The FSA has proposed changes to CASS 6 & 7, ‘Custody Rules’ and ‘Client Money Rules’ respectively.

The FSA believe that the only types of firm that these changes will impact upon are spread betting and CFD providers which use certain provisions to remove retail clients’ monies from client money protection.

The ‘title transfer collateral arrangements’ (TTCA) rules in CASS 6 & 7 mean that neither the custody rules not the client money rules apply when a client transfers full ownership of a safe custody asset or client money to a firm to cover future, actual or contingent obligations.

The proposal is that these sort of arrangements will not be allowed in respect of retail clients. As such, firms currently using TTCA with retail clients will either have to consider the feasibility of re-categorising them as elective professionals or else retain them as retail clients and segregate their money and assets accordingly in line with the requirements of CASS 6 & 7. Such firms will also have to consider whether there is any restriction on holding client money on their Part IV permissions.

The FSA also comment (s8.18) that some spread betting and CFD providers are incorrectly using the ‘money due and payable to the firm’ provisions (see CASS 7.2.9) inappropriately.

The proposed new rules can be found in Appendix 8 of the QCP.

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