Transfer Agent Administration (Level 3)

Correct: Under the FCA CASS 7 rules, when an internal reconciliation reveals a shortfall in the client money bank account compared to the firm’s records, the firm must immediately fund the difference using its own money. This requirement ensures that the client money pool is always fully funded, protecting clients from potential losses while the firm investigates the cause of the discrepancy and determines if the error was internal or external.

Incorrect: The strategy of waiting for external reconciliation is incorrect because CASS requires immediate action upon discovery of a shortfall to prevent client detriment. Focusing only on notifying the regulator before taking action fails to meet the primary obligation of safeguarding client funds through immediate top-ups. Choosing to adjust internal ledgers to match a lower bank balance is a breach of record-keeping requirements and fails to address the actual missing funds, potentially leading to a permanent loss for clients.

Takeaway: Firms must immediately fund any identified client money shortfalls from their own resources to ensure full protection of client assets.

Correct: The external client money reconciliation is a mandatory control under CASS 7 that compares the firm’s internal records of client money held at third parties against the statements or data provided by those banks. This process ensures that the firm’s records are accurate relative to the external reality and helps identify any missing funds or banking errors promptly to protect client interests.

Incorrect: The approach of checking internal ledgers against client obligations describes the internal reconciliation, which focuses on consistency within the firm’s own systems rather than external verification. Linking the reconciliation process to the calculation of regulatory capital requirements is incorrect as capital adequacy is a separate prudential concern governed by different FCA modules. The strategy of using reconciliations to manage firm-funded buffers relates to prudent segregation or funding, which is a distinct operational choice rather than the primary purpose of the reconciliation itself.

Takeaway: External reconciliations ensure the firm’s internal records of client money match the balances reported by the banks holding those funds under CASS 7 rules.

Correct: Under the FCA’s CASS sourcebook, the rules apply to a firm in respect of client money held in connection with its regulated business carried on from an establishment in the UK. Even if the money is held by an overseas branch, if the underlying business relationship is managed through the UK office, the CASS requirements for segregation and protection remain applicable.

Incorrect: The strategy of assuming the rules do not apply because funds are held outside the UK fails to account for the establishment test which focuses on where the business is carried on from. Relying on the location of the branch within a specific economic area or the client’s classification is incorrect as the FCA rules focus on the UK-authorised firm’s own establishment. Opting to believe that local banking laws automatically supersede CASS ignores the regulatory obligations of UK firms to maintain FCA standards for business originated in the UK.

Takeaway: CASS rules apply to client money held by overseas branches if the business is conducted from a UK establishment.

Correct: Under the UK trust regime, a fundamental concept is the separation of legal and beneficial ownership. The nominee company, acting as a trustee, holds the legal title (the name on the register), while the client retains the beneficial interest (the right to the economic benefits of the asset). This structure is essential for safeguarding because it ensures that the assets are not considered part of the firm’s own estate in the event of insolvency.

Incorrect: The strategy of suggesting clients hold both legal and beneficial titles fails to account for the role of a nominee company, which is specifically designed to hold legal title for administrative efficiency. Proposing that the nominee holds the beneficial interest is legally incorrect, as this would imply the firm owns the underlying value of the assets rather than the client. Focusing on the merger of legal and beneficial titles into a single right held by the firm describes a principal-to-principal relationship rather than a trust arrangement, which would violate FCA asset segregation requirements.

Takeaway: UK trust law separates legal title held by the nominee from beneficial interest retained by the client to ensure asset protection.

Correct: Under the FCA’s Conduct of Business Sourcebook (COBS) and the CASS rules, a firm must enter into a written agreement with a client before providing services such as the safeguarding and administration of assets. This agreement must clearly define the terms of the service, the firm’s obligations, and the specific arrangements for holding client money and custody assets to ensure legal clarity and client protection.

