Chapter 5: Client Disclosure and Consent  

Information to be provided to clients in the terms of business

  1. Regulation 59 of the Client Asset Requirements (CAR) sets out the minimum information that an investment firm must disclose to clients or potential clients in its terms of business. The information to be provided in the terms of business should be drafted as concisely as possible, to enable the clients to make informed decisions. Additional information should be disclosed if deemed necessary (e.g., if there is a specific service, function or risk unique to the investment firm’s business that the provisions required under Regulation 59 of the CAR do not cover).
  2. The terms of business should be specific to the services and/or activities carried out on behalf of the client.
  3. The reference to “prior to first receiving client assets” in Regulation 59 of the CAR refers to the initial receipt of client assets from the client and not to each time an investment firm receives client assets from the same client. Investment firms should ensure that the information specified in Regulation 59 of the CAR is provided to a client or potential client prior to that client depositing client assets with the investment firm for the first time.
  4. In the event of a material change to the information set out in the terms of business, an investment firm should advise the client in writing of the changes and provide the client with an updated version as soon as possible.
  5. In addition to the requirements set out in Regulation 59, an investment firm should include detail on the following in the terms of business:
    • The process the firm follows with respect to scenarios described in Regulation 50(6) and 51(8) of the CAR;
    • Where applicable, relevant terms relating to the termination of any Title Transfer Collateral Arrangements (TTCA) including the period of time the investment firm may reasonably require, following termination of a TTCA, in order to:
      • Return the client assets to the client; and
      • In the case of a client financial instrument, to update the registration of that client financial instrument in accordance with Regulation 51 of the CAR;
    • Summary details of any relevant investor compensation or deposit guarantee scheme which applies to the firm by virtue of its activities in a Member State as required under Article 47(1)(g) of the Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 (MiFID II Delegated Regulation);
    • The treatment of negative interest; and
    • The treatment of fractional shares.

    Client assets key information document

  6. An investment firm should document in its Client Asset Management Plan (CAMP) the durable medium it will use to provide the Client Assets Key Information Document (CAKID) to retail clients prior to those clients signing an investment agreement to open an account with an investment firm.
  7. An investment firm should be able to demonstrate, when requested to do so, evidence that it provided the CAKID to a retail client prior to that retail client signing an investment agreement to open an account with an investment firm.
  8. In addition to providing the CAKID to retail clients before the outset of the relationship, an investment firm should also make the CAKID available on its website. An investment firm should include in its regular reporting (e.g. in the statement of client financial instruments or client funds required under Regulation 61 of the CAR) to retail clients, a disclosure that the CAKID is available on its website, together with the relevant hyperlink.
  9. An investment firm should provide a written notification in durable medium to its retail clients where there is any material change to the CAKID.
  10. An investment firm that provides its clients with access to an online system, which qualifies as a durable medium, where up-to-date information can be easily accessed by the client on a daily basis, and where clients are directly notified of any such updates, may deliver the notification to clients described in paragraph 9 by way of that online system.
  11. The Head of Client Asset Oversight (HCAO) should ensure that the board is informed of any material changes to the contents of the CAKID and approves the CAKID on at least an annual basis.

    Format and content of the CAKID

  12. The Central Bank does not intend to provide a CAKID template.
  13. The content of the CAKID should be tailored to suit the model of the investment firm and services offered to its retail clients. The CAKID should be considered a “living document” and investment firms should review the CAKID at least on an annual basis to ensure it is accurate. Amendments to the CAKID may be warranted in light of new legislative initiatives or changes in an investment firm’s business model.
  14. Key terms used in the CAKID should be defined to assist the retail client in fully understanding the document.

