

(a) [deleted]
(b) [deleted]

(1A) when it holds financial instruments belonging to a client in the course of its MiFID business; and/or
(1B) when it is safeguarding and administering investments, in the course of business that is not MiFID business.
(2) [deleted]

01/01/2009
Past version of CASS 6.1.1 before 01/01/2009

CASS 6.1.1A

The regulated activity of safeguarding and administering investments covers both the safeguarding and administration of assets (without arranging) and arranging safeguarding and administration of assets, 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 or may hold in the same portfolio as a designated investment held for or on behalf of a client.

06/04/2010
Past version of CASS 6.1.1A before 06/04/2010

CASS 6.1.1B

Firms to which the custody rules apply by virtue of CASS 6.1.1R (1B) must 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.

01/01/2009

CASS 6.1.1C

In 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 the United Kingdom by another person;

and the other firm, exempt person or other person who is to provide the safe custody service is not in the same group as I, and does not remunerate I.

01/01/2009

CASS 6.1.2

Firms are reminded that dividends (actual or payments in lieu), stock lending fees and other payments received for the benefit of a client, and which are due to the clients, should be held in accordance with the client money chapter where appropriate.

01/01/2009
Past version of CASS 6.1.2 before 01/01/2009

Business in the name of the firm

CASS 6.1.4

The custody rules do not apply where a firm carries on business in its name but on behalf of the client where that is required by the very nature of the transaction and the client is in agreement.

[Note: recital 26 to MiFID]

01/11/2007

CASS 6.1.5

For example, this chapter does not apply where a firm borrows safe custody assets from a client as principal under a stock lending agreement.

01/01/2009
Past version of CASS 6.1.5 before 01/01/2009

Title transfer collateral arrangements

CASS 6.1.6

(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]
(2) Excepted 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 obligations under a contract for differences or a rolling spot forex contract that is a future, and in either case where that contract is entered into with a firm acting as market maker; and
(c) which is made to that firm or to any other person arranging on its behalf.

01/10/2011
Past version of CASS 6.1.6 before 01/10/2011

CASS 6.1.6A

(1) Subject to (2), where a firm makes arrangements for the purpose of securing or otherwise covering present or future, actual, contingent or prospective obligations of a retail client those arrangements must not provide for the taking of a transfer of full ownership of any of that client's safe custody assets.
(2) The application of (1) is confined to the taking of a transfer of full ownership:

(a) whose purpose is to secure or otherwise cover that retail client's obligations under a contract for differences or a rolling spot forex contract that is a future, and in either case where that contract is entered into with a firm acting as market maker; and
(b) which is made to that firm or to any other person arranging on its behalf.

01/10/2011
Past version of CASS 6.1.6A before 01/10/2011

CASS 6.1.7

A title transfer financial collateral arrangement under the Financial Collateral Directive is a type of transfer of instruments to cover obligations where the financial instrument will not be regarded as belonging to the client.

01/11/2007

CASS 6.1.8

Firms are reminded of the client's best interests rule, which requires them to act honestly, fairly and professionally in accordance with the best interests of their clients when structuring their business particularly in respect of the effect of that structure on firms' obligations under this chapter.

01/11/2007

CASS 6.1.9

Firms are reminded that, in certain cases, the collateral rules apply where a firm receives collateral from a client in order to secure the obligations of the client.

01/11/2007

Prime brokerage agreements

CASS 6.1.9A

A prime brokerage firm is reminded of the additional obligations in CASS 9.3.1 R which apply to prime brokerage agreements.

01/03/2011

Affiliated companies - MiFID business

CASS 6.1.10

The fact that a client is an affiliated company in respect of MiFID business does not affect the operation of the custody rules in relation to that client.

01/01/2009
Past version of CASS 6.1.10 before 01/01/2009

Affiliated companies - non-MiFID business

CASS 6.1.10A

In respect of business which is not MiFID business, the custody rules do not apply to a firm when it safeguards and administers a designated investment on behalf of an affiliated company, unless:

(1) the firm has been notified that the designated investment belongs to a client of the affiliated company; or
(2) the affiliated company is a client dealt with at arm's length.

01/01/2009

Delivery versus payment transactions

CASS 6.1.12

(1) A firm need not treat this chapter as applying in respect of a delivery versus payment transaction through a commercial settlement system if it is intended that the safe custody asset is either to be:

(a) in respect of a client's purchase, due to the client within one business day following the client's fulfilment of a payment obligation; or
(b) in respect of a client's sale, due to the firm within one business day following the fulfilment of a payment obligation;

unless the delivery or payment by the firm does not occur by the close of business on the third business day following the date of payment or delivery of the safe custody asset by the client.
(2) Until such a delivery versus payment transaction through a commercial settlement system settles, a firm may segregate money (in accordance with the client money chapter) instead of the client's safe custody assets.

