Nominee company: Difference between revisions

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{{fullanat2|cass|nominee company||6.2.4|}}
{{fullanat2|cass|nominee company||6.2.4|}}{{d|Nominee company|/ˌnɒmɪˈniː/ /ˈkʌmpəni/|n|}}
A [[nominee company]] is not a custodian per se. It is a dedicated entity which does nothing other than acting as a registered owned of shares. Under CASS a custodian cannot hold its own house positions in the same legal entity as their client’s assets.


A wholly-owned subsidiary of a [[custodian]] used as a nominee company to hold legal title to client investments (other than cash). This common structure in the UK custody Market was in fact  endorsed by Peter Bloxham's ''[https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/271040/PU1560_SAR.pdf Final review of the Investment Bank Special Administration Regulations 2011]'' in January 2014, the third recommendation of which was:
A wholly-owned subsidiary of a [[custodian]] used as a nominee company to hold legal title to client investments (other than cash).
 
Under [[CASS Rules|CASS 6]], a [[custodian]] must not hold its own house positions ''in the same legal entity'' as its clients’ assets. A nominee, therefore, dedicated entity that a custodian sets up to hold its clients’, and ''only'' its clients’ assets. The nominee is not the custodian per se, but a legal entity in its custody chain that acts as a total firebreak between the custodian’s credit risk and its clients’ assets: a dedicated entity which does nothing other than acting as a registered owned of shares for third parties.
 
Thus, should the Custodian go, as they say in Mallorca, “[[tetas arriba]]”, then its insolvency administrator has no licence, no justification, no ''excuse';' for poking around in its client assets looking for baubles and trinkets it can share with the custodian’s unsecured creditors. It’s a clean, segregated ledger, ring-fenced with the deep magic of [[corporate personality]].
 
This common structure in the UK custody market was endorsed by Peter Bloxham's ''[https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/271040/PU1560_SAR.pdf Final review of the Investment Bank Special Administration Regulations 2011]'' in January 2014, the third recommendation of which was:
{{quote|
{{quote|
===Use of Nominee Companies===
===Use of Nominee Companies===
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The report noted:
The report noted:


“:... the rapid transfer of client positions to a solvent successor firm was facilitated by the fact that the failed firm held substantially all its (UK) {{cassprov|custody asset}}s in the name of a separate {{cassprov|nominee company}} {{tag|subsidiary}}. It was possible to transfer the shares in that {{cassprov|nominee company}} as part of the transfer of client positions. The transfer of the shares in the {{cassprov|nominee company}} was sufficient to produce the result that all the client holdings registered in that nominee passed into the control of the transferee, without the need for transfers of individual holdings. I recommend that consideration be given by the FCA to encouraging this practice.”
{{quote|“... the rapid transfer of client positions to a solvent successor firm was facilitated by the fact that the failed firm held substantially all its (UK) {{cassprov|custody asset}}s in the name of a separate {{cassprov|nominee company}} {{tag|subsidiary}}. It was possible to transfer the shares in that {{cassprov|nominee company}} as part of the transfer of client positions. The transfer of the shares in the {{cassprov|nominee company}} was sufficient to produce the result that all the client holdings registered in that nominee passed into the control of the transferee, without the need for transfers of individual holdings. I recommend that consideration be given by the FCA to encouraging this practice.”}}


Yes, the {{tag|CASS}} rules really say “with respect of”. And they don't say the same level responsibility ''as what''. So nice bit of drafting there, ladies and gentlemen of the {{t|European Union}}.
{{sa}}
*[[Custody]]
*[[CASS rules

Revision as of 08:42, 28 June 2021


Template:CASS Section nominee company

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Template:CASS Section 6.2.4

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IMPORTANT: CASS changed quite a bit after MiFID II. This resource therefore may well be out of date, even if it was accurate once, which it might not have been. This is an article about the FCA’s custody and client money rules — client assets — and is fondly known by its chapter in the FCA SourcebookTemplate:Anatnavigation-cass
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Nominee company
/ˌnɒmɪˈniː/ /ˈkʌmpəni/ (n.)

A wholly-owned subsidiary of a custodian used as a nominee company to hold legal title to client investments (other than cash).

Under CASS 6, a custodian must not hold its own house positions in the same legal entity as its clients’ assets. A nominee, therefore, dedicated entity that a custodian sets up to hold its clients’, and only its clients’ assets. The nominee is not the custodian per se, but a legal entity in its custody chain that acts as a total firebreak between the custodian’s credit risk and its clients’ assets: a dedicated entity which does nothing other than acting as a registered owned of shares for third parties.

Thus, should the Custodian go, as they say in Mallorca, “tetas arriba”, then its insolvency administrator has no licence, no justification, no excuse';' for poking around in its client assets looking for baubles and trinkets it can share with the custodian’s unsecured creditors. It’s a clean, segregated ledger, ring-fenced with the deep magic of corporate personality.

This common structure in the UK custody market was endorsed by Peter Bloxham's Final review of the Investment Bank Special Administration Regulations 2011 in January 2014, the third recommendation of which was:

Use of Nominee Companies

3 FCA should consider encouraging firms, in appropriate cases, to use a wholly-owned subsidiary as the nominee company to hold legal title to client investments (other than cash).

The report noted:

“... the rapid transfer of client positions to a solvent successor firm was facilitated by the fact that the failed firm held substantially all its (UK) custody assets in the name of a separate nominee company subsidiary. It was possible to transfer the shares in that nominee company as part of the transfer of client positions. The transfer of the shares in the nominee company was sufficient to produce the result that all the client holdings registered in that nominee passed into the control of the transferee, without the need for transfers of individual holdings. I recommend that consideration be given by the FCA to encouraging this practice.”

See also

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