Incorrect: Relying on a generic statement of FCA authorisation is insufficient because the rules require specific contractual terms for the handling of client assets. Simply providing a disclosure about the Financial Services Compensation Scheme (FSCS) does not satisfy the requirement for a comprehensive written agreement covering custody services. The strategy of only specifying terms for client money while ignoring custody assets is a regulatory failure, as both activities require distinct and detailed contractual terms under CASS 6 and CASS 7.

Takeaway: Firms must establish written agreements that explicitly detail the terms for safeguarding assets and holding client money to comply with FCA requirements.

Correct: The primary tax implication of an ISA is that it provides a tax-efficient wrapper where any income (dividends or interest) and capital gains generated by the underlying investments are exempt from UK tax. In contrast, investments held in a standard unwrapped account are subject to the prevailing rates of Income Tax on distributions and Capital Gains Tax on any realized profits above the annual exempt amount.

Incorrect: The strategy of treating gains as tax-deferred until withdrawal is incorrect as it describes the tax treatment of a pension or a life insurance bond rather than an ISA. Opting for a mandatory 20% withholding tax on dividends within an ISA is inaccurate because the wrapper specifically exempts such income from tax. Relying on the reclamation of a 10% dividend tax credit is based on outdated tax legislation, as the dividend tax credit was abolished in the UK in 2016.

Takeaway: Investments held within a UK ISA wrapper are exempt from both Income Tax and Capital Gains Tax on all generated returns.

Correct: According to CASS 7.13, when a firm uses the prudent segregation rule to pay its own money into a client bank account, it must maintain a clear record of the rationale for doing so. This record must include the specific amount of the firm’s own money held and the date it was paid in, and it must be updated whenever the amount of prudent segregation is changed to ensure a clear audit trail.

Incorrect: Focusing only on the total daily balance is insufficient because the firm must specifically identify and record its own funds to prevent them from being permanently treated as client money. The strategy of notifying the regulator for every minor adjustment is incorrect as the FCA requires internal record-keeping rather than constant individual notifications for prudent segregation movements. Choosing to destroy records after twelve months would breach the standard FCA record-keeping requirements, which generally mandate a five-year retention period for CASS-related documentation.

Takeaway: Firms must maintain detailed internal records of the rationale and specific amounts for prudent segregation to ensure regulatory transparency and auditability.

Correct: In the United Kingdom, the CASS 7 regime operates on the basis of a statutory trust. This legal structure separates ownership into two parts: the firm holds the legal title (allowing it to perform administrative and settlement tasks), while the client retains beneficial ownership. This separation is crucial because it ensures that if the firm becomes insolvent, the client money is not treated as the firm’s own asset and remains protected from the claims of the firm’s general creditors.

Incorrect: The strategy of suggesting that legal and beneficial ownership passes to the firm describes a debtor-creditor relationship, which is typical of a banking model but specifically prohibited for non-bank investment firms under CASS. Relying on the idea of joint legal title is incorrect because the firm must have the ability to manage the account legally without the client being a co-signatory on every transaction. Opting for the view that the regulator takes beneficial ownership is a misunderstanding of the FCA’s role, as they supervise the protection of assets rather than holding ownership interests in them.

Takeaway: The UK trust regime separates legal title from beneficial ownership to protect client assets from general creditors during firm insolvency.

Correct: Under the FCA CASS 6 rules, a firm must maintain records and accounts that enable it at any time and without delay to distinguish assets held for one client from assets held for any other client and from the firm’s own assets. This requirement is a cornerstone of the UK trust regime, ensuring that in the event of a firm’s insolvency, client assets can be identified and returned promptly. Failure to link specific assets to individual clients in the firm’s own records constitutes a breach of the fundamental requirement for accurate and immediate identification.

