Central Securities Depository Regulation - Private Bank UK

The CSD regulation level 1 text came into force 2014. Note that direct CSD participants are not mandated to offer their clients an Individual Segregated Client Account until the Central Securities Depository is authorised by the national competent authority in the jurisdiction of the CSD, for Clearstream Luxembourg this is currently expected to happen in Q1 or Q2 2020.

Central Securities Depositories Regulation (CSDR) Factsheet. What is the CSDR?

The CSDR is a European Union regulation that governs how a Central Securities Depository (CSD) and its participants operate. A CSD is responsible for custody, control and legal ownership of securities. Barclays Bank Plc is a participant of Clearstream Banking S.A. Luxembourg, an EU-based CSD, and hence must comply with the regulation. As a result, we must offer customers the option to hold their fund investments in an Individual Client Segregated Account at Clearstream Banking S.A., Luxembourg. The current default is to hold client fund investments in an Omnibus Client Segregated Account (also known as a pooled account).

The different types of custody are illustrated below:

Omnibus client segregated account

This account type is used to hold the securities of a number of clients on a pooled basis with client holdings recorded under a single account for a business. As such, each client is normally considered to have a beneficial interest in all of the securities in the relevant account proportionate to its holding of securities. Our books and records constitute evidence of our clients’ beneficial interests in the relevant securities. Client holdings are segregated from the holdings of other Barclays businesses and we do not hold our own proprietary securities in Omnibus Client Segregated Accounts.

Individual client segregated account

This account type is used to hold the securities of a single client and therefore the client’s securities are held separately from the securities of other clients and our own proprietary securities. As such, each client is beneficially entitled to all of the securities held in their account.

What does this mean for you?

You can now request to hold any fund holdings (also known as collective investment schemes or fund securities) that are held with Clearstream Banking S.A., Luxembourg eligible assets, in an Individual Client Segregated Account. There will be no change to the way your investments are managed. You can elect to return to pooled custody at any time. All other asset types you hold (such as shares in specific companies) would remain in an Omnibus Client Segregated Account.

What are the costs?

If you opt to hold your eligible assets in an Individual Client Segregated Account, there will be an additional quarterly fee initially set at £1950 (or currency equivalent) to reflect the additional operational costs of an Individual Client Segregated Account. If you were to leave or join the service part way through a quarter, the fee would be charged on a monthly pro-rata basis. If you opt to hold your eligible assets in an Individual Client Segregated Account, we will advise you on how and when you will be charged any fees.

What are the risks, levels of protection, and legal implications of each custody account type?

The three main areas for consideration when comparing use of an Individual Client Segregated Account against an Omnibus Client Segregated Account are outlined below.

Further details can be found on our website under ‘CSDR’.

Consideration	Commentary
Insolvency	Were we to become insolvent, insolvency proceedings would take place in England under English Insolvency Law. Clients’ legal entitlement to securities that we hold directly with CSDs would not be affected by our insolvency whether an Individual Client Segregated Account or Omnibus Client Segregated Account is selected. For an Individual Client Segregated Account the client is beneficially entitled to all the securities in the account. For Omnibus Client Segregated Account, each client is considered to have a beneficial interest in all the securities in the account proportionate to its holding of securities.
Shortfalls	Shortfalls may arise from administrative errors, intraday movements or counterparty default. For Omnibus Client Segregated Accounts only, they may also arise from securities of one client being used by another client to settle an intraday position, in accordance with agreed contractual terms (see the note below). The whole of a shortfall on an Individual Client Segregated Account is attributable to that client because that client is beneficially entitled to all the securities in the account. For an Omnibus Client Segregated Account, the shortfall is shared among clients with an interest in the security because each client has a beneficial interest in all of the securities proportionate to its holding of securities. Firms are required to have processes in place to mitigate the risk of shortfalls by ensuring that sufficient cash or securities are held over client obligations. Note: Where a client has insufficient securities held with us to carry out a settlement, we generally have two options: (i) in the case of both an Individual Client Segregated Account and an Omnibus Client Segregated Account, to only carry out the settlement once the client has delivered to us the securities needed to meet the settlement obligation; or (ii) in the case of an Omnibus Client Segregated Account, to make use of other securities held in that account to carry out settlement subject to an obligation on the part of the relevant client to make good that shortfall and subject to any relevant client consents required. We would use option (ii) in accordance with agreed contractual terms. Only option (i) is available to an Individual Client Segregated Account, therefore the risk of settlement failure may be higher for an Individual Client Segregated Account, which may in turn incur additional buy-in costs or penalties and/or delay settlement.
Security Interests	Securities held in an Individual Client Segregated Account or Omnibus Client Segregated Account could be used if the CSD benefits from a security interest over securities held for a client potentially causing a delay in returning assets to a client or a shortfall. The client asset rules of the UK Financial Conduct Authority (CASS Rules) restrict situations when this can happen.

Consideration

Commentary

Insolvency

Were we to become insolvent, insolvency proceedings would take place in England under English Insolvency Law.
Clients’ legal entitlement to securities that we hold directly with CSDs would not be affected by our insolvency whether an Individual Client Segregated Account or Omnibus Client Segregated Account is selected.
For an Individual Client Segregated Account the client is beneficially entitled to all the securities in the account. For Omnibus Client Segregated Account, each client is considered to have a beneficial interest in all the securities in the account proportionate to its holding of securities.

Shortfalls

Shortfalls may arise from administrative errors, intraday movements or counterparty default. For Omnibus Client Segregated Accounts only, they may also arise from securities of one client being used by another client to settle an intraday position, in accordance with agreed contractual terms (see the note below).
The whole of a shortfall on an Individual Client Segregated Account is attributable to that client because that client is beneficially entitled to all the securities in the account. For an Omnibus Client Segregated Account, the shortfall is shared among clients with an interest in the security because each client has a beneficial interest in all of the securities proportionate to its holding of securities.
Firms are required to have processes in place to mitigate the risk of shortfalls by ensuring that sufficient cash or securities are held over client obligations.

Note: Where a client has insufficient securities held with us to carry out a settlement, we generally have two options:

(i) in the case of both an Individual Client Segregated Account and an Omnibus Client Segregated Account, to only carry out the settlement once the client has delivered to us the securities needed to meet the settlement obligation; or

(ii) in the case of an Omnibus Client Segregated Account, to make use of other securities held in that account to carry out settlement subject to an obligation on the part of the relevant client to make good that shortfall and subject to any relevant client consents required. We would use option (ii) in accordance with agreed contractual terms.

Only option (i) is available to an Individual Client Segregated Account, therefore the risk of settlement failure may be higher for an Individual Client Segregated Account, which may in turn incur additional buy-in costs or penalties and/or delay settlement.

Security Interests

Securities held in an Individual Client Segregated Account or Omnibus Client Segregated Account could be used if the CSD benefits from a security interest over securities held for a client potentially causing a delay in returning assets to a client or a shortfall. The client asset rules of the UK Financial Conduct Authority (CASS Rules) restrict situations when this can happen.

Article 38(6) CSDR Disclosure

For details of the Article 38(6) Disclosure, please download the PDF document [PDF, 225KB]