Chapter 6



When an investor uses the services of an investment firm it will clearly expect that the firm will make appropriate arrangements to ensure that any investments held with it are adequately safeguarded.

Many investment firms will use the services of a custodian to achieve this. A custodian will undertake the safekeeping of assets given to its control and arrange to settle trades, collect dividends and interest and manage corporate actions on the underlying investment portfolio.

In this chapter, we will look at the rules surrounding the safeguarding of a client's investments, the services provided by custodians and how a firm should select a custodian and review their ongoing suitability.


Under FSA rules an investment firm is expected to arrange protection for client assets where it has responsibility for them.

This is enshrined in FSA Principle 10, which states: ‘A firm must arrange adequate protection for clients’ assets when it is responsible for them'.

The detailed rules are contained in CASS, the Client Assets Sourcebook, and their purpose is to minimise the risk that the client's assets could be used by the firm without the client's knowledge or that they could be treated as the firm's assets in the event of insolvency.

Assets is a term used to include not just quoted investments but any other investment that a client might hold, including items as diverse as passbooks for savings accounts, national savings certificates, ...

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