    The key features of the regulatory regime that applies to the safeguarding of client assets

  15. The CAKID should reference the CAR, any relevant EU (e.g. MiFID) and domestic legislation and applicable guidance relating to the safeguarding of client assets to which the investment firm is subject when holding client assets.
  16. An investment firm should provide an explanation of the key protections afforded by the CAR and relevant EU and domestic legislation, using plain English to the greatest extent possible. Legislative references and/or hyperlinks to the relevant EU and domestic legislation and guidance should also be provided.
  17. The CAKID should outline any relevant investor compensation or deposit guarantee scheme(s) that apply to the investment firm by virtue of its activities, as well as referring to the applicable legislation.
  18. An investment firm should also point out that, while the purpose of the CAR and relevant EU and domestic legislation is to regulate and safeguard the handling of client assets, it can never fully eliminate all risks to client assets (e.g. fraud and negligence).

    What constitutes clients assets under the regulatory regime that applies to the safeguarding of client assets

  19. The investment firm should provide a brief explanation in the CAKID of what constitutes a client asset in the context of the CAR and relevant EU legislation, using plain English to the greatest extent possible. This should include an explanation of the terms “client financial instrument” and “client funds”, as applicable.
  20. The investment firm should also explain that the CAR seeks to safeguard clients’ ownership of their assets but not the inherent value of those assets.

    The circumstances in which the regime that applies to the safeguarding of client assets applies and does not apply

  21. An investment firm should indicate in the CAKID the products and services it offers to retail clients and in each case indicate whether they fall within or outside the scope of the CAR and relevant EU legislation. Such arrangements should be explained in plain English and include a rationale as to why the regime that applies to the safeguarding of client assets does or does not apply.
  22. An investment firm should include an explanation of the following circumstances, where relevant, in the CAKID:
    • Where assets that it may hold on behalf of a client do not constitute client assets under the CAR and relevant EU legislation (e.g. money to which a client is beneficially entitled that relates exclusively to an activity of the investment firm which is not a regulated financial service).
    • Where the CAR and relevant EU legislation does not apply (e.g. a credit institution which relies on paragraph 3(2) of Schedule 3 to the MiFID Regulations (i.e. avails of the MiFID banking exemption) should explain in the CAKID that clients’ money is held as a deposit by the credit institution in accordance with Directive 2013/36/EU (Capital Requirements Directive) and not under the CAR).
    • Where assets may cease to be subject to the CAR and relevant EU legislation due to a specific arrangement (e.g. with the client’s consent, an investment firm enters into arrangements for Securities Financing Transactions (SFTs) in respect of client financial instruments held by the investment firm on behalf of a client, or otherwise uses such client financial instruments for its own account or the account of another client of the investment firm).

    The circumstances in which an investment firm will hold client financial instruments itself, deposit client assets with a third party and deposit client assets with a third party outside the State

  23. In respect of client financial instruments, an investment firm should indicate whether it holds client financial instruments itself, or deposits them with a third party.
  24. In respect of client funds, an investment firm should indicate the type of third party with whom client funds are deposited.
  25. The investment firm should also set out in the CAKID the basis on which the third party with whom client assets are deposited was selected (e.g. credit ratings) and indicate whether the third party is independent from the investment firm.

    The arrangements applying to the holding of client assets and the relevant risks associated with these arrangements

  26. With regard to the arrangements for holding client assets, an investment firm should set out and explain in the CAKID:
    • The relevant risks associated with its client asset arrangements, reflecting fully the risks to safeguarding client assets, specific to the investment firm’s business model and operational arrangements.
    • The relevant controls in place to mitigate the risks associated with the investment firm’s client asset arrangements such as:
      • The approach to segregating client assets;
      • The performance of due diligence;
      • The appointment of a HCAO.
  27. Investment firms’ should also make clients aware of the relevant risks in the event of firm failure.

    Further guidance on the contents of the CAKID

  28. While investment firms should include all relevant information required under Regulation 60(2)(a)-(d) of the CAR, it is expected that information relating to Regulation 60(2)(e) of the CAR “arrangements applying to the holding of client assets and the relevant risks associated with these arrangements” should form a material component of the CAKID.
  29. Where a component of the CAKID is only applicable to a subset of retail clients, this should be clearly explained, in order that clients can understand whether the disclosures set out in that specific component of the document are/are not relevant to them.
  30. The list of information to be included in the CAKID as set out in Regulation 60(2) of the CAR is not exhaustive and investment firms are encouraged to include any material, relevant additional information to assist a retail client in understanding the investment firm’s client asset arrangements, and the protections afforded to their assets while they held with the investment firm.

