CL-3.1.1

An investment firm licensee must take care to establish and maintain appropriate systems and controls when it receives or holds assets as collateral in connection with securing a client obligation to it.

CL-3.1.2

The purpose of this section is to ensure that an appropriate level of protection is provided for those client assets over which a client gives an investment firm licensee the right to use, subject only to an obligation to return equivalent assets to the client upon satisfaction of the client's obligation to the investment firm licensee.

CL-3.1.3

This section does not apply to an investment firm licensee that has only a bare security interest (without rights to hypothecate) in the client asset. In such circumstances, the investment firm licensee should comply with the custody rules or client asset protection rules as appropriate.

CL-3.1.4

For the purpose of this section only, a bare security interest in the client's asset gives an investment firm licensee the right to realise the assets only on a client's default and without the right to use those assets other than in default.

CL-3.1.5

Differing levels of regulatory protection to the assets form the basis of the two different types of arrangement described in CL-3.1.2 and CL-3.1.3. Under the bare security interest arrangement, the asset continues to belong to the client until the investment firm licensee's right to realise that asset crystallises. But under a "right to use arrangement", the client has transferred to the investment firm licensee the legal title and associated rights to the asset, so that when the firm exercises its right to treat the asset as its own, the asset ceases to belong to the client and in effect becomes the investment firm licensee's asset and is no longer in need of the full range of client asset protection rules.

CL-3.2.1

An investment firm licensee may only permit a client's collateral to be held by a third party where:

CL-3.2.2

Before an investment firm licensee deposits client assets with a third party it must notify the third party that:

CL-3.3.1

An investment firm licensee that receives or holds client assets under an arrangement in this Section and which exercises its right to treat the assets as its own must ensure that it maintains adequate records to enable it to meet any future obligations including the return of equivalent assets to the client.

CL-3.3.2

Detailed record-keeping requirements are contained in Module GR (General Requirements) and Module FC (Financial Crime).

Client Reports