01/01/2009
Past version of CASS 6.1.12 before 01/01/2009

Temporary handling of safe custody assets

CASS 6.1.15

The custody rules do not apply if a firm temporarily handles a safe custody asset belonging to a client. A firm should temporarily handle a safe custody asset 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 for longer periods may be reasonably necessary. However, in the case of safe custody assets in bearer form, the firm is expected to handle them for less than one business day. When a firm temporarily handles safe custody assets, it is still obliged to comply with Principle 10 (Clients' assets).

01/01/2009
Past version of CASS 6.1.15 before 01/01/2009

CASS 6.1.16

When a firm temporarily handles a safe custody asset, in order to comply with its obligation to act in accordance with Principle 10 (Clients' assets), the following are guides to good practice:

(1) a firm should keep the safe custody asset 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; and
(2) a firm should make and retain a record of the fact that the firm has handled that safe custody asset and of the details of the client concerned and of any action the firm has taken.

01/01/2009
Past version of CASS 6.1.16 before 01/01/2009

Exemptions which do not apply to MiFID business

CASS 6.1.16A

The exemptions in CASS 6.1.16B R to CASS 6.1.16D G do not apply to a MiFID investment firm which holds financial instruments belonging to a client in the course of MiFID business.

01/01/2009

Operators of regulated collective investment schemes

CASS 6.1.16B

The custody rules do not apply to a firm when it acts as the operator of a regulated collective investment scheme, in relation to activities carried on for the purpose of, or in connection with, the operation of the scheme.

01/01/2009

Personal investment firms

CASS 6.1.16C

The custody rules do not apply to a personal investment firm when it temporarily holds a designated investment, other than in bearer form, belonging to a client, if the firm:

(1) keeps it secure, records it as belonging to that client, and forwards it to the client or in accordance with the client's instructions, as soon as practicable after receiving it;
(2) retains the designated investment for no longer than the firm has taken reasonable steps to determine is necessary to check for errors and to receive the final document in connection with any series of transactions to which the documents relate; and
(3) makes a record, which must then be retained for a period of 5 years after the record is made, of all the designated investments handled in accordance with (1) and (2) together with the details of the clients concerned and of any action the firm has taken.

01/01/2009

CASS 6.1.16D

Administrative convenience alone should not lead a personal investment firm to rely on CASS 6.1.16C R. Personal investment firms should consider what is in the client's interest and not rely on CASS 6.1.16C R as a matter of course.

01/01/2009

Trustees and depositaries

CASS 6.1.16E

The specialist regime in CASS 6.1.16F R to CASS 6.1.16I G does not apply to a MiFID investment firm which holds financial instruments belonging to a client in the course of MiFID business.

01/01/2009

CASS 6.1.16F

When a trustee firm or depositary acts as a custodian for a trust or collective investment scheme and:

(1) the trust or scheme is established by written instrument; and
(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 6.2.6 G

Registration and recording

CASS 6.2.7 R

Holding

CASS 6.4.1 R and CASS 6.4.2 G

Use of safe custody assets

CASS 6.5.

Records, accounts and reconciliations

01/01/2009

CASS 6.1.16G

The reasonable steps referred in CASS 6.1.16FR (2) could include obtaining an appropriate legal opinion to that effect.

01/01/2009

CASS 6.1.16H

When a trustee firm or depositary within CASS 6.1.16F R arranges for, or delegates the provision of safe custody services by or to another person, the trustee firm or depositary must also comply with CASS 6.3.1 R (Depositing assets and arranging for assets to be deposited with third parties) in addition to the custody rules listed in the table in CASS 6.1.16F R.

01/01/2009

CASS 6.1.16I

A trustee firm or depositary that just arranges safeguarding and administration of assets may also take advantage of the exemption in CASS 6.1.16J R (Arrangers).

01/01/2009

Arrangers

CASS 6.1.16J

Only the custody rules in the table below apply to a firm when arranging safeguarding and administration of assets.

Reference

Rule

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

Application

CASS 6.1.16J R

Arrangers

CASS 6.1.22 G to CASS 6.1.24 G

General purpose

CASS 6.3.1R (1A) and CASS 6.3.2 G

Arranging for assets to be deposited with third parties

CASS 6.1.16K R

Records

01/01/2009

CASS 6.1.16K

When a firm arranges safeguarding and administration of assets, it must ensure that proper records of the custody assets which it arranges for another to hold or receive, on behalf of the client, are made and retained for a period of 5 years after they are made.

