Client money and mandates: designated investment business

Part

CASS Client Assets Sourcebook

Chapter

Client money and mandates: designated investment business

Printed on: 29/09/2024

Rulebook at: 14/01/2005

CASS 4

Client
money and mandates: designated investment business

CASS 4.1

Application and Purpose

01/12/2004

Application

CASS 4.1.1

This section (the client money rules) applies to a firm that receives or holds money from, or on behalf of, a client in the course of, or in connection with:

(1) its designated investment business; or
(2) in the circumstances set out in CASS 4.1.1A R, insurance mediation activity;

except where CASS 4.1.2 R applies.

01/12/2004

CASS 4.1.1A

A firm that receives or holds money to which this section applies and money in respect of which CASS 5.1 applies, may elect to comply with the provisions of this section CASS 4 in respect of all such money and if it does so CASS 4 applies as if all such money were money that the firm receives and holds in the course of or in connection with its designated investment business.

01/12/2004

CASS 4.1.2

The client money rules do not apply with respect to:

(1) the permitted activities of a long-term insurer or a friendly society; or
(2) coins held on behalf of a client if the firm and the client have agreed that the money (or money of that type) is to be held by the firm for the intrinsic value of the metal which constitutes the coin; or
(3) money held by a firm which is an approved bank, but only when held in an account with itself, in which case the firm must notify the client in writing that:

(a) money held for that client in an account with the approved bank will be held by the firm as banker and not as trustee (or in Scotland as agent); and
(b) as a result, the money will not be held in accordance with the client money rules;

(4) money held by depositaries which are regulated by COB 11;
(5) client money held by a firm which:

(a) receives or holds client money in relation to contracts of insurance; but which
(b) in relation to such client money elects to act in accordance with CASS 5.1 to 5.6.

14/01/2005

CASS 4.1.2A

A firm should make and retain a written record of any election which it makes under CASS 4.1.1A R or CASS 4.1.2 R (5).

01/12/2004

CASS 4.1.2B

(1) A firm which receives and holds client money in respect of life assurance business in the course of its designated investment business may:

(a) in accordance with CASS 4.1.1A R elect to comply with CASS 4 in respect of such client money and in doing so avoid the need to comply with CASS 5.1 to 5.6 which would otherwise apply to the firm in respect of client money received in the course of its insurance mediation activity; or
(b) in accordance with CASS 4.1.2 R (5), elect to comply with CASS 5.1 to 5.6 in respect of such client money.

(2) These options are available to a firm irrespective of whether it also receives and holds client money in respect of other parts of its designated investment business. A firm may not however choose to comply with CASS 5.1 to 5.6 in respect of client money which it receives and holds in the course of any part of its designated investment business which does not involve an insurance mediation activity.

01/12/2004

CASS 4.1.3

Firms are reminded that, under CASS 1.3.3 R, the client money rules do not apply to an incoming EEA firm, other than an insurer, with respect to its passported activities. The application of the client money rules to the activity of a firm is also dependent on the location from which the activity is undertaken (see CASS 1.3.2 R).

01/12/2004

CASS 4.1.4

The custody rules will apply when a firm holds, for example, gold coins on behalf of the client in accordance with CASS 4.1.2 R(2) in the same portfolio as safe custody investments.

01/12/2004

CASS 4.1.5

A firm that is an approved bank, and relies on the exemption under CASS 4.1.2 R(3), should be able to account to all of its clients for amounts held on their behalf at all times. A bank account opened with the firm that is in the name of the client would generally be sufficient. When money from clients deposited with the firm is held in a pooled account, this account should be clearly identified as an account for clients. The firm should also be able to demonstrate that an amount owed to a specific client that is held within the pool can be reconciled with a record showing that individual's client balance and is, therefore, identifiable at any time. Similarly, where that money is reflected only in a firm's bank account with other banks (nostro accounts), the firm should be able to reconcile amounts owed to that client within a reasonable period of time.

01/12/2004

CASS 4.1.6

A firm that is an approved bank is reminded that CASS 4.1.2 R(3) is not an absolute exemption from the client money rules.

