Anthony Greayer reminds solicitors that they should be deciding where they stand in relation to the Crest share system
It is now time for solicitors' firms to decide what they want to do about Crest. The only option that is not available is to ignore it. Crest offers private client practices the choice of either building and enhancing their custody and related services or of losing them.
Informal is the best word to describe how many firms consider their existing safe custody service for their clients' shares, whether these are registered in the client's own name or the solicitor's nominee name. While nominally without charge, in most cases these custody services are likely to bring significant benefits to the practice, both in terms of revenue (due to chargeable letters and chargeable time associated with moving certificates), and of client trust and contact.
So how will Crest affect these arrangements? Crest is the fast, efficient share settlement system to be inaugurated in July next year. It will allow its members, and only its members, to transfer securities and other instruments between each other in dematerialised form. All members of Crest will need a bank to undertake irrevocably to meet the members' payment obligations once deals have been matched in.
This makes Crest an 'assured payment' system and so removes a major area of risk in the settlement process. Those who want to continue to hold paper share certificates can continue to do so, but there will be a cost attached to that choice when deals take place.
Crest membership is open to solicitors and we know that many firms have decided, in principle at least, to take up membership. All others with share custody services will need to choose this year whether to join and which type of membership is best for them.
The initial decision rests between offering, or not offering, a Crest service. The options for solicitors are as follows:
– Use a third party member
Giving the responsibility to a third party wholesaler is the simplest solution and the most obvious one for many smaller practices. It does have drawbacks as it will not permit both the solicitor's nominee company and its clients' accounts to be recorded within Crest or on the share register. This will mean that separate internal records of clients' entitlements will have to be kept, externally, by the practice. To many, this will be unsatisfactory.
– Become a sponsored Crest member
This membership will allow the solicitor's nominee company to become a Crest member and allow designation of individual client's holdings in and on the company register. A sponsored member will not need to communicate with Crest electronically or to invest in the full equipment and experienced staff to do so. This will be the function of the sponsor, a full participating member such as LawShare. These are compelling arguments for many, if not most, practices to choose this alternative.
– Become a participating Crest member
Some solicitors' firms will want to become full participating members. They will carry out the entire securities custody function in-house and will invest in the technology, communications and the staff expertise required to do so.
With a basic Crest membership fee of £5,000 per year, and the necessary hardware to act as the network gateway likely to be more than £5,000, combined with the need for specialised staff, this is an alternative open only to the biggest firms.
Whatever type of direct membership is chosen there remains the issue of the necessary assured payments facility with a bank. For those who opt for sponsored membership, we expect that there will be an alternative, the so-called Zero Debit Cap option, that will avoid the need for any significant bank facility fee. Since that fee may be close to £5,000 per year, it is an alternative we anticipate many solicitors' firms will select.
Anthony Greayer is chair of LawShare Limited.