S.L. 370.5 Art. 11Inappropriate use of title transfer collateral arrangements.

(1) The subject person shall properly consider the use of title transfer collateral arrangements in the context of the relationship between the customer’s obligation to the subject person and the customer’s assets subjected to title transfer collateral arrangements by the subject person. The subject person shall furthermore be able to demonstrate that it has carried out such considerations.

(2) When considering, and documenting, the appropriateness of the use of title transfer collateral arrangements, the subject person shall take into account all of the following factors:

(a) whether there is only a very weak connection between the customer’s obligation to the subject person and the use of title transfer collateral arrangements, including whether the likelihood of a customer’s liability to the subject person is low or negligible;

(b) whether the amount of customer money or instruments subject to title transfer collateral arrangements far exceeds the customer’s obligation, or is even unlimited if the customer has any obligation at all to the subject person; and

(c) whether all customers’ instruments or money are made subject to title transfer collateral arrangements, without consideration of what obligation each customer has to the subject person.

(3) Where using title transfer collateral arrangements, the subject person shall highlight to professional clients and eligible counterparties the risks involved and the effect of any title transfer collateral arrangement on the customer’s instruments and money.