01/12/2004

General purpose

CASS 4.1.7

Principle 10 (Clients' assets) requires a firm to arrange adequate protection for clients' assets when the firm is responsible for them. An essential part of that protection is the proper accounting and handling of client money. The client money rules provide requirements for firms that receive or hold client money, in whatever form.

01/12/2004

Money that is not client money: 'opt outs' for any business (including ISD business) other than insurance mediation activity

CASS 4.1.8

The 'opt out' provisions provide a firm with the option of allowing an intermediate customer or market counterparty to choose whether their money is subject to the client money rules (unless the firm is conducting insurance mediation activity).

01/12/2004

CASS 4.1.9

Subject to CASS 4.1.11 R, money is not client money when a firm (other than a sole trader) holds that money on behalf of, or receives it from, a market counterparty or an intermediate customer, other than in the course of insurance mediation activity, and the firm has obtained written acknowledgement from the market counterparty or intermediate customer that:

(1) the money will not be subject to the protections conferred by the client money rules;
(2) as a consequence, this money will not be segregated from the money of the firm in accordance with the client money rules and will be used by the firm in the course of its own business; and
(3) the market counterparty or intermediate customer will rank only as a general creditor of the firm.

01/12/2004

'Opt-outs' for non-ISD or non-IMD business

CASS 4.1.10

For a firm whose business is not governed by the ISD or the IMD, it is possible to 'opt out' on a one-way basis. However, in the case of certain non-ISD investment firms that undertake 'ISD type' business from a branch in the United Kingdom, article 5 of the ISD requires the FSA not to treat this business any more favourably than business of an ISD investment firm. Therefore all ISD and 'ISD type' business should comply with the client money rules or be 'opted out' on a two-way basis.

01/12/2004

CASS 4.1.11

Money is not client money if a firm, in respect of designated investment business which is not a core investment service, a non-core investment service, a listed activity or insurance mediation activity:

(1) holds it on behalf of or receives it from a market counterparty who is not an authorised person or an intermediate customer who is not an authorised person; and
(2) has sent a separate written notice stating the matters set out in CASS 4.1.9 R (1) to (3).

01/12/2004

CASS 4.1.12

When a firm undertakes a range of business for a market counterparty or intermediate customer and has separate agreements for each type of business undertaken, the firm may treat client money held on behalf of the client differently for different types of business; for example, a firm may, under CASS 4.1.9 R or CASS 4.1.11 R, elect to segregate client money in connection with securities transactions and not segregate (by complying with CASS 4.1.9 R or CASS 4.1.11 R) money in connection with contingent liability investments for the same client.

01/12/2004

CASS 4.1.13

When a firm transfers client money to another person, the firm must not enter into an agreement under CASS 4.1.9 R or CASS 4.1.11 R with that other person in relation to that client money or represent to that other person that the money is not client money.

01/12/2004

CASS 4.1.14

CASS 4.1.13 R prevents a firm, when passing client money to another person under CASS 4.3.30 R (transfer of assets to a third party), from making use of the 'opt out' provisions under CASS 4.1.9 R or CASS 4.1.11 R.

01/12/2004

Money in connection with a "delivery versus payment" transaction

CASS 4.1.15

Money need not be treated as client money in respect of a delivery versus payment transaction through a commercial settlement system if it is intended that either:

(1) in respect of a client's purchase, money from a client will be due to the firm within one business day upon the fulfilment of a delivery obligation; or
(2) in respect of a client's sale, money is due to the client within one business day following the client's fulfilment of a delivery obligation;

unless the delivery or payment by the firm does not occur by the close of business on the third business day following the date of payment or delivery of the investments by the client.

