Client Asset sourcebook (CASS)

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Meghan Goodwin
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1 Financial Conduct Authority Client Asset sourcebook (CASS) There are a large number of changes being made CASS which cover the entire operion of the client money cusdy rules for investment firms. The changes are being in three stages: 1 July,. We expect all firms be in compliance with the changes ( the extent relevant) each stage. The table below summarises the key changes in PS14/9 points out the corresponding in the PS th explain these changes. In addition, the last three columns set out the from the de th the rule comes in force (1 July, or ). If a box in the table reads it means th the rule change will not be in force the de the p of the corresponding column. This table does not cover all the changes proposed in CP13/5 we encourage firms consider the detail in the PS in particular in the legal instruments in Appendix 1. Key pics CASS 1 applicion provisions Applicion of the Client Assets sourcebook (CASS 1) CASS 3 colleral rules Applicion of colleral rules CASS 6 cusdy rules Applicion of the cusdy rules General guidance clarifying the applicion of CASS affilies trustee firms. General guidance reminding firms of their obligions under the client s best interest rule when agreeing a colleral arrangement. General guidance clarifying which rules apply depositaries of AIFs when a firm is arranging safeguarding administrion of assets. 1 July AG R, FR, JR KR Financial Conduct Authority 1

2 Key pics Registrion of firm assets cusdy assets Depositing cusdy assets when using third parties Written cusdy agreements Right use arrangements Cusdy recordkeeping, record checks reconciliions Both CASS 6 7 TTCA - written agreements TTCA - procedure for switching A firm s ability register title its own assets in the same name as any cusdy assets registered in the name of a nominee will be restricted circumstances in which this is necessary facilite a client transaction (e.g. in hling dealing errors, allocing bulk deals /or processing transaction in fractional shares) or as a result of the law or market practice of an overseas jurisdiction. We are introducing a number of clarificions, reordering the rules improve readability amending the mters a firm should consider when selecting, appointing periodically reviewing any third party cusdian with whom it deposits assets. Firms will be required have in place a written agreement whenever they place cusdy assets, or arrange for cusdy assets be placed, with a third party cusdian. Reminder firms th they must consider their client s best interest when agreeing a right use arrangement with a retail client. We are: (a) upding our rules accommode firms th use integred systems maintain their records for cusdy assets; (b) introducing a minimum frequency which firms are required undertake reconciliions or perform other checks ensure the accuracy of their records for cusdy assets; (c) clarifying the obligion on firms fund shortfalls in cusdy assets only for which they are responsible (using a firm s own assets or, where approprie, other funds); (d) introducing more detailed notificion recordkeeping requirements (including requiring firms maintain internal procedures policies for their cusdy reconciliions). We are requiring all firms have a written agreement in place for all title transfer colleral arrangements ('TTCA'). We are prescribing the mechanism firms should follow if a client requests protections under CASS for assets monies subject TTCA. 1 July R 6.2.6G 6.3.1R 6.3.4A-1R AR 6.3.4BG AG 6.4.2G BR 6.1.6CG, 7.2.3BR 7.2.3CG, TP1.1(7A) TP1.1(9B) Various rules in 6.6 (6.5 will have been deleted in its entirety from replaced by 6.6) 6.1.6BR 6.1.6CG R G 6.1.8AR 6.1.8EG R G Financial Conduct Authority 2

3 Key pics DvP exclusion for commercial settlement systems Unclaimed client money Unclaimed cusdy assets CASS 7 client money rules Applicion of the client money rules Banking exemption Trustee firms DvP exclusion for collective investment schemes Payment of interest on client money Money ceasing be client money The final rules set out exactly when a firm is allowed cease tre money as client money or cease apply our cusdy rules a cusdy asset, as applicable, while carrying out a delivery versus payment ( DvP ) transaction through a commercial settlement system ensure clients agree these arrangements. Clarificions the existing rules providing firms with an optional mechanism deal with alloced but unclaimed client money under our rules (i.e. gift charity) if certain conditions are met (e.g. reasonable steps having been taken trace the client). Firms will also be permitted pay away de minimis amounts of client money ( 25 for retail clients 100 for professional clients) after following an abbrevied procedure. We are providing firms with an optional mechanism deal with unclaimed cusdy assets under our rules (i.e. gift charity) if certain conditions are met (e.g. reasonable steps having been taken trace the client). We are introducing certain amendments the relevant rules further guidance clarify when the client money rules are applicable firms activities. We are clarifying the applicion of the exemption from the client money rules th banks may use introducing new requirements around the notificions th banks must make their clients. We are disapplying the client money distribution rules client money held by a trustee firm introducing the ability of trustee firms opt in certain client money rules. Authorised fund managers will be permitted cease tre money as client money for a one-day window while carrying out a delivery versus payment ( DvP ) transaction for the purpose of settling a transaction in relion units in a reguled collective investment scheme. Firms will also be obliged obtain clients agreement these arrangements. We are clarifying when firms are are not required pay clients the interest earned on client money. Certain clarificions revisions accommode transfer of business, unclaimed client money a firm s legal obligions pay client money a third party. 1 July R ER 7.2.8AG 7.2.8AER G G R ER R R G G G G AR 7.1.1BG AR CR FR LG AR BG R R G R G R G R R R G R R Financial Conduct Authority 3