Incorrect: The strategy of focusing on daily automated uploads to the regulator is incorrect because the FCA requires firms to maintain their own internal records for inspection rather than receiving daily transaction-level data for all clients. Simply conducting monthly reconciliations is insufficient because the record-keeping obligation is a continuous requirement to be able to identify assets without delay, not just at the point of reconciliation. Opting for a requirement for third-party auditors to verify every timestamp is not a specific CASS record-keeping rule, as the primary responsibility for maintaining accurate and compliant records rests with the firm’s senior management and the CASS oversight function.

Takeaway: Firms must maintain internal records that allow for the immediate and distinct identification of each individual client’s assets at all times.

Correct: In accordance with the FCA’s expectations for asset servicing and the protection of client rights, firms must ensure that clients are informed of corporate actions that affect their holdings. For voluntary actions, the firm must provide sufficient information for the client to make an informed decision and must act according to the client’s instructions or the agreed discretionary authority to safeguard the economic value of the client’s assets.

Incorrect: The strategy of applying a default option for all clients without seeking instruction ignores the individual tax and investment needs of the clients and fails to protect their specific rights. Choosing to delay notification until after the event has concluded prevents the client from exercising their right to choose, which is a fundamental failure in asset servicing. Opting for a requirement that clients move assets to personal accounts is unnecessary and contradicts the standard nominee model used in the UK to facilitate efficient settlement and administration.

Takeaway: Firms must provide timely information on voluntary corporate actions to allow clients to exercise their rights or follow discretionary mandates effectively.

Correct: Under the FCA’s CASS 6 (Custody rules), a firm that safeguards and administers assets must ensure that client assets are clearly identified and segregated from the firm’s own assets. This creates a trust-based protection regime in the UK, ensuring that in the event of the firm’s insolvency, these assets are not available to the firm’s general creditors and can be returned to the clients.

Incorrect: The strategy of recording assets on the firm’s own balance sheet describes a Title Transfer Collateral Arrangement (TTCA), which is distinct from safeguarding and administration where the client retains proprietary rights. Focusing only on internal records without performing external reconciliations fails to meet the mandatory CASS requirements for verifying the accuracy of holdings against third-party records. Opting to shift all liability to a sub-custodian is incorrect because, under FCA rules, the firm remains responsible for the due diligence in selecting and monitoring the sub-custodian and remains liable for the overall safeguarding framework.

Takeaway: Firms must legally segregate client assets from their own to ensure protection under the UK’s trust-based insolvency regime.

Correct: Under CASS 8.2.1, a mandate is any means that give a firm the ability to control a client’s assets or money by giving instructions to a third party. Holding a client’s online banking credentials or security tokens provides this control without the firm actually holding the assets itself, thus falling squarely within the mandate definition.

Incorrect: Treating the holding of client money in a trust account as a mandate is incorrect because this falls under the client money rules in CASS 7. Similarly, holding legal title to assets via a nominee company is governed by the custody rules in CASS 6 rather than the mandate rules. Relying on a single, specific instruction for a one-off transaction does not typically create an ongoing mandate, as mandates generally involve a standing authority or means of control over the client’s accounts or assets.

Takeaway: A mandate exists when a firm can control a client’s assets held by a third party through means like login credentials.

Correct: Under the Financial Services and Markets Act 2000, a firm must have the specific Part 4A permission to hold or control client money to trigger CASS 7. When a firm deals in investments as an agent and receives money from clients for the purpose of carrying out transactions, that money is classified as client money and must be protected through segregation and trust status as required by the FCA.

Incorrect: Providing advice on complex derivatives does not involve the physical or legal possession of client funds and therefore does not fall within the scope of CASS 7. The strategy of accepting funds as a credit institution under the banking exemption means the money is held as a deposit rather than client money, exempting it from CASS 7 requirements. Simply arranging deals without taking possession of funds fails to trigger client money obligations because the firm never handles the money directly.

Takeaway: CASS 7 obligations are triggered when a firm with the relevant FCA permission receives or holds money on behalf of a client during regulated activities.