01/12/2004

CASS 4.1.16

Money need not be treated as client money in respect of a delivery versus payment transaction, for the purpose of settling a transaction in relation to units in a regulated collective investment scheme, if:

(1) the authorised fund manager receives it from a client in relation to the authorised fund manager's obligation to issue units, in an AUT or to arrange for the issue of units in an ICVC, in accordance with CIS, unless the price of those units has not been determined by the close of business on the next business day:

(a) following the date of the receipt of the money from the client; or
(b) if the money was received by an appointed representative of the authorised fund manager, in accordance with CASS 4.3.15 R, following the date of receipt at the specified business address of the authorised fund manager; or

(2) the money is held in the course of redeeming units where the proceeds of that redemption are paid to a client within the time specified in CIS; when an authorised fund manager draws a cheque or other payable order within these timeframes the provisions of CASS 4.3.101 R and CASS 4.3.102 R will not apply.

01/12/2004

Affiliated companies

CASS 4.1.17

Money from an affiliated company is not treated as client money unless the provisions of CASS 4.1.18 R apply. This seeks to ensure that client money is protected against the potential contagion that may arise on the failure of a firm which is itself part of a group which, if treated as a client, would expose the other clients of the firm to the risks of other parts of the group.

01/12/2004

CASS 4.1.18

Money is not client money if the firm holds it on behalf of, or receives it from, an affiliated company, unless:

(1) the firm has been notified by the affiliated company that the money belongs to a client of the affiliated company; or
(2) the affiliated company is a client dealt with at arm's length; or
(3) the affiliated company is a manager of an occupational pension scheme or is an overseas company; and

(a) the money is given to the firm in order to carry on designated investment business for or on behalf of the clients of the affiliated company; and
(b) the firm has been notified by the affiliated company that the money is to be treated as client money.

01/12/2004

Money due and payable to the firm

CASS 4.1.19

Money is not client money when it becomes properly due and payable to the firm for its own account.

01/12/2004

CASS 4.1.20

(1) For fees and commissions payable by customers, 'due and payable' means:

(a) they have been accurately calculated and are in accordance with a formula or basis previously disclosed to the client by the firm; or
(b) five business days have elapsed since a statement showing the amount of those fees and commissions has been despatched to the client, and the firm has taken reasonable steps to ensure that the client does not question that sum specified; or
(c) the precise amount of the fees or commissions has been agreed by the client, or has been determined by a court, arbitrator or arbiter;

(2) Compliance with (1) may be relied on as tending to establish compliance with CASS 4.1.19 R;
(3) Contravention of (1) may be relied on as tending to establish contravention of CASS 4.1.19 R.

01/12/2004

CASS 4.1.21

Money held as client money becomes due and payable to the firm or for the firm's own account, for example, because the firm acted as principal in the contract or the firm, acting as agent, has itself paid for securities in advance of receiving the purchase money from its client. The circumstances in which it is due and payable will depend on the contractual arrangement between the firm and the client and on the provisions of CASS 4.1.20 E.

01/12/2004

CASS 4.1.22

When a firm has entered into an arrangement under which commission is rebated to a client, those rebates should be treated as client money when the firm has performed its obligations in accordance with the relevant contract. The circumstances in which they become due and payable will depend on the contractual arrangements between the firm and the client.

01/12/2004

CASS 4.1.23

When a client's obligation or liability, that is secured by that client's asset, crystallises, and the firm realises the asset in accordance with an agreement entered into between the client and the firm, the part of the proceeds of the asset to cover such liability that is due and payable to the firm is not client money. However, any proceeds of sale in excess of the amount owed by the client to the firm should be paid over to the client immediately or be held in accordance with the client money rules.

01/12/2004

CASS 4.1.24

When a firm realises client collateral to meet liabilities of that client, it should do so in accordance with the relevant terms and conditions (see CASS 2.3.2 R to CASS 2.3.6 R), and for a private customer, in accordance with COB 7.8 (Realisation of a private customer's assets).

01/12/2004

Solicitors

CASS 4.1.25

An authorised professional firm regulated by The Law Society (England and Wales), The Law Society of Scotland or The Law Society of Northern Ireland must comply with the rules of its designated professional body as specified in CASS 4.1.26 R, in force at commencement, and if it does so, it will be deemed to comply with CASS 4.1 to CASS 4.3.

