CryptoUK Response to Consultation Paper 26/8: Amendments to CASS related to cryptoasset activities
This consultation paper (Chapter 2) proposes an amendment to CASS 8 to clarify that where a firm is safeguarding client cryptoassets in accordance with CASS 17, it does not also have to comply with the mandate rules in CASS 8 in respect of those client cryptoassets.
We have recommended the FCA considers a further clarification to CASS 8 to cover the following:
- In the situation where a client holds both legal and beneficial title to cryptoassets and the firm has control of, but does not hold, the cryptoassets we would recommend that the safeguarding requirements under CASS 17.3, 17.5 and 17.6 are disapplied and to instead apply CASS 8 mandate rules.
- Where a firm operates under a mandate which allows it to give instructions to another entity which holds or controls private keys for the client we would recommend disapplying the requirement for a non-statutory trust under CASS 17, on the basis that the firm would instead be subject to CASS 8
We have stated that we disagree with the proposal that firms will not be allowed to “opt out” of CASS 7 client money protections when undertaking specified qualifying cryptoasset activities for professional clients. This proposal rests on the assumption that that client money held in connection with qualifying cryptoasset activities gives rise to materially different risks from client money held in connection with traditional financial instruments, and that this justifies departing from the established regulatory framework for professional clients.
We also note that the absence of a qualifying settlement system today is not a reason to foreclose the possibility of reliance on the exemption in the future, particularly where the existing conditions for the exemption already provide adequate safeguards.
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