01/01/2009

CASS 6.1.17

(1) [deleted]
(1A) [deleted]
(2) [deleted]
(3) [deleted]

01/01/2009
Past version of CASS 6.1.17 before 01/01/2009

General purpose

CASS 6.1.22

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 assets for which it is responsible.

01/01/2009
Past version of CASS 6.1.22 before 01/01/2009

CASS 6.1.23

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's safe custody assets 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.

01/01/2009
Past version of CASS 6.1.23 before 01/01/2009

CASS 6.1.24

The custody rules also, where relevant, implement the provisions of MiFID which regulate the obligations of a firm when it holds financial instruments belonging to a client in the course of its MiFID business.

01/01/2009
Past version of CASS 6.1.24 before 01/01/2009

CASS 6.2

Holding of client assets

01/11/2007

Requirement to protect clients' safe custody assets

CASS 6.2.1

A firm must, when holding safe custody assets 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 assets belonging to a client on the firm's own account except with the client's express consent.

[Note: article 13(7) of MiFID]

01/01/2009
Past version of CASS 6.2.1 before 01/01/2009

Requirement to have adequate organisational arrangements

CASS 6.2.2

A firm must introduce adequate organisational arrangements to minimise the risk of the loss or diminution of clients' safe custody assets, or the rights in connection with those safe custody assets, as a result of the misuse of the safe custody assets, fraud, poor administration, inadequate record-keeping or negligence.

[Note: article 16(1)(f) of the MiFID implementing Directive]

01/01/2009
Past version of CASS 6.2.2 before 01/01/2009

Registration and recording of legal title

CASS 6.2.3

To the extent practicable, a firm must effect appropriate registration or recording of legal title to a safe custody asset in the name of:

(1) the client (or, where appropriate, the trustee firm), 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;
(2) a nominee company which is controlled by:

(a) the firm;
(b) an affiliated company;
(c) a recognised investment exchange or a designated investment exchange; or
(d) a third party with whom financial instruments are deposited under CASS 6.3 (Depositing assets and arranging for assets to be deposited with third parties);

(3) any other third party if:

(a) the safe custody asset is subject to the law or market practice of a jurisdiction outside the United Kingdom and the firm has taken reasonable steps to determine that it is in the client's best interests to register or record it in that way, or that it is not feasible to do otherwise, because of the nature of the applicable law or market practice; and
(b) the firm has notified the client in writing;

(4) the firm if:

(a) the safe custody asset is subject to the law or market practice of a jurisdiction outside the United Kingdom and the firm has taken reasonable steps to determine that it is in the client's best interests to register or record it in that way, or that it is not feasible to do otherwise, because of the nature of the applicable law or market practice; and
(b) the firm has notified the client if a professional client, or obtained prior written consent if a retail client.

06/04/2010
Past version of CASS 6.2.3 before 06/04/2010

CASS 6.2.3A

If:

(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.

27/07/2012

CASS 6.2.4

A firm must accept the same level of responsibility to its client for any nominee company controlled by the firm with respect of any requirements of the custody rules.

01/11/2007

CASS 6.2.5

A firm may register or record legal title to its own applicable assets in the same name as that in which legal title to a safe custody asset is registered or recorded, but only if:

(1) the firm's applicable assets are separately identified in the firm's records from the safe custody assets; or
(2) the firm registers or records a safe custody asset in accordance with CASS 6.2.3R (4).

01/01/2009
Past version of CASS 6.2.5 before 01/01/2009

CASS 6.2.6

A firm when complying with CASS 6.2.3R (3) or CASS 6.2.3R (4) will be expected to demonstrate that adequate investigations have been made of the market concerned by reference to local sources, which may include an appropriate legal opinion.

01/11/2007

CASS 6.2.7

A firm must ensure that any documents of title to applicable assets 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 assets in bearer form.

01/01/2009
Past version of CASS 6.2.7 before 01/01/2009

CASS 6.3

Depositing assets and arranging for assets to be deposited with third parties

01/01/2009
Past version of CASS 6.3 before 01/01/2009

CASS 6.3.1

(1) A firm may deposit safe custody assets 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.
(1A) A firm which arranges the registration of a safe custody investment through a third party must exercise all due skill, care and diligence in the selection and appointment of the third party.
(2) A firm must take the necessary steps to ensure that any client's safe custody assets deposited with a third party, in accordance with this rule 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.
(3) When a firm makes the selection, appointment and conducts the periodic review referred to under this rule, it must take into account:

(a) the expertise and market reputation of the third party; and
(b) any legal requirements or market practices related to the holding of those safe custody assets that could adversely affect clients' rights.