01/12/2004

CASS 4.1.26

For the purposes of CASS 4.1.25 R the relevant rules are:

(1) if regulated by the Law Society (of England and Wales):

(a) the Solicitors' Accounts Rules 1998; or
(b) where applicable, the Solicitors Overseas Practice Rules 1990;

(2) if regulated by the Law Society of Scotland, the Solicitors' (Scotland) Accounts, Accounts Certificate, Professional Practice and Guarantee Fund Rules 2001;
(3) if regulated by the Law Society of Northern Ireland, the Solicitors' Accounts Regulations 1998.

01/12/2004

Trustee firms (other than trustees of unit trust schemes)

CASS 4.1.27

A trustee firm must hold any client money separate from its own money at all times.

01/12/2004

CASS 4.1.28

Only the client money rules listed in COB 9.3.29 apply to a trustee firm in respect of client money held in the course of that trustee business.

01/12/2004

CASS 4.1.29

This table belongs to COB 9.3.28

Reference

Rule

CASS 4.1.1 R - CASS 4.1.7 G

Application

CASS 4.1.27 R - CASS 4.1.29 R

Trustee firms (other than trustees of unit trust schemes)

CASS 4.2.3 R - CASS 4.2.7 G

Requirement

CASS 4.3.33 G - CASS 4.3.40 R

Client bank accounts

CASS 4.3.41 G - CASS 4.3.45 G

A firm's selection of bank

CASS 4.3.46 R - CASS 4.3.47 R

Group banks

CASS 4.3.89 R - CASS 4.3.97 R

Reconciliation of client money balances

01/12/2004

CASS 4.2

Statutory trust

01/12/2004

Application

CASS 4.2.1

CASS 4.2 applies in accordance with CASS 4.1

01/12/2004

CASS 4.2.2

Section 139(1) of the Act (Miscellaneous ancillary matters) provides that rules may make provision which result in client money being held by a firm on trust (England and Wales and Northern Ireland) or as agent (Scotland only). CASS 4.2.3 R creates a fiduciary relationship between the firm and its client under which client money is in the legal ownership of the firm but remains in the beneficial ownership of the client. In the event of failure of the firm, costs relating to the distribution of client money may have to be borne by the trust.

01/12/2004

Requirement

CASS 4.2.3

A firm (other than a firm acting in accordance with CASS 4.2.6 R) receives and holds client money as trustee (or in Scotland as agent) on the following terms:

(1) for the purposes of and on the terms of the client money rules and the client money distribution rules;
(2) subject to (3), for the clients for whom that money is held, according to their respective interests in it;
(3) on failure of the firm, for the payment of the costs properly attributable to the distribution of the client money in accordance with (2); and
(4) after all valid claims and costs under (2) and (3) have been met, for the firm itself.

01/12/2004

CASS 4.2.4

A firm can hold client money in either a general client bank account or a designated client bank account. A firm holds all client money in general client bank accounts for its clients as part of a common pool of money so those particular clients do not have a claim against a specific sum in a specific account; they only have a claim to the client money in general. A firm holds client money in designated client bank accounts for those clients that requested their client money be part of a specific pool of money, so those particular clients do have a claim against a specific sum in a specific account; they do not have a claim to the client money in general unless a primary pooling event occurs. If the firm becomes insolvent, and there is (for whatever reason) a shortfall in money held for a client compared with that client's entitlements, the available funds will be distributed in accordance with the client money distribution rules.

01/12/2004

CASS 4.2.5

CASS 4.3.5 R to CASS 4.3.7 G set out the circumstances in which it is permissible for a firm to hold money, which would otherwise be money belonging to the firm, in a client bank account.

01/12/2004

CASS 4.2.6

A trustee firm:

(1) must receive and hold client money in accordance with the relevant instrument of trust;
(2) subject to that, receives and holds client money on trust on the terms (or in Scotland on the agency terms) specified in CASS 4.2.3 R.

01/12/2004

CASS 4.2.7

If a trustee firm holds client money in accordance with CASS 4.2.6 R(2), the firm should follow the provisions in CASS 4.1.27 R and CASS 4.1.28 R.