4 Key pics 1 July Transfer of business hling client money We are setting out requirements reling assignment clauses in client agreements if they are serve as client consent transfer a client s client money a third party in the context of a business transfer allow assignment clauses be used as an alternive obtaining client consent the time of the transfer AG GR G R Client bank accounts due diligence diversificion We are enhancing the due diligence requirements th firms must carry out on banks with whom they place client money, requiring firms periodically assess whether they are appropriely diversifying the third parties with which they place client money following each assessment make adjustments ( the third parties / or amounts placed each) accordingly R R R R Unbreakable term deposits We are prohibiting firms from placing money in a deposit with an unbreakable term of more than 30 days AR G R G Immedie segregion Except where firms are using the alternive approach client money segregion, we are generally requiring firms receive all client money directly in a client bank account. However, the final rules will permit firms who act as a clearing member of CCPs in certain situions receive client money in a house account before transferring it a client bank account so long as they maintain prudent segregion in their client bank account address intra-day risk R G Physical receipts We are clarifying how firms should tre client money receipts in the form of cash cheques how these should be reflected in the internal client money reconciliion R R Cleared funds We are reitering the principle th one client s money should not be used fund another client s investment business G Money due client from firm This was previously guidance but has been made in a rule R G Prudent segregion We are setting out procedures recordkeeping requirements th firms must follow if they intend prudently segrege money in a client bank account address specific risks R R Alternive approach client money segregion We are: (a) setting out clear procedures th a firm must follow establish whether it considers th the use of the alternive approach client money segregion is approprie for a particular business line; (b) requiring firms use prudent segregion address the risks client money th may arise due a firm using this approach AG CR G G Financial Conduct Authority 4

5 Key pics 1 July Client money held third parties We are clarifying th in certain circumstances a firm may allow a third party hold client money but still remain responsible the client for th money, setting out the record account keeping requirements in those circumstances G 7.5.3G G G Client money reling cusdy assets held a cusdian Revised rules clarify th where a firm deposits cusdy assets with a third party, any client money derived from those assets should either be held in a client bank account or in a client transaction account, as approprie G G Client money recordkeeping reconciliions We are: (a) establishing clear requirements as the steps a firm is expected follow when undertaking an internal client money reconciliion (a stard method ); (b) clarifying the circumstances in which a firm is able undertake a nonstard method of internal client money reconciliion; (c) ming the minimum frequency which firms should undertake client money reconciliions (both internal external); (d) introducing more detailed notificion recordkeeping requirements (7.6 7 Annex 1G will have been deleted in their entirety from ) Audir assurances We are requiring firms th opere an alternive approach client money segregion /or a non-stard method of internal client money reconciliion obtain before carrying out the proposed approach/method an audir s report prepared on the basis of a reasonable assurance engagement. As part of this process, the audir will be required opine on whether the proposed approach/ method will achieve the desired regulary outcome (e.g. an approprie internal client money reconciliion/correct calculion of the alternive approach mary prudent segregion amount) ER 7.6.6AR R R Acknowledgement letters We are: (a) introducing a temple firms must use when drafting exchanging acknowledgment letters with the third parties with whom they deposit or place client money; (b) requiring firms in all circumstances have an acknowledgment letter in place before they place client money in the relevant account; (c) providing guidance around the formalities involved when drafting executing these letters in different circumstances; (d) ming how often in wh circumstances firms should review upde the letters they have in place , Annex 2R, Annex 3R, Annex 4R Annex 5G 7.18, Annex 2R, Annex 3R, Annex 4R Annex 5G Financial Conduct Authority 5

6 Key pics CFTC Part 30 exemption order We are providing additional guidance clarify the obligions placed on firms in relion FCA-reguled business conducted under the CFTC Part 30 exemption order. CASS 7 7A - multiple client money pools Operion of multiple client money pools CASS 8 me rules Non-written mes CASS 9 informion clients Reporting clients (on client assets) Informion clients on safeguarding client assets Miscellaneous Consequential changes other parts of the Hbook We are introducing rules permit clearing member firms of CCPs offer multiple client money sub-pools in relion net margined omnibus client accounts CCPs. We are introducing revised rules : (a) ensure firms keep approprie records of non-written mes; (b) remove the requirement on firms hold records of all mes indefinitely; (c) clarify the form content of records be retained around mes. We are: (a) requiring firms honour client requests for informion on their holdings of client assets, but will permit firms agree charge clients the reasonable costs for doing so; (b) clarifying th where a firm provides a report a client on its holdings of client assets for th client, a firm should ensure th it is clear from the report when assets or monies are, or are not, protected under either or both our cusdy rules client money rules. We are requiring firms provide the same informion all client types, for all types of cusdy assets, as is currently required be provided only retail clients, for specific asset types, under our existing informion requirements for firms holding client assets (see COBS 6.1.7R). A number of additional consequential changes are being made our requirement for CASS RP (CASS 10), CMAR (SUP 16.4 Annex 29 Annex 29A) the client money distribution rules reflect the changes being made above provide additional clarificion July R G G 8.2.6G 8.3.2R 8.3.2HG 9.1.1R 9.5.1G 9.5.9G G 9.4.4G Various changes 7A (e.g. reling trustee firms multiple client money pools) Various changes CASS 10, SUP 16 Annex 29R 29A Financial Conduct Authority 6

PS 14/9: Review of the client assets for investment business BEST PRACTICE STATEMENTS CASS

PS 14/9: Review of the client assets for investment business BEST PRACTICE STATEMENTS CASS Table of Contents 1. Introduction... 1 2. Cass 6 Custody Asset Rules... 2 2.1 Registration of firm assets and