The banking exemption - CASS Provision: Difference between revisions
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) No edit summary |
||
Line 2: | Line 2: | ||
'''History''': This is a transliteration, verbatim, of the old CASS {{cassprov|7.1.8A}}. | '''History''': This is a transliteration, verbatim, of the old CASS {{cassprov|7.1.8A}}. | ||
===And a “{{cobsprov|bank}}” is?=== | ===And a “{{cobsprov|bank}}” is?=== | ||
You’ll think it was easy, and if you | You’ll think it was easy, and — if you rise above the guff — it is: a bank is, well, a ''bank'': a regulated, officially permissioned<ref>In its own jurisdiction.</ref> deposit-taking institution. But of course it is too easy to just say that. | ||
So, for the purpose of figuring out whether your deposit ought to be protected under CASS client money rules, or whether you are free to not have to offer client money protection, you are deposit with a “CRD credit institution” or any money held by an “approved bank” that is not a CRD credit institution relating to designated investment business. An “approved bank” is (sigh) a {{cobsprov|bank}} ''or'' a CRD credit institution ''or'' a building society ''or'' a central bank yadayadayada — and a bank is an institution with Part 4 permissions to accept deposits in the UK. | So, for the purpose of figuring out whether your deposit ought to be protected under CASS client money rules, or whether you are free to not have to offer client money protection, you are deposit with a “CRD credit institution” or any money held by an “approved bank” that is not a CRD credit institution relating to designated investment business. An “approved bank” is (sigh) a {{cobsprov|bank}} ''or'' a CRD credit institution ''or'' a building society ''or'' a central bank yadayadayada — and a bank is an institution with Part 4 permissions to accept deposits in the UK. |
Revision as of 18:06, 8 May 2019
CASS Anatomy™
|
History: This is a transliteration, verbatim, of the old CASS 7.1.8A.
And a “bank” is?
You’ll think it was easy, and — if you rise above the guff — it is: a bank is, well, a bank: a regulated, officially permissioned[1] deposit-taking institution. But of course it is too easy to just say that.
So, for the purpose of figuring out whether your deposit ought to be protected under CASS client money rules, or whether you are free to not have to offer client money protection, you are deposit with a “CRD credit institution” or any money held by an “approved bank” that is not a CRD credit institution relating to designated investment business. An “approved bank” is (sigh) a bank or a CRD credit institution or a building society or a central bank yadayadayada — and a bank is an institution with Part 4 permissions to accept deposits in the UK.
A CRD credit institution is an EEA credit institution authorised under the CRD.
Client money and cash brokerage
Should an investment manager ask an executing broker bank to offer it client money protection, consider the following:
- regulated credit institutions (Banks, to you and me) are not required to hold customer cash as client money under the CASS rules (CASS 7.10.16) – banks hold “as banker” and not as trustee for their clients.
- If a bank were to treat cash as client money (it could in theory do this, though it doesn't make a lot of sense):
- The bank would have to deposit the cash with another bank — in practice a diversified network of them — cue operational mayhem.
- The client would still, ultimately, be exposed to those other banks, just not the immediate one. Cash is always presents a credit risk to whoever holds it for the time being.
- Brokers generally settle cash equities transactions delivery versus payment under their terms of business. Clients will not pay any money in advance receiving their settlement securities. Therefore the client’s payment obligation is in discharge of its contractual liability to the broker, so is not a “client money” obligation in the first place (see CASS 7.11.25);
- When an investment manager instructs a broker to execute an order for a client it does so as agent for the client, but in the client’s own name.
- The broker will book the order against the underlying client directly and not against “investment manager as trustee for Client XYZ”.
- Therefore, at the moment when the investment manager pays the “client money” to the broker, the investment manager ceases to hold it as client money at all, but pays the cash to discharge the client’s obligation to the broker (again, see CASS 7.11.25).
- ↑ In its own jurisdiction.