01/12/2004

CASS 4.3

Segregation and operation of client money accounts

01/12/2004

Application

CASS 4.3.1

CASS 4.3 applies in accordance with CASS 4.1

01/12/2004

CASS 4.3.2

The purpose of the client money rules is to ensure that, unless otherwise permitted, client money is kept separate from the firm's own money. Segregation, in the event of a firm's failure, is important for the effective operation of the statutory trust that is created to protect client money. The aim is to clarify the difference between client money and general creditors' entitlements in the event of the failure of the firm.

01/12/2004

CASS 4.3.3

A firm must, except to the extent permitted by the client money rules, hold client money separate from the firm's money.

01/12/2004

CASS 4.3.4

A firm may segregate client money in a different currency from that of receipt. If it does so, the firm must ensure that the amount held is adjusted each day to an amount at least equal to the original currency amount (or the currency in which the firm has its liability to its clients, if different), translated at the previous day's closing spot exchange rate.

01/12/2004

CASS 4.3.5

A firm must not hold money other than client money in a client bank account unless it is:

(1) a minimum sum required to open the account, or to keep it open; or
(2) money temporarily in the account in accordance with CASS 4.3.13 R (Mixed remittance); or
(3) interest credited to the account which exceeds the amount due to clients as interest and has not yet been withdrawn by the firm.

01/12/2004

CASS 4.3.6

If it is prudent to do so to ensure that client money is protected, a firm may pay into a client bank account money of its own, and that money will then become client money for the purposes of the client money rules and the client money distribution rules.

01/12/2004

CASS 4.3.7

Firms are reminded of the requirements of CASS 4.3.66 R and CASS 4.3.67 R. The money paid into the client bank account by the firm, in accordance with CASS 4.3.6 R, does not lessen the requirement to carry out the daily client money calculation.

01/12/2004

Payment of client money into a client bank account

CASS 4.3.8

A firm must segregate client money it receives using either:

(1) the approach detailed in CASS 4.3.10 R (the 'normal approach'); or
(2) the approach detailed in CASS 4.3.12 R (the 'alternative approach'), subject to:

(a) written confirmation to the FSA from the firm's auditor that the firm has in place systems and controls which are adequate to enable it to operate the alternative approach effectively; and
(b) the firm appointing a manager responsible for compliance with the client money rules.

01/12/2004

CASS 4.3.9

The alternative approach is designed for a firm that operates in a multi-product, multi-currency environment for which adopting the normal approach would be unduly burdensome and would not achieve the client protection objective. Under the alternative approach, client money is received into and paid out of a firm's own bank accounts; consequently systems and controls that are capable of monitoring the client money flows are required, so that the firm can perform the daily client money calculation accurately. A firm that adopts the alternative approach will segregate client money into a client bank account on a daily basis, after having performed the client money calculation to determine what the client money requirement was at the close of the previous business day.

01/12/2004

CASS 4.3.10

If a firm receives and segregates client money, unless it adopts the alternative approach, it must, subject to CASS 4.1.15 R and CASS 4.1.16 R, CASS 4.3.11 R, CASS 4.3.13 R, CASS 4.3.15 R and CASS 4.3.21 R (delivery versus payment) either:

(1) pay it as soon as possible, and in any event no later than the next business day after receipt, into a client bank account; or
(2) pay it out in accordance with CASS 4.3.99 R.

01/12/2004

CASS 4.3.11

If client money is received by the firm in the form of an automated transfer, the firm must take reasonable steps to ensure that:

(1) the money is received directly into a client bank account; and
(2) if money is received directly into the firm's own account, the money is transferred into a client bank account no later than the next business day after receipt.