    Statement of client financial instruments or client funds

  31. Article 63 of the MiFID II Delegated Regulation sets out the minimum frequency (at least on a quarterly basis) at which investment firms are required to send a statement of client financial instruments and/or client funds, as relevant, to clients. Investment firms may also choose, at their own initiative to report to their clients on a more frequent basis.
  32. This requirement does not apply to a credit institution authorised under the Capital Requirements Directive in respect of deposits within the meaning of that Directive held by that institution.

    Client consent requirements

  33. Taking into account recital 10 of the Commission Delegated Directive (EU) 2017/593 of 7 April 2016 (MiFID II Delegated Directive), the Central Bank does not propose to set out the form in which the prior written client consent required by Regulation 63 of the CAR should be given.

    Securities financing transactions

  34. Investment firms entering into SFTs or otherwise using client financial instruments for their own account are reminded of their obligations under the MiFID II safeguarding of client asset rules. Such investment firms should have particular regard to the following:
    • Paragraph 4 of Schedule 3 to the MiFID Regulations;
    • Recitals 8, 9 and 10 of the MiFID II Delegated Directive; and
    • Articles 49(6), 49(7) and 63 of the MiFID II Delegated Regulation.
  35. Any cash or other collateral held in favour of a client as collateral for securities lending should be held in accordance with the CAR and the MiFID Regulations.

    Use of client financial instruments

  36. An investment firm entering into arrangements for SFTs or otherwise using client financial instruments should establish:
    1. Robust client asset systems and controls to ensure its compliance with the relevant provisions of the CAR and the MiFID II safeguarding of client asset rules; and
    2. Robust procedures to ensure that the investment firm undertakes daily monitoring of the continued appropriateness of collateral provided by the borrower of client financial instruments.

    An overview of these systems, controls and procedures should be included in the investment firms CAMP.

  37. Investment firms that enter into the arrangements described under paragraph 4 of Schedule 3 to the MiFID Regulations with retail clients, should only do so in the context of SFTs and should not otherwise use client financial instruments held on behalf of retail clients.
  38. The inclusion of general or broad terms which grant an investment firm the right to use a client’s financial instruments in agreements with clients is inappropriate (e.g. where an investment firm automatically obtains a client’s consent through furnishing the client with its standard terms of business). Retail clients in particular may be unaware of the increased risks to their assets resulting from such arrangements. An investment firm should maintain records to evidence that explicit client consent has been obtained for this purpose.
  39. Where an investment firm has not relied on a retail client’s consent to such use over the previous 12 months, an investment firm should seek to obtain renewed explicit consent from the retail client in advance of entering into an arrangement for which that client’s consent is required.
  40. Investment firms should review the retail client’s consent to such use on an annual basis to ensure that the necessary consent has been obtained and the investment firm’s use of a client’s financial instruments is restricted to the specified terms to which that client has consented.
  41. Where an investment firm has obtained (by way of client consent) the right to use client financial instruments for its own account but has not yet exercised that right, the investment firm should continue to treat those assets as client assets, until such time as the investment firm uses the client financial instrument for its own account and provides the client with appropriate collateral.
  42. An investment firm that has obtained client consent to use a client’s financial instrument for its own account (i.e. to treat the client financial instruments as its own) must ensure that it maintains adequate records to enable it to meet any future obligations, including providing appropriate collateral and returning the client financial instrument to the client.