(4) A firm must make a record of the grounds upon which it satisfies itself as to the appropriateness of its selection of a third party as required in this rule. The firm must make the record on the date it makes the selection and must keep it from the date of such selection until five years after the firm ceases to use the third party to hold safe custody assets belonging to clients.

[Note: articles 16(1)(d) and 17(1) of the MiFID implementing Directive]

01/01/2009
Past version of CASS 6.3.1 before 01/01/2009

CASS 6.3.2

In discharging its obligations under this section, a firm should also consider, together with any other relevant matters:

(1) once a safe custody asset has been lodged by the firm with the third party, the third party's performance of its services to the firm;
(2) the arrangements that the third party has in place for holding and safeguarding the safe custody asset;
(3) current industry standard reports, for example Financial Reporting and Auditing Group (FRAG) 21 report or its equivalent;
(4) the capital or financial resources of the third party;
(5) the credit rating of the third party; and and
(6) any other activities undertaken by the third party and, if relevant, any affiliated company.

01/01/2009
Past version of CASS 6.3.2 before 01/01/2009

CASS 6.3.3

A firm should consider carefully the terms of its agreements with third parties with which it will deposit safe custody assets belonging to a client. The following terms are examples of the issues firms should address in this agreement:

(1) that the title of the account 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's client separately from any applicable asset belonging to the firm or to the third party;
(3) the arrangements for registration or recording of the safe custody asset if this will not be registered in the client's name;
(4) [deleted]
(5) the restrictions over the circumstances in which the third party may withdraw assets from the account;
(6) the procedures and authorities for the passing of instructions to or by the firm;
(7) the procedures regarding the claiming and receiving of dividends, interest payments and other entitlements accruing to the client; and
(8) the provisions detailing the extent of the third party's liability in the event of the loss of a safe custody asset caused by the fraud, wilful default or negligence of the third party or an agent appointed by him.

01/04/2012
Past version of CASS 6.3.3 before 01/04/2012

CASS 6.3.4

(1) A firm must only deposit safe custody assets with a third party in a jurisdiction which specifically regulates and supervises the safekeeping of safe custody assets for the account of another person with a third party who is subject to such regulation.
(2) A firm must not deposit safe custody assets 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 of safe custody assets for the account of another person unless:

(a) the nature of the safe custody assets or of the investment services connected with those safe custody assets requires them to be deposited with a third party in that third country; or
(b) the safe custody assets are held on behalf of a professional client and the client requests the firm in writing to deposit them with a third party in that third country.

(3) [deleted]

(a) [deleted]
(b) [deleted]

(i) [deleted]
(ii) [deleted]
(iii) [deleted]

[Note: article 17(2) and (3) of the MiFID implementing Directive]

01/01/2009
Past version of CASS 6.3.4 before 01/01/2009

CASS 6.3.5

Subject to CASS 6.3.6 R, in relation to a third party with which a firm deposits safe custody assets belonging to a client, a firm must ensure that any agreement with that third party relating to the custody of those assets does not include the grant to that party, or to any other person, of a lien or a right of retention or sale over the safe custody assets, or a right of set-off over any client money derived from those safe custody assets.

01/04/2012
Past version of CASS 6.3.5 before 01/04/2012

CASS 6.3.6

A firm may conclude an agreement with a third party relating to the custody of safe custody assets which confers on that party, or on another person instructed by that party to provide custody services for those assets, a lien, right of retention or sale, or right of set-off in favour of that party or that other person only if that lien or right:

(1) is confined to those safe custody assets held in an account with that third party or that other person and extends only to properly incurred charges and liabilities arising from the provision of custody services in respect of safe custody assets held in that account; or
(2) arises under the operating terms of a securities depository, securities settlement system or central counterparty in whose account safe custody assets are recorded or held, and provided that it does so for the purpose only of facilitating the settlement of trades involving the assets held in that account; or
(3) arises in relation to those safe custody assets held in a jurisdiction outside the United Kingdom, provided that:

(a) it does so as a result of local applicable law in that jurisdiction or is necessary for that firm to gain access to the local market in that jurisdiction; and
(b) in respect of each client to which those assets belong, either:

(i) the firm has taken reasonable steps to determine that holding those assets subject to that lien or right is in the best interests of that client; or
(ii) where a client is a professional client, the firm is instructed by that client to hold those assets in that jurisdiction notwithstanding the existence of that lien or right.