01/12/2004

CASS 4.3.12

Under the alternative approach, a firm receiving and segregating client money:

(1) is required to pay any money to or on behalf of clients out of its own account;
(2) is required to perform the segregation calculation contained in CASS 4.3.67 R, adjust the balance held in its client bank accounts and then segregate the money in the client bank account until the calculation is re-performed on the next business day;
(3) is not required to pay client money into a client bank account in accordance with any of CASS 4.3.10 R(1), CASS 4.3.11 R, CASS 4.3.13 R, CASS 4.3.15 R(1) and (2), CASS 4.3.21 R(1) and (2)(b) and CASS 4.3.24 R(1);
(4) may receive all client money into its own bank account;
(5) may choose to operate the alternative approach for some types of business (for example overseas equities transactions) and operate the normal approach for other types of business (for example contingent liability investments) if the firm can demonstrate that its systems and controls are adequate; and
(6) may use an historic average to account for uncleared cheques in accordance with CASS 4.3.69 G.

01/12/2004

Mixed remittance

CASS 4.3.13

If a firm receives a mixed remittance (that is part client money and part other money), it must:

(1) pay the full sum into a client bank account in accordance with CASS 4.3.10 R(1); and
(2) pay the money that is not client money out of the client bank account within one business day of the day on which the firm would normally expect the remittance to be cleared.

01/12/2004

CASS 4.3.14

When money is due to the firm in respect of fees and commissions, the firm should follow the provisions in CASS 4.1.20 E.

01/12/2004

Appointed representatives, field representatives and other agents

CASS 4.3.15

A firm must establish and maintain procedures to ensure that client money received by its appointed representatives, field representatives or other agents is:

(1) paid into a client bank account of the firm in accordance with CASS 4.3.10 R(1); or
(2) forwarded to the firm, or in the case of a field representative forwarded to a specified business address of the firm, so as to ensure that the money arrives at the specified business address by the close of the third business day.

01/12/2004

CASS 4.3.16

For the purposes of CASS 4.3.15 R(2), the client money received on business day one should be forwarded to the firm or specified business address of the firm no later than the next business day after receipt (business day two) in order for it to reach that firm or specified business address by the close of the third business day. Procedures requiring the client money to be sent to the firm or the specified business address of the firm by first class post no later than the next business day after receipt would meet the requirements of CASS 4.3.15 R(2).

01/12/2004

CASS 4.3.17

If client money is received in accordance with CASS 4.3.15 R, the firm must ensure that its appointed representative, field representative or other agent keeps client money separately identifiable from any other money (including that of the firm) until the client money is paid into a client bank account or sent to the firm.

01/12/2004

CASS 4.3.18

For the purposes of CASS 4.3.15 R and CASS 4.3.17 R, a firm that operates a number of small branches, but handles or accounts for all client money centrally, may treat those small branches as appointed representatives.

01/12/2004

Client entitlements

CASS 4.3.19

A firm must take reasonable steps to ensure that it is notified promptly of any receipt of client money in the form of client entitlements.

01/12/2004

CASS 4.3.20

The firm should receive regular statements from overseas depositaries used by the firm. The frequency of such statements will depend on the volume of business. Client entitlements are such things as dividends, coupons and other distributions with similar characteristics.

01/12/2004

CASS 4.3.21

When a firm receives a client entitlement on behalf of a client, it must pay any part of it which is client money:

(1) for client entitlements received in the United Kingdom, into a client bank account in accordance with CASS 4.3.10 R(1); or
(2) for client entitlements received outside the United Kingdom, into any bank account operated by the firm, provided that such client money is:

(a) paid to, or in accordance with, the instructions of the client concerned; or
(b) paid into a client bank account in accordance with CASS 4.3.10 R(1), as soon as possible but no later than five business days after the firm is notified of its receipt.

01/12/2004

CASS 4.3.22

A firm must take reasonable steps to ensure that a client entitlement, which is client money, is allocated within a reasonable period of time after notification of receipt.

01/12/2004

CASS 4.3.23

(1) A firm should allocate client entitlements due to the individual clients within a period of ten business days.
(2) Compliance with (1) may be relied on as tending to establish compliance with CASS 4.3.22 R.
(3) Contravention of (1) may be relied on as tending to establish contravention of CASS 4.3.22 R.

01/12/2004

Money due to a client from a firm

CASS 4.3.24

If a firm is liable to pay money to a client, it must as soon as possible, and no later than one business day after the money is due and payable:

(1) pay it into a client bank account, in accordance with CASS 4.3.10 R(1); or
(2) pay it to, or to the order of, the client.

