Client Assets (Part IV)

Question 1

If a settlement agent has been appointed by a TSP, who is ultimately responsible for meeting the TSP’s settlement obligation?

Answer 1

The TSP itself.

Question 2

What are the key objectives regarding their structures, systems and resources which a member applying to be authorised to perform custody services be able to demonstrate to the JSE so as to assure continuity of business and the total protection of client assets?

Answer 2

1. MANAGEMENT OVERSIGHT which evidences commitment to effective control.
2. PEOPLE AND RESOURCE - adequate numbers of suitably qualified personnel of integrity.
3. INTERNAL CONTROL - documented, designed to ensure business is properly conducted and that the assets of a member are safeguarded.
4. CONTINUITY OF BUSINESS - adequate financial resources and risk management systems.
5. INFORMATION TECHNOLOGY SYSTEMS - documented, designed to prevent unauthorised use, properly tested to assure continuity of operation.

Question 3

The CSP is ultimately responsible for any obligation to the JSE or other broking members or its TSP’s clients through the performance of its function as a CSP. True or false?

Answer 3

False

Question 4

The arrangement between a TSP and its CSP shall be recorded in writing, a copy of which must be lodged with the JSE. What shall such arrangement provide?

Answer 4

1. That the functions for which the CSP is responsible are performed strictly in terms of the Act, rules and directives.
2. That the CSP acts as an agent for the TSP in all actions it performs.
3. That the CSP permits an audit of its role as a CSP on behalf of the TSP.
4. That the CSP utilise the BDA system.

Question 5

What is a TSP who appoints a CSP required to ensure regarding the processing of receipts and payments on the TSP’s:
- Current banking account.
- Settlement banking account.
- Non-resident banking account and
- Trust account?

Answer 5

That the CSP has the necessary authority to process receipts and payments.

Question 6

What is a TSP who appoints a CSP required to do regarding the TSP’s security transfer stamp?

Answer 6

Grant authority to the CSP to utilise the stamp together with an authorised signatory of the CSP for use on transfer forms and other similar documents.

Question 7

What is a TSP who appoints a CSP required to ensure regarding custody accounts?

Answer 7

1. That an account in the name of a nominee company owned by the TSP be opened at the TSP’s CSDP.
2. That the CSDP will only accept instructions, other than settlement instructions, from the CSP.
3. The member shall not be permitted to open an account in its own name.

Question 8

In the event of either a TSP or CSP becoming aware of any irregular behaviour relating to the operation of client accounts the TSP or its CSP should promptly advise the other party of such behaviour. Itemise 5 types of irregular behaviour mentioned in Directive FL 7.

Answer 8

1. Issuing of fraudulent instructions.
2. Provision of false information.
3. Presentation of forged, fraudulent or stolen documents of title or instruments of payment.
4. Fraudulent electronic transfers of funds or securities to the TSP or its CSP.
5. The theft of clients’ securities or funds.

Question 9

Following the discovery of any loss or occurrence likely to give rise to a loss to the TSP and/or its clients which may be covered in terms of the “in and out” fidelity policy and which may have occurred in the operations of the CSP, what is the member who discovered the loss or occurrence required to do?

Answer 9

1. Promptly advise the other party (TSP or CSP).
2. Both parties to consider whether they may have suffered any actual or potential loss or incurred an actual or potential liability to a 3rd party and if so;
3. Promptly give notice in writing of the discovery to the insurance brokers acting for the JSE.

Question 10

Prior to terminating an arrangement with a CSP, what is a TSP required to do?

Answer 10

Obtain the consent of the JSE.