Correct: For a firm to hold client money in connection with investment business, it must specifically have the permission to hold and control client money granted by the FCA. This permission ensures the firm is subject to the CASS 7 rules, which require the strict segregation of client funds from the firm’s own money to protect clients in the event of firm insolvency.

Incorrect: The strategy of seeking permission for accepting deposits is incorrect because this applies to credit institutions and banks, which operate under the banking exemption rather than CASS 7. Focusing only on safeguarding and administering assets is insufficient as this permission relates to the custody of non-cash assets under CASS 6. Opting for trustee permissions for authorised unit trusts is a specialized role that does not grant the general authority required for an investment firm to hold retail client cash balances during the trade execution process.

Takeaway: Firms must obtain specific FCA permission to hold and control client money to operate under the CASS 7 regime.

Correct: Under the FCA’s SYSC rules and CASS 1A, a firm must have robust governance and oversight. The individual assigned the CASS operational oversight function (often under SMF Prescribed Responsibility z) is responsible for ensuring that the firm’s systems and controls are sufficient to safeguard client money and assets. This includes the ongoing monitoring of these systems and the duty to escalate material failures or risks to the firm’s board or governing body to ensure timely remediation.

Incorrect: The strategy of delegating the entire oversight function to an external auditor is incorrect because, under the Senior Managers and Certification Regime (SM&CR), accountability for CASS compliance cannot be outsourced to a third party. Focusing only on the CASS Resolution Pack is a narrow approach that fails to address the broader requirement for operational control over daily reconciliations and asset safeguarding. Choosing to limit oversight to IT infrastructure ignores the significant risks associated with manual processes and record-keeping, which must also fall under the Senior Manager’s holistic oversight to satisfy SYSC requirements.

Correct: Under CASS 7, a firm is permitted to use prudent segregation to pay its own money into a client bank account to prevent shortfalls. To do this legally, the firm must have a clear, written policy and maintain records that explain the rationale for the amount held. Once the money is paid into the client bank account, it is treated as client money and is subject to the statutory trust, providing protection for the clients in the event of the firm’s insolvency.

Incorrect: The strategy of applying the banking exemption is incorrect because this exemption only applies to authorized credit institutions and does not relate to the mechanics of prudent segregation for investment firms. Choosing to exclude these funds from the statutory trust would violate the core principle that all money in a client bank account must be protected for the benefit of clients. Focusing only on professional clients is a misconception, as prudent segregation is a firm-wide safeguarding tool that can be applied to accounts holding money for any client type, provided the record-keeping and policy requirements are met.

Takeaway: Prudent segregation requires a formal policy and detailed record-keeping to proactively protect client money from potential shortfalls within the statutory trust structure.

Correct: Under FCA Conduct of Business Sourcebook (COBS) rules, a firm must provide a professional client with a written basic agreement setting out the essential rights and obligations. For the agreement to be legally enforceable and compliant with regulatory standards, the firm should ensure the client has signed or otherwise accepted the terms in writing to demonstrate mutual assent.

Incorrect: Relying on implied acceptance through trading activity is insufficient because COBS specifically mandates a written agreement for professional clients to ensure clarity of terms. The strategy of treating written agreements as a mere recommendation is incorrect, as the FCA requires these documents to safeguard the interests of both the firm and the client. Opting for a unilateral deemed consent notice does not meet the standard for establishing a bilateral contract for investment services where specific rights and obligations must be agreed upon.

Takeaway: Firms must establish written, accepted agreements with professional clients to ensure legal enforceability and compliance with FCA COBS requirements regarding client assets and services.

Correct: Principle 10 (Clients’ assets) is the specific high-level standard within the FCA Handbook that mandates firms to arrange adequate protection for client assets. While other principles provide a broader framework for conduct and governance, Principle 10 is the direct regulatory hook for the CASS rules. It ensures that the fundamental obligation to safeguard client property remains enforceable as a core duty of the firm.

