CASS 15.6 Selection and appointment of third parties

1. (1) A safeguarding institution must exercise all due skill, care and diligence:

2. (a) in the selection, appointment, and periodic review of third parties that provide:

3. (i) accounts where relevant funds are received, deposited or otherwise held;

4. (ii) accounts where relevant assets are deposited or otherwise held; or

5. (iii) insurance or a guarantee for the purpose of the insurance or guarantee method; and

6. (b) in the arrangements for the holding or protection of relevant funds or relevant assets.

7. (2) The safeguarding institution must consider the need for diversification as part of its due diligence under (1).

Safeguarding institutions should ensure that their consideration of a third party focuses on the specific legal entity in question and not simply that person'sgroup as a whole.

1. When a safeguarding institution makes the selection, the appointment and conducts the periodic review of a third party, it must take into account:

2. (1) the expertise and market reputation of the third party with a view to ensuring the protection of clients' rights; and 

3. (2) any legal or regulatory requirements or market practices relating to the holding of relevant funds or relevant assets or the provision of insurance or a guarantee that could adversely affect clients' rights.

1. In complying with CASS 15.6.3R, a safeguarding institution should consider, as appropriate, together with any other relevant matters:
2. (1) the capital of the third party;
3. (2) the amount of relevant funds or relevant assets placed, insured or guaranteed as a proportion of the third party’s capital and (where relevant) deposits;
4. (3) the extent to which relevant funds or relevant assets that the safeguarding institution deposits or holds with any third party would be protected under a deposit protection scheme or other compensation scheme;
5. (4) the creditworthiness of the third party;
6. (5) to the extent that the information is available, the level of risk in the investment and loan activities undertaken by the third party and affiliated companies; and
7. (6) the arrangements referred to in CASS 15.2.1R (Protection of relevant funds).

A safeguarding institution must:

1. (1) periodically review whether it is appropriate to diversify (or further diversify) the third parties with which it deposits, holds, invests, insures or guarantees some or all of the relevant funds it is required to safeguard; and

2. (2) whenever it concludes that it is appropriate to do so, make adjustments accordingly to the third parties it uses and to the amounts of relevant funds or relevant assets deposited or held with them or covered by them.

In complying with the requirement in CASS 15.6.5R to periodically review whether diversification (or further diversification) is appropriate, a safeguarding institution should have regard to:

1. (1) whether it would be appropriate to deposit relevant funds in relevant funds bank accounts opened at a number of different approved banks;

2. (2) whether it would be appropriate to limit the amount of relevant funds or relevant assets the safeguarding institution holds with third parties that are in the same group as each other;

3. (3) whether risks arising from the safeguarding institution's business model create any need for diversification (or further diversification);

4. (4) the market conditions at the time of the review;

5. (5) the outcome of any due diligence carried out in accordance with CASS 15.6.1R; and

6. (6) the arrangements referred to in CASS 15.2.1R (Protection of relevant funds).

• (1) A safeguarding institution must make a record of:

(a) the grounds upon which it satisfies itself as to the appropriateness of its selection and appointment of a third party under CASS 15.6.1R;

(b) each periodic review of its selection and appointment of a third party under CASS 15.6.1R, its considerations and conclusions; and

(c) each periodic review that it conducts under CASS 15.6.5R, its considerations and conclusions.

• (2) A record under (1) must be made on the date the selection is made or the review completed (as the case may be).