    Title Transfer Collateral Arrangements

  43. Investment firms entering into TTCAs are reminded of their obligations under the MiFID II safeguarding of client asset rules. Such investment firms should have particular regard to following:
    • Paragraph 5 of Schedule 3 to the MiFID Regulations;
    • Recital 6, 7 and 8 of the MiFID II Delegated Directive; and
    • Article 63(2)(d) of the MiFID II Delegated Regulation.
  44. Assets that are subject to a TTCA do not constitute client assets, since title to the assets has been transferred to the investment firm.
  45. Regulation 67 of the CAR requires an investment firm to ensure that any TTCA is the subject of a written agreement between the investment firm and the client. The terms referred to in Regulation 67(2) of the CAR may include, for example, terms under which the arrangement relating to the transfer of full ownership of a client financial instrument to the investment firm is not in effect from time to time, or is contingent on some other condition.
  46. While the value of assets subject to TTCA should not be included in the market value of collateral to be included in the statement of client financial instruments or client funds under Regulation 61(1)(c) of the CAR, investment firms are reminded of the requirement in Article 63(2)(d) of the MiFID II Delegated Regulation to include a clear indication of the assets or funds that are subject to a TTCA in the statement to clients.

    Termination of Title Transfer Collateral Arrangements

  47. Regulation 68 of the CAR refers only to an investment firm's agreement to terminate an existing TTCA. This may not amount to the termination of the investment firm’s entire agreement with the client.
  48. When in accordance with Regulation 68 of the CAR, an investment firm notifies a client that the termination of a TTCA is to take effect, it should take into account:
    • Any relevant terms relating to such a termination that have been agreed with the client;
    • The period of time reasonably required to return the client assets to the client; and
    • Where the client assets are not immediately returned to the client, in the case of a client financial instrument, the need to update the registration of that client financial instrument in accordance with Regulation 52 of the CAR.
  49. Following the termination of a TTCA, where an investment firm does not immediately return the assets to the client, the investment firm should hold the assets on behalf of the client in accordance with the CAR (e.g. in the case of a financial instrument ensure it is captured in the client financial instrument calculation and reconciliation).

    Prime brokerage services

    Prime brokerage statement of client assets

  50. Regulation 69 of the CAR applies to an investment firm that holds client assets in the course of providing prime brokerage services to a client. In addition to the information specified in Regulation 69(3), an investment firm providing prime brokerage services should include the details of the client assets which form the basis of any SFT at the time of reporting, in the prime brokerage statement of client assets.
  51. The prime brokerage statement of client assets should be made available by the end of the next working day by reference to the end of day position of the previous working day.

    Prime brokerage client asset annex

  52. The prime brokerage client asset annex required under Regulation 70 of the CAR may serve as a summary to clients of any contractual provisions contained in the prime brokerage agreement as they relate to client assets.
  53. The information contained in the prime brokerage client asset annex should be set out in an accurate and succinct way, to enable the client to make informed decisions. Investment firms should ensure the prime brokerage annex is clear, fair and not misleading.
  54. The prime brokerage client asset annex should incorporate appropriate language to clarify that the contractual obligations between the client and the investment firm remain in the prime brokerage agreement.
  55. Investment firms should provide the client with an updated prime brokerage client asset annex if the terms of the prime brokerage agreement are amended in a material manner.
  56. When creating the prime brokerage client asset annex an investment firm should review existing prime brokerage agreements, including version control and ensure that the prime brokerage agreements are signed and dated.

    Information to be included in the terms of business

  57. With reference to the requirement in Regulation 59(1)(i) of the CAR, investment firms are not expected to consider all eventualities and requirements of a potential transfer of business at the time of entering into the terms of business. However, an investment firm should consider including the following provisions in the terms of business, at a minimum:
  • a commitment to notify clients in writing of any potential transfer of business in accordance with the timeframes outlined in this Guidance Note;
  • A description of the information that the investment firm will provide to clients in relation to any potential transfer of business, including but not limited to:
    • The relevant timeframes involved;
    • The options available to clients e.g. where clients may not wish for their assets to be transferred to the entity proposed by the investment firm and instead wish to make alternative arrangements;
    • Any changes to client asset protections resulting from the proposed transfer i.e. whether or not the client assets will continue to be held in accordance with the Irish client asset regime, including the CAR and MiFID II safeguarding of client asset rules, once transferred to another entity; and
    • In the case that client assets will not be held in accordance with the Irish client asset regime once transferred to another entity, an overview of the new/revised client asset protections that will be afforded to the client.

Issued: 4 July 2023

Last revision: 4 July 2023