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MiFID II 

Client assets 

01 December 2011

Impact

Red traffic light

Amber traffic light

High impact for firms taking title transfer of retail client assets

Medium impact for firms providing custody services

Other areas to consider

Client money

Current MiFID rules

Segregation: A firm has a duty when holding financial instruments belonging to a client to safeguard the client’s ownership rights, especially in the event of the firm’s insolvency, and to prevent the use of a client’s financial instruments on own account (except with the client’s express consent).

Exemptions from the requirement to segregate:

  • Title transfer arrangements where full ownership of funds and financial instruments has been transferred to a firm to cover any client obligations.
  • Where the firm carries on business in its own name on behalf of the client, where that is required by the very nature of the transaction and the client is in agreement.

Securities financing transactions:

  • A firm must not enter into arrangements for securities financing transactions in respect of financial instruments held on behalf of a client unless the client has given his prior express consent, and the use of the client’s financial instruments is restricted to the specified terms to which the client has consented.
  • Firms are required to provide retail clients with clear, full and accurate information on the terms of the use of the financial instruments and the relevant risk.

MiFID Level 1 Directive Arts: 13(7), Recitals 26 and 27

MiFID Level 2 Directive Arts: 17 and 19

FSA rules

CASS 6

Proposed changes
Draft Directive
Recital (37)
Articles 16(10) and 24(3)

In response to recent cases where ownership of assets has been disputed as a result of poor rules/practices, the draft Directive proposes that title transfer arrangements are prohibited when dealing with retail client assets.

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