Custody model

Template:Anattitle-cass →Go uptown 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 This resource therefore may well be out of date, even if it was accurate once, which it might not have been.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 Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

How one goes about holding assets in safekeeping differs according to your jurisdiction and yea, even the legal tradition from which your system of laws sprang.

English law custody model

The standard English law custody model is a trust arrangement. That means legal title to securities is owned by the custodian, but the beneficial interest is held by the client. As against the rest of the world, the custodian owns the assets, but its contract with its client obliges it to follow the client’s instructions when dealing with custody assets.

Because of the trust, the custody assets do not form part of the custodian’s insolvency estate and (subject to any amounts owing to the custodian that secured by lien or security interest over the custody assets) they not available to the custodian’s creditors and are returned to the client. The Lehman insolvency showed that untangling the custodian’s books and records is a trial in itself, and navigating security interests a whole other ball of wax. Hence the CASS cutody rules (CASS 6) have been tightened, and the FCA (and hence, your own firm’s CF10A) takes an extraodinarily dim view of lax book keeping.

New York law custody model

Notwithstanding its foundation in common law, the US custody model has morphed to be something more like the continental one: Template:Continental custody model