01/12/2004

CASS 4.3.25

Money may become due to a client in respect of an agreement entered into with, or for, that client, in the course of the firm's business.

01/12/2004

Interest

CASS 4.3.26

Unless a firm notifies a private customer in writing whether or not interest is to be paid on client money and, if so, on what terms and at what frequency, it must pay that private customer all interest earned on that client money. Any interest due to a client will be client money.

01/12/2004

CASS 4.3.27

If no interest is payable to a private customer, that fact should be separately identified in an agreement or notification.

01/12/2004

CASS 4.3.28

If a firm outlines its policy on its payment of interest under CASS 4.3.26 R, it need not necessarily disclose the actual rates prevailing at any particular time; the firm should disclose the terms, for example, LIBOR plus or minus 'x' percent.

01/12/2004

Transfer of client money to a third party

CASS 4.3.29

CASS 4.3.30 R sets out the requirements a firm must comply with when it transfers client money to another person without discharging its fiduciary duty owed to that client. Such circumstances arise when, for example, a firm passes client money to an intermediate broker for contingent liability investments in the form of initial or variation margin on behalf of a client. In these circumstances, the firm remains responsible for that client's equity balance, as defined in CASS 4.3.79 R, held at the intermediate broker until the contract is terminated and all of that client's positions at that broker closed. If a firm wishes to discharge itself from its fiduciary duty, it should do so in accordance with CASS 4.3.99 R.

01/12/2004

CASS 4.3.30

A firm may allow another person, such as an exchange, a clearing house or an intermediate broker, to hold or control client money, but only if:

(1) the firm transfers the client money:

(a) for the purpose of a transaction for a client through or with that person; or
(b) to meet a client's obligation to provide collateral for a transaction (for example, an initial margin requirement for a contingent liability investment); and

(2) in the case of a private customer, that customer has been notified that the client money may be transferred to the other person.

01/12/2004

CASS 4.3.31

In relation to the notification required by CASS 4.3.30 R(2), there is no need for a firm to make a separate disclosure in relation to each transfer made.

01/12/2004

CASS 4.3.32

A firm should not hold excess client money in its client transaction accounts with intermediate brokers, settlement agents and OTC counterparties; it should be held in a client bank account.

01/12/2004

Client bank accounts

CASS 4.3.33

The FSA generally requires a firm to place client money in a client bank account with an approved bank.

01/12/2004

CASS 4.3.34

(1) A firm must ensure that, subject to CASS 4.3.30 R and CASS 4.3.40 R, client money is held in a client bank account at one or more approved banks.
(2) If the firm is a trustee firm, it must:

(a) hold client money in a client bank account with an approved bank at all times; and
(b) maintain separate client bank accounts for each trust.

01/12/2004

CASS 4.3.35

A firm may open one or more client bank accounts in the form of a designated client bank account. Characteristics of these accounts are that:

(1) the account holds money of one or more clients;
(2) the account includes in its title the word 'designated';
(3) the clients whose money is in the account have each consented in writing to the use of the bank with which the client money is to be held; and
(4) in the event of the failure of that bank, the account is not pooled with any other type of account unless a primary pooling event occurs.

01/12/2004

CASS 4.3.36

A firm may open one or more client bank accounts in the form of a designated client fund account. Characteristics of these accounts are that:

(1) the account holds at least part of the client money of one or more clients, each of whom has consented to that money being held in the same client bank accounts at the same banks (the client money of such clients constituting a designated fund);
(2) the account includes in its title the words 'designated fund'; and
(3) in the event of the failure of a bank with which part of a designated fund is held, each designated client fund account held with the failed bank will form a pool with any other designated client fund account containing part of that same designated fund unless a primary pooling event occurs.

01/12/2004

CASS 4.3.37

The client money distribution rules set out the provisions of a primary pooling event on the failure of a firm.

