Template:Inadvertent use

Warning: tedious passage approaching
The Jolly Contrarian’s view is that shortfalls arising through settlement failures into an omnibus account are covered by CASS 6.6.54 and are not an example of “omnibus use” in 6.4.1(2) and therefore do not require a client’s express prior consent:

• Shortfalls arise as a result of inbound settlement failures. There is no question of using one clients assets (even inadvertently) to satisfy another’s obligations. The custodian correctly transfers out the account a client’s own assets in accordance with that client’s instructions. A subsequent settlement failure into the account results in the omnibus account being underfunded — there is a “shortfall”. This is not in the nature of deliberate, or even “inadvertent” use of client assets: it is (instead) covered by the Shortfalls language introduced after PS14/9 by CASS 6.6.54 R.
• As shortfalls, they have been subject to comprehensive review (PS14/9) and detailed specific provisions (CASS 6.6.54R) which do not require prior express consent.
• The “express prior consent” requirement of 6.4.1 applies to all clients (not just retail ones – simply the earlier text specified precisely how that prior express consent was to be evidenced for retail clients) has substantively been in place since 2007 (MiFID I) and was not materially been changed either by PS 14/9 or MiFID II.
• The meaning of “prior express consent” in the context of MiFID was discussed by then regulator CESR in 2007 a discussion paper (albeit in the context of best execution) and said: “Where MiFID requires “prior express consent”, CESR considers that this entails an actual demonstration of consent by the client which may be provided by signature in writing or an equivalent means (electronic signature), by a click on a web page or orally by telephone or in person, with appropriate record keeping in each case.”