For many years, the Financial Conduct Authority (‘the FCA’) has highlighted problems with the use of Title Transfer Collateral Arrangements (‘TTCAs’), with many authorised firms still falling short of the requirements. So, how can firms ensure compliance?

In July 2020, the FCA initially expressed its concerns over inappropriate use of TTCAs in this Dear CEO letter. Four years on issues continue to arise, prompting the regulator to reiterate in recent portfolio letters the common errors that it sees with the use of TTCAs. We have summarised the issues identified and outlined what firms must do when using TTCAs to comply with the relevant Client Assets Sourcebook (CASS) rules within CASS 7.11 (in relation to client money) or CASS 6.1 (in relation to safe custody assets).

Issues identified by the FCA

• Holding money or assets under a TTCA without meeting the requirement to consider client obligations

• Holding all of a client’s money or assets under a TTCA in the absence of a present, future, actual, contingent or prospective obligation to the firm

• Holding an inappropriate amount of money or assets under a TTCA compared to that client’s present, future, actual, contingent or prospective obligations

• Moving an increased amount of collateral from a segregated (CASS) to a TTCA (non-CASS) environment without a corresponding documented consideration demonstrating a connection between the collateral taken and the relevant client obligation

• Lacking arrangements to promptly return collateral to clients, or to segregate it as required by CASS (including not having relevant permissions).

What firms must do

• Ensure that the TTCA is the subject of a written agreement between the firm and the client, covering the points required by CASS 7.11.3 or CASS 6.1.6B

• Properly consider and document the use of TTCAs in the context of the relationship between the client’s obligation to the firm and the money/assets subjected to the TTCA, taking into account the factors listed in CASS 7.11.4A or CASS 6.1.6D

Points to note

• A TTCA cannot be entered into with a retail client.

• The written agreement must be maintained until 5 years after it is terminated.

• The consideration (and documentation) should be with reference to individual clients and be updated on an ongoing/real-time basis. The documentation should include:

  • Details of the procedures, controls and processes (including the review process) in place for the monitoring of balances held under TTCAs and for the identification and treatment of excess balances.

• If a TTCA is in place, the firm must comply with the Collateral Rules (CASS 3).

• Rules must also be followed in respect of termination of a TTCA. These rules are included within CASS 7.11.9-13 or CASS 6.1.8-9).