01/04/2012
Past version of CASS 6.3.6 before 01/04/2012

CASS 6.3.7

A firm will be considered to be acting on the instructions of its professional client under CASS 6.3.6R (3)(b)(ii) where:

(1) the firm has received an individual instruction or has a standing instruction in its terms of business which results in it holding safe custody assets in the relevant jurisdiction; and
(2) prior to acting on the instruction, the firm has expressly informed the client that holding that client's safe custody assets in the relevant jurisdiction will involve the granting of a lien or right over those assets. The firm may do this by discussing the lien or right individually with the client or by including reference to it in terms of business (which may themselves cross refer to a separate list of relevant jurisdictions to which CASS 6.3.6R (3)(a) applies maintained on the firm's website in a form accessible to clients) or by a similar method.

01/04/2012

CASS 6.3.8

For the purpose of CASS 6.3.6 R, references to a safe custody asset include any client money derived from that safe custody asset. Client money derived from a safe custody asset may be regarded as held in the same account as that safe custody asset even though that money and those assets may be recorded separately.

01/04/2012

CASS 6.3.9

CASS 6.3.6 R does not permit a firm to agree to a right of set-off of the kind prohibited by either CASS 7.8.1 R or CASS 7.8.2 R in relation to client money.

01/04/2012

CASS 6.4

Use of safe custody assets

01/01/2009
Past version of CASS 6.4 before 01/01/2009

CASS 6.4.1

(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 another client of the firm, unless:

(a) the client has given express prior consent to the use of the safe custody assets on specified terms; and
(b) the use of that client's safe custody assets is restricted to the specified terms to which the client consents.

(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 held by a third party, or otherwise use safe custody assets held in such an account for its own account or for the account of another client unless, in addition to the conditions set out in (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
(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 the requirements of (1)(a) are used.

(3) For the purposes of obtaining the express prior consent of a retail client under this rule the signature of the retail client or an equivalent alternative mechanism is required.
(4) [deleted]

[Note: article 19 of the MiFID implementing Directive]

06/04/2010
Past version of CASS 6.4.1 before 06/04/2010

CASS 6.4.2

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. An example of what is generally considered to be such conduct, in the context of stock lending activities involving retail clients is that:

(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 asset and of the relevant collateral is monitored daily; and
(3) the firm provides relevant collateral to make up the difference where the current realisable value of the collateral falls below that of the safe custody asset, unless otherwise agreed in writing by the client.

01/01/2009
Past version of CASS 6.4.2 before 01/01/2009

CASS 6.4.3

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 19(2) of the MiFID implementing Directive]

01/01/2009
Past version of CASS 6.4.3 before 01/01/2009

CASS 6.5

Records, accounts and reconciliations

01/11/2007

Records and accounts

CASS 6.5.1

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]

01/01/2009
Past version of CASS 6.5.1 before 01/01/2009

CASS 6.5.2

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]

01/01/2009
Past version of CASS 6.5.2 before 01/01/2009

CASS 6.5.2A

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, including in the case of a prime brokerage agreement the disclosure annex referred to in CASS 9.3.1 R.

01/03/2011

Record keeping

CASS 6.5.3

A firm must ensure that the records made under this section are retained for a period of five years after they are made.

01/11/2007

Internal reconciliation of safe custody assets held for clients

CASS 6.5.4

(1) Carrying out internal reconciliations of the safe custody assets held for each client with the safe custody assets held by the firm and third parties is an important step in the discharge of the firm's obligations under CASS 6.5.2 R (Records and accounts) and, where relevant, SYSC 4.1.1 R (General requirements) and SYSC 6.1.1 R (Compliance).
(2) A firm should perform such internal reconciliations:

(a) as often as is necessary; and
(b) as soon as reasonably practicable after the date to which the reconciliation relates;

to ensure the accuracy of the firm's records and accounts.
(3) Reconciliation methods which can be adopted for these purposes include the 'total count method', which requires that all safe custody assets be counted and reconciled as at the same date.
(4) If a firm chooses to use an alternative reconciliation method (for example the 'rolling stock method') it needs to ensure that:

(a) all of a particular safe custody asset are counted and reconciled as at the same date; and
(b) all safe custody assets are counted and reconciled during a period of six months.

06/04/2010
Past version of CASS 6.5.4 before 06/04/2010

CASS 6.5.5

A firm that uses an alternative reconciliation method must first send a written confirmation to the FSA from the firm's auditor that the firm has in place systems and controls which are adequate to enable it to use the method effectively.

01/11/2007

Reconciliations with external records

CASS 6.5.6

A firm must conduct on a regular basis, reconciliations between its internal accounts and records and those of any third parties by whom those safe custody assets are held.

[Note: article 16(1)(c) of the MiFID implementing Directive]

01/01/2009
Past version of CASS 6.5.6 before 01/01/2009

CASS 6.5.7

Where a firm deposits safe custody assets belonging to a client with a third party, in complying with the requirements of CASS 6.5.6 R, the firm should seek to ensure that the third party will deliver to the firm a statement as at a date or dates specified by the firm which details the description and amounts of all the safe custody assets credited to the account, and that this statement is delivered in adequate time to allow the firm to carry out the periodic reconciliations required in CASS 6.5.6 R.