Incorrect: Focusing only on Principle 6 is insufficient because, while it requires firms to treat customers fairly, it does not specifically address the technical safeguarding of assets. Relying solely on Principle 3 is incorrect as this principle deals with general organisational systems and risk management rather than the specific fiduciary duty toward client property. Choosing Principle 8 is misplaced because it focuses on identifying and managing conflicts between the firm and its clients rather than the physical or legal protection of the assets themselves.

Takeaway: Principle 10 provides the fundamental regulatory requirement for firms to safeguard and protect client assets under the FCA high-level standards.

Correct: Under COBS 6.1.7R, if a firm holds client assets with a third party outside the UK, it must inform the client that their assets may be subject to a different legal and regulatory regime. This disclosure is vital because the rights of the client in the event of a sub-custodian’s insolvency may be less effective than those provided under the UK’s domestic trust-based regime.

Incorrect: The strategy of providing a guarantee of identical protection is incorrect because legal frameworks for property rights and insolvency vary significantly between jurisdictions and such a guarantee would be misleading. Opting for a notification of exemption is a failure to recognize that the firm’s obligations under CASS 6 remain in force regardless of where the assets are held. Relying on the provision of a foreign regulator’s legal opinion is not a standard disclosure requirement and misrepresents the firm’s duty to conduct its own risk assessment and provide clear risk warnings to the client.

Takeaway: Firms must explicitly disclose to clients when assets are held overseas and explain that different legal and regulatory regimes will apply.

Correct: Under the FCA’s CASS 6 rules, firms are required to ensure that legal title to safe custody assets is registered in a way that distinguishes them from the firm’s own assets. This is typically achieved by registering the title in the name of the client or a nominee company. This structure supports the UK’s trust-based regime, ensuring that if the firm becomes insolvent, the assets are clearly identified as belonging to the client and are not available to the firm’s general creditors.

Incorrect: Choosing to register assets in the firm’s own name for administrative ease fails to provide the necessary segregation required to protect clients during insolvency. Relying on the assumption that only the client’s name is permitted ignores the established legal framework in the UK that allows for the use of nominee companies. Opting for a model where a regulator holds legal title misinterprets the statutory role of the Prudential Regulation Authority, which does not provide custodial services for private clients.

Takeaway: Firms must ensure legal title to safe custody assets is registered in the client’s or a nominee’s name to maintain segregation.

Correct: Under CASS 7.11, a secondary pooling event occurs when a third party, such as a bank where client money is held, fails. In this situation, the client money held in accounts at that specific failed institution is pooled separately from money held at other banks. Any loss resulting from the bank’s insolvency is then shared pro-rata (rateably) among the clients who had an entitlement to the money held at that specific institution at the time of the failure.

Incorrect: The strategy of triggering a primary pooling event is incorrect because that specific mechanism is reserved for the failure of the firm itself, not the failure of a third-party bank. Choosing to use firm capital to cover the shortfall is not a requirement under the CASS pooling rules, which are designed to allocate losses among the relevant clients. Relying on the Financial Services Compensation Scheme to dictate the firm’s internal accounting and pooling obligations is a misconception of the firm’s immediate duties to reconcile and allocate losses under the CASS framework.

Takeaway: A secondary pooling event occurs when a third-party bank fails, causing losses to be shared pro-rata among the affected clients only.

Correct: The Financial Services Compensation Scheme (FSCS) is established under the Financial Services and Markets Act 2000 to provide a safety net for customers of authorised financial services firms. It covers eligible claimants, primarily retail individuals and small businesses, up to a specific statutory limit (currently 85,000 GBP for investment claims) when a firm is in default and cannot return client money or assets.

Incorrect: The strategy of assuming all assets are returned in full ignores the statutory limits and eligibility criteria that restrict who can claim and how much they can receive. Relying on the idea that compensation is triggered by a simple rule breach is incorrect, as the FSCS only pays out when a firm is in default and unable to meet its liabilities. Choosing to believe the scheme is government-funded or replaces CASS reconciliation requirements is a fundamental misunderstanding, as the scheme is funded by levies on the industry and does not exempt firms from their ongoing regulatory obligations to safeguard assets.

