We have seen prime brokers and custodians reaching out to clients in order to amend existing terms of business, PBAs and custody agreements to align them with the new CASS rules coming into force on 1 June 2015. The changes include:
- allowing counterparties to transfer client money to third parties in a business transfer situation;
- clarifications relating to firms dealing with allocated but unclaimed client money and custody assets;
- clarifications regarding firms holding custody assets with third parties or in non-EEA jurisdictions (including limiting liability for such third parties); and
- providing appropriate disclosures to clients as required by the COBS rules of the FCA handbook.
These changes are largely operational and should not have an impact on day-to-day trading. However, some institutions used the guise of new CASS rules coming into force as an opportunity to introduce non-CASS related changes to the existing agreements, including introducing clauses that deal with FATCA and amendments to previously negotiated commercial terms. Care must be taken when reviewing the changes to ensure that: (1) CASS related changes reflect the updated CASS rules; and (2) other amendments are not agreed to without appropriate commercial negotiation taking place.