01/01/2009
Past version of CASS 6.5.7 before 01/01/2009

Frequency of external reconciliations

CASS 6.5.8

A firm should perform the reconciliation required by CASS 6.5.6 R:

(1) as regularly as is necessary; and
(2) as soon as reasonably practicable after the date to which the reconciliation relates;

to ensure the accuracy of its internal accounts and records against those of third parties by whom safe custody assets are held.

01/01/2009
Past version of CASS 6.5.8 before 01/01/2009

Independence of person conducting reconciliations

CASS 6.5.9

Whenever possible, a firm should ensure that reconciliations are carried out by a person (for example an employee of the firm) who is independent of the production or maintenance of the records to be reconciled.

01/01/2009
Past version of CASS 6.5.9 before 01/01/2009

Reconciliation discrepancies

CASS 6.5.10

A firm must promptly correct any discrepancies which are revealed in the reconciliations envisaged by this section, and make good, or provide the equivalent of, any unreconciled shortfall for which there are reasonable grounds for concluding that the firm is responsible.

01/11/2007

CASS 6.5.11

Items recorded or held within a suspense or error account fall within the scope of discrepancies.

01/11/2007

CASS 6.5.12

A firm may, where justified, conclude that another person is responsible for an irreconcilable shortfall despite the existence of a dispute with that other person about the unreconciled item. In those circumstances, the firm is not required to make good the shortfall but is expected to take reasonable steps to resolve the position with the other person.

01/11/2007

Notification requirements

CASS 6.5.13

A firm must inform the FSA in writing without delay:

(1) if it has not complied with, or is unable, in any material respect, to comply with the requirements in CASS 6.5.1 R, CASS 6.5.2 R or CASS 6.5.6 R; or
(2) if, having carried out a reconciliation, it has not complied with, or is unable, in any material respect, to comply with CASS 6.5.10 R.

01/11/2007

Audit of compliance with the MiFID custody rules

CASS 6.5.14

Firms are reminded that the auditor of the firm has to confirm in the report submitted to the FSA under SUP 3.10 (Duties of auditors: notification and report on client assets) that the firm has maintained systems adequate to enable it to comply with the custody rules.

06/04/2010
Past version of CASS 6.5.14 before 06/04/2010

CASS 6.5.15

Firms that use an alternative reconciliation method are reminded that the firm's auditor must confirm to the FSA in writing that the firm has in place systems and controls which are adequate to enable it to use another method effectively (see CASS 6.5.5 R).

01/11/2007

Export chapter as

Legal Instruments that change this Chapter Custody rules

CASS 7

Client money rules

CASS 7.1

Application and Purpose

01/11/2007

Application

CASS 7.1.1

This chapter (the client money rules) applies to a firm that receives money from or holds money for, or on behalf of, a client in the course of, or in connection with:

(1) [deleted]

(a) [deleted]
(b) [deleted]

(2) [deleted]
(3) its MiFID business; and/or
(4) its designated investment business, that is not MiFID business in respect of any investment agreement entered into, or to be entered into, with or for a client;

unless otherwise specified in this section.

01/01/2009
Past version of CASS 7.1.1 before 01/01/2009

Opt-in to the client money rules

CASS 7.1.3

(1) A firm that receives or holds money to which this chapter applies in relation to:

(a) its MiFID business; or
(b) its MiFID business and its designated investment business which is not MiFID business;

and holds money in respect of which CASS 5 applies, may elect to comply with the provisions of this chapter in respect of all such money and if it does so, this chapter applies as if all such money were money that the firm receives and holds in the course of, or in connection with, its MiFID business.
(1A) [deleted]
(1B) A firm that receives or holds money to which this chapter applies solely in relation to its designated investment business which is not MiFID business and receives or holds money in respect of which the insurance client money chapter applies, may elect to comply with the provisions of this chapter in respect of all such money and if it does so, this chapter applies as if all such money were money that the firm receives and holds in the course of or in connection with its designated investment business.
(2) A firm must make and retain a written record of any election it makes under this rule, including the date from which the election is to be effective. The firm must make the record on the date it makes the election and must keep it for a period of five years after ceasing to use it.

01/01/2009
Past version of CASS 7.1.3 before 01/01/2009

CASS 7.1.4

The opt-in to the client money rules inthis chapter does not apply in respect of money that a firm holds outside of the scope of the insurance client money chapter.