Takeaway: The FSCS provides limited compensation to eligible claimants only when an authorised firm is in default and cannot return client assets.

Correct: In the UK, the trust regime is a fundamental concept where legal title and beneficial ownership are split. The firm (or a nominee company) holds the legal title to facilitate settlement and administration, but the client remains the beneficial owner. This separation is crucial because it ensures that, in the event of the firm’s insolvency, the assets are not treated as part of the firm’s general estate and are protected for the client.

Incorrect: Describing a situation where the firm takes full ownership and creates a debt obligation describes a banking or deposit-taking model rather than a trust arrangement. Suggesting the client retains both legal and beneficial title ignores the practical necessity of nominee accounts in modern settlement systems. Claiming the regulator holds legal title is incorrect as the FCA acts as a supervisor and does not take possession or legal ownership of client assets.

Takeaway: Trust law protects clients by separating legal title held by the firm from the beneficial ownership retained by the client.

Correct: Under CASS 7, the internal reconciliation (often called the client money calculation) is designed to ensure that the firm’s internal records of what it owes to clients match its internal records of the money it holds in client bank accounts. The external reconciliation (the client money resource check) is a separate control that ensures the firm’s internal records of the balances held at third-party banks are accurate by comparing them to the actual statements or data provided by those banks.

Incorrect: Relying on reconciliations primarily for tax calculations or fraud detection misinterprets the fundamental safeguarding purpose of the CASS regime. The strategy of focusing on client identity or corporate capital adequacy confuses client money rules with separate KYC and prudential requirements. Opting to perform internal reconciliations only after a breach occurs or using external reconciliations for corporate liquidity monitoring ignores the mandatory periodic nature of these controls and their focus on client, rather than firm, assets.

Takeaway: Internal reconciliations check internal record consistency, while external reconciliations verify those internal records against independent third-party bank data.

Correct: Under the UK regulatory regime, when an authorised investment firm that is not a bank holds client money, it must do so under the CASS statutory trust. This means the firm holds the legal title as a trustee, while the client retains beneficial ownership. In contrast, a credit institution (bank) usually operates under the banking exemption, where the money is held as a deposit. In this scenario, a debtor-creditor relationship is formed, and the funds are not subject to the CASS 7 trust rules.

Incorrect: The idea that all firms must use the statutory trust fails to account for the banking exemption which allows credit institutions to treat funds as deposits rather than trust money. Claiming that investment management permissions for professional clients provide an automatic exemption from trust requirements is a misunderstanding of how CASS applies to firms holding client money. The suggestion that credit institutions must always segregate funds at third-party banks is incorrect because banks are permitted to hold client money on their own balance sheet as deposits.

Takeaway: Investment firms hold client money as trustees under CASS 7, while banks typically hold funds as deposits under the banking exemption. Trust law is fundamental to the UK’s client money regime for non-bank firms, ensuring client funds are protected from the firm’s general creditors in the event of insolvency. This distinction is a core component of the FCA’s approach to safeguarding client assets and maintaining market confidence within the UK financial system.

Correct: According to CASS 7.10.7R and 7.10.9G, a firm and a professional client may agree that money received by the firm is not to be treated as client money. For this to be valid, there must be a written agreement between the firm and the client. Furthermore, the firm must notify the professional client in writing of the consequences of such an agreement, specifically that the money will not be held in accordance with the client money rules and will not be protected under the trust regime, meaning the client ranks as a general creditor in the event of the firm’s insolvency.

Incorrect: The strategy of seeking individual approval from the Financial Conduct Authority is incorrect because the regulator does not provide case-by-case permissions for these contractual arrangements. Focusing only on eligible counterparties is a misunderstanding of the rules, as the opt-out is explicitly available to professional clients under the CASS framework. Choosing to continue daily reconciliations and segregation for these funds is contradictory to the nature of the opt-out, which establishes a debtor-creditor relationship where the firm takes full legal and beneficial title to the money.