(2) relevant cash deposit ISA wrapper;

01/01/2009
Past version of CASS 7.1.4 before 01/01/2009

CASS 7.1.5

If a firm has opted to comply with this chapter, the insurance client money chapter will have no application to the activities to which the election applies.

01/01/2009
Past version of CASS 7.1.5 before 01/01/2009

CASS 7.1.6

A firm that is only subject to the insurance client money chapter may not opt to comply with this chapter.

01/01/2009
Past version of CASS 7.1.6 before 01/01/2009

Money that is not client money: 'opt outs' for any business other than insurance mediation activity

CASS 7.1.7B

CASS 7.1.7C G to CASS 7.1.7I G do not apply to a firm in relation to money held in connection with its MiFID business to which this chapter applies or in relation to money for which the firm has made an election under CASS 7.1.3R (1).

01/01/2009

Professional client opt-out

CASS 7.1.7C

The 'opt out' provisions provide a firm with the option of allowing a professional client to choose whether their money is subject to the client money rules (unless the firm is conducting insurance mediation activity).

01/01/2009

CASS 7.1.7D

Subject to CASS 7.1.7F R, money is not client money when a firm (other than a sole trader) holds that money on behalf of, or receives it from, a professional client, other than in the course of insurance mediation activity, and the firm has obtained written acknowledgement from the professional client that:

(1) money will not be subject to the protections conferred by the client money rules;
(2) as a consequence, this money will not be segregated from the money of the firm in accordance with the client money rules and will be used by the firm in the course of its own business; and
(3) the professional client will rank only as a general creditor of the firm.

01/01/2009

'Opt-outs' for non-IMD business

CASS 7.1.7E

For a firm whose business is not governed by the Insurance Mediation Directive, it is possible to 'opt out' on a one-way basis. However, in order to maintain a comparable regime to that applying to MiFID business, all 'MiFID type' business undertaken outside the scope of MiFID, should comply with the client money rules or be 'opted out' on a two-way basis.

01/01/2009

CASS 7.1.7F

Money is not client money if a firm, in respect of designated investment business which is not an investment service or activity, an ancillary service, a listed activity or insurance mediation activity:

(1) holds it on behalf of or receives it from a professional client who is not an authorised person; and
(2) has sent a separate written notice to the professional client stating the matters set out in CASS 7.1.7DR (1) to CASS 7.1.7DR (3).

01/01/2009

CASS 7.1.7G

When a firm undertakes a range of business for a professional client and has separate agreements for each type of business undertaken, the firm may treat client money held on behalf of the client differently for different types of business; for example, a firm may, under CASS 7.1.7D R or CASS 7.1.7F R, elect to segregate client money in connection with securities transactions and not segregate (by complying with CASS 7.1.7D R or CASS 7.1.7F R) money in connection with contingent liability investments for the same client.

01/01/2009

CASS 7.1.7H

When a firm transfers client money to another person, the firm must not enter into an agreement under CASS 7.1.7D R or CASS 7.1.7F R with that other person in relation to that client money or represent to that other person that the money is not client money.

01/01/2009

CASS 7.1.7I

CASS 7.1.7H R prevents a firm, when passing client money to another person under CASS 7.5.2 R (transfer of client money to a third party), from making use of the 'opt out' provisions under CASS 7.1.7D R or CASS 7.1.7F R.

01/01/2009

Credit institutions and approved banks

CASS 7.1.8

The client money rules do not apply to a BCD credit institution in relation to deposits within the meaning of the BCD held by that institution.

[Note: article 13(8) of MiFID and article 18(1) of the MiFID implementing Directive]

01/11/2007

CASS 7.1.9

If a credit institution that holds money as a deposit with itself is subject to the requirement to disclose information before providing services, it should, in compliance with that obligation, notify the client that:

(1) money held for that client in an account with the credit institution will be held by the firm as banker and not as trustee (or in Scotland as agent); and
(2) as a result, the money will not be held in accordance with the client money rules.

06/04/2010
Past version of CASS 7.1.9 before 06/04/2010

CASS 7.1.10

Pursuant to Principle 10 (Clients' assets), a credit institution that holds money as a deposit with itself should be able to account to all of its clients for amounts held on their behalf at all times. A bank account opened with the firm that is in the name of the client would generally be sufficient. When money from clients deposited with the firm is held in a pooled account, this account should be clearly identified as an account for clients. The firm should also be able to demonstrate that an amount owed to a specific client that is held within the pool can be reconciled with a record showing that individual's client balance and is, therefore, identifiable at any time. Similarly, where that money is reflected only in a firm's bank account with other banks (nostro accounts), the firm should be able to reconcile amounts owed to that client within a reasonable period of time.