Takeaway: Professional clients may opt out of client money protections via a written agreement that includes a clear disclosure of the risks.

Correct: The Stocks and Shares ISA is a tax-advantaged wrapper specifically designed in the UK to encourage saving. It ensures that any interest, dividends, or capital gains earned on investments held within the account are not subject to UK Income Tax or Capital Gains Tax. In contrast, assets held directly in an OEIC are subject to the standard UK tax regime, meaning the investor may be liable for tax once their personal allowances for dividends, interest, or capital gains are exceeded.

Incorrect: The strategy of claiming that both wrappers provide a total exemption from Stamp Duty Reserve Tax is inaccurate because SDRT is often an internal cost within fund structures or applies to specific share purchases. Opting for the view that ISA gains are deferred and taxed as income upon withdrawal incorrectly applies the tax rules of pension schemes or offshore life bonds to the ISA regime. Focusing only on the idea that all dividend income from direct holdings is tax-free fails to account for the UK dividend allowance and the tax liabilities faced by higher or additional rate taxpayers.

Takeaway: ISAs provide a tax-free environment for income and gains, while direct OEIC investments remain subject to standard UK personal taxation.

Correct: Under the FCA’s CASS 6 (Custody Rules), a firm must take the necessary steps to ensure that any client asset is identifiable from the firm’s own assets. This is achieved by registering the legal title in the name of the client, a nominee company (often a subsidiary of the firm), or a third-party custodian. This segregation is a fundamental requirement of the UK’s trust-based regime for asset protection.

Incorrect: The strategy of registering assets in the firm’s own name for administrative ease is generally prohibited under CASS 6 to prevent the commingling of firm and client assets. Suggesting that assets should be registered with a central nominee service provided by the FCA is incorrect, as the regulator does not provide such a service. Opting to register legal title with the Prudential Regulation Authority is also incorrect, as the PRA is a regulator and does not act as a custodian or nominee for client assets.

Takeaway: Firms must register client assets in a manner that ensures they are legally identifiable and segregated from the firm’s own corporate assets.

Correct: Under CASS 6, a firm must ensure that legal title to client assets is registered in the name of the client or a nominee company. Using a nominee company that is controlled by the firm or a member of its group provides the necessary legal segregation from the firm’s own proprietary assets. This structure ensures that while the nominee holds the legal title, the client remains the beneficial owner, which is a fundamental concept of the UK trust regime.

Incorrect: Registering assets in the firm’s own name is a breach of CASS rules as it fails to provide legal segregation between client and firm assets. The strategy of relying only on internal ledgers is insufficient because legal title for UK equities must be formally recorded on the issuer’s register or through a central securities depository like CREST. Opting to register assets in the name of an individual officer is not a recognized or compliant method for holding client assets and fails to provide the institutional protections required by the FCA.

Takeaway: Legal title to UK client assets must be registered in the name of a nominee company to ensure segregation from firm assets.

Correct: Under the FCA’s CASS Sourcebook, firms that have the Part 4A permission for safeguarding and administration of assets are subject to CASS 6. This regulated activity involves both the physical or electronic holding of the asset and the administration of the rights associated with it, necessitating strict adherence to custody rules to protect client interests.

Incorrect: Relying on the assumption that using a nominee company provides an exemption from CASS 6 is incorrect, as the use of a nominee is a method of holding title that still falls within the scope of safeguarding. Simply applying CASS 5 is inappropriate because that chapter is specifically designed for insurance distribution activities rather than investment custody. The strategy of claiming a banking exemption is fundamentally flawed because that exemption only applies to credit institutions and not to investment firms expanding their administrative permissions.

Takeaway: Holding the Part 4A permission for safeguarding and administration of assets triggers the application of CASS 6 custody rules.