(1) it should be able to account to all of its clients sums held for them at all times; and
(2) that money should, pursuant to Principle 10, be allocated to the relevant client promptly. This should be done no later than ten business days after the firm has received the money.

01/11/2007

CASS 7.1.11

A credit institution is reminded that the exemption for deposits is not an absolute exemption from the client money rules.

01/11/2007

CASS 7.1.11A

(1) This rule applies to a firm which is an approved bank but not a BCD credit institution.
(2) The client money rules do not apply to money held by the approved bank if it is undertaking business which is not MiFID business but only when the money is held in an account with itself, in which case the firm must notify the client in writing that:

(a) money held for that client in an account with the approved bank will be held by the firm as banker and not as trustee (or in Scotland as agent); and
(b) as a result, the money will not be held in accordance with the client money rules.

01/01/2009

Affiliated companies - MiFID business

CASS 7.1.12

A firm that holds money on behalf of, or receives money from, an affiliated company in respect of MiFID business must treat the affiliated company as any other client of the firm for the purposes of this chapter.

01/11/2007

Affiliated companies - non-MiFID business

CASS 7.1.12A

A firm that holds money on behalf of, or receives money from, an affiliated company in respect of designated investment business which is not MiFID business must not treat the money as client money unless:

(1) the firm has been notified by the affiliated company that the money belongs to a client of the affiliated company; or
(2) the affiliated company is a client dealt with at arm's length; or
(3) the affiliated company is a manager of an occupational pension scheme or is an overseas company; and

(a) the money is given to the firm in order to carry on designated investment business for or on behalf of the clients of the affiliated company; and
(b) the firm has been notified by the affiliated company that the money is to be treated as client money.

01/01/2009

Coins

CASS 7.1.14

The client money rules do not apply with respect to coins held on behalf of a client if the firm and the client have agreed that the money (or money of that type) is to be held by the firm for the intrinsic value of the metal which constitutes the coin.

01/11/2007

Solicitors

CASS 7.1.15

(1) An authorised professional firm regulated by the Law Society (of England and Wales), the Law Society of Scotland or the Law Society of Northern Ireland that, with respect to its regulated activities, is subject to the following rules of its designated professional body, must comply with those rules and, where relevant paragraph (3), and if it does so, it will be deemed to comply with the client money rules.
(2) The relevant rules are:

(a) if the firm is regulated by the Law Society (of England and Wales):

(i) the Solicitors' Accounts Rules 1998; or
(ii) where applicable, the Solicitors Overseas Practice Rules 1990;

(b) if the firm is regulated by the Law Society of Scotland, the Solicitors' (Scotland) Accounts, Accounts Certificate, Professional Practice and Guarantee Fund Rules 2001; and
(c) if the firm is regulated by the Law Society of Northern Ireland, the Solicitors' Accounts Regulations 1998.

(3) If the firm in (1) is a MiFID investment firm that receives or holds money for, or on behalf of a client in the course of, or in connection with its MiFID business, it must also comply with the MiFID client money (minimum implementing) rules in relation to that business.

09/12/2011
Past version of CASS 7.1.15 before 09/12/2011

Long term insurers and friendly societies

CASS 7.1.15A

This chapter does not apply to the permitted activities of a long-term insurer or a friendly society, unless it is a MiFID investment firm that receives money from or holds money for or on behalf of a client in the course of, or in connection with, its MiFID business.

01/01/2009

Contracts of insurance

CASS 7.1.15B

This chapter does not apply to client money held by a firm which:

(1) receives or holds client money in relation to contracts of insurance; but which
(2) in relation to such client money elects to act in accordance with the insurance client money chapter.

01/01/2009

CASS 7.1.15C

A firm should make and retain a written record of any election which it makes under CASS 7.1.15B R.

01/01/2009

Life assurance business

CASS 7.1.15D

(1) A firm which receives and holds client money in respect of life assurance business in the course of its designated investment business that is not MiFID business may:

(a) under CASS 7.1.3R (1B) elect to comply with the client money chapter in respect of such client money and in doing so avoid the need to comply with the insurance client money chapter which would otherwise apply to the firm in respect of client money received in the course of its insurance mediation activity; or
(b) under CASS 7.1.15B R, elect to comply with the insurance client money chapter in respect of such client money.

(2) These options are available to a firm irrespective of whether it also receives and holds client money in respect of other parts of its designated investment business. A firm may not however choose to comply with the insurance client money chapter in respect of client money which it receives and holds in the course of any part of its designated investment business which does not involve an insurance mediation activity.

01/01/2009

Trustee firms (other than trustees of unit trust schemes)

CASS 7.1.15E

A trustee firm which holds

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