01/12/2004

CASS 4.3.38

The effect of CASS 4.3.36 R is that a designated client fund account may be used for a client only where that client has consented to the use of that account and all other designated client fund accounts which may be pooled with it. A client who consents to the use of bank A and bank B should have his money held in a different designated client fund account at bank B from a client who has consented to the use of banks B and C.

01/12/2004

CASS 4.3.39

A firm may operate as many client bank accounts as it wishes. When, for example, a firm has previously operated a dividend claims bank account and a margined transaction bank account under the Financial Services (Client Money) Regulations 1991 and Financial Services (Client Money) (Supplementary) Regulations 1991, these will be client bank accounts for the purposes of the client money rules.

01/12/2004

CASS 4.3.40

A firm (other than a trustee firm) may hold client money with a bank that is not an approved bank if all of the following conditions are met:

(1) the client money relates to:

(a) the settlement of a transaction, or a series of transactions; or
(b) the distribution of income;

subject to the law or market practice of a jurisdiction outside the United Kingdom;
(2) because of the applicable law or market practice of that overseas jurisdiction, it is not possible to hold the client money in a client bank account with an approved bank;
(3) the firm holds the money with such a bank for no longer than is necessary to effect the transaction, or series of transactions;
(4) the firm notifies each relevant market counterparty and intermediate customer and obtains the prior written consent of each relevant private customer that:

(a) the client money will not be held with an approved bank;
(b) in such circumstances, the legal and regulatory regime applying to the bank with which the client money is held will be different from that of the United Kingdom and, in the event of a failure of the bank, the client money may be treated differently from the treatment which would apply if the client money were held by an approved bank in the United Kingdom; and
(c) if it is the case, the particular bank has not accepted that it has no right of set off or counterclaim against client money held, in respect of any sum owed by the firm on any other account held at that bank, as required by CASS 4.3.48 R; and

(5) the client money is held in a designated bank account.

01/12/2004

A firm's selection of a bank

CASS 4.3.41

A firm owes a duty of care to a client when it decides where to place client money. The review required by CASS 4.3.42 R is intended to ensure that the risks inherent in placing client money with the banks are minimised or appropriately diversified by requiring a firm to consider carefully the bank or banks with which it chooses to place client money.

01/12/2004

CASS 4.3.42

Before a firm opens a client bank account and as often as is appropriate on a continuing basis (no less than once in each financial year), it must take reasonable steps to establish that the bank is appropriate for that purpose.

01/12/2004

CASS 4.3.43

A firm should consider diversifying placements of client money with more than one bank where the amounts are, for example, of sufficient size to warrant such diversification.

01/12/2004

CASS 4.3.44

When considering where to place client money and to determine the frequency of the appropriateness test under CASS 4.3.42 R, a firm should consider taking into account, together with any other relevant matters:

(1) the capital of the bank;
(2) the amount of client money placed, as a proportion of the bank's capital and deposits;
(3) the credit rating of the bank (if available); and
(4) to the extent that the information is available, the level of risk in the investment and loan activities undertaken by the bank and its affiliated companies.

01/12/2004

CASS 4.3.45

A firm will be expected to perform due diligence when opening a client bank account with a bank that is authorised by an EEA regulator. Any continuing assessment of that bank may be restricted to verification that it remains authorised by an EEA regulator.

01/12/2004

Group banks

CASS 4.3.46

Subject to CASS 4.3.40 R, a firm that holds or intends to hold client money with a bank which is in the same group as the firm must:

(1) undertake a continuous review in relation to that bank which is at least as rigorous as the review of any bank which is not in the same group, in order to ensure that the decision to use a group bank is appropriate for the client or trust;
(2) disclose in writing to its client at the outset of the client relationship or, if later, not less than 20 business days before it begins to hold client money of that client with that bank:

(a) that it is holding or intends to hold client money with a bank in the same group; and
(b) the identity of the bank concerned.

01/12/2004

CASS 4.3.47

If a client has notified a firm in writing that he does not wish his money to be held with a bank in the same group as the firm, the firm must either:

(1) place that client money in a client bank account with another bank in accordance with CASS 4.3.34 R; or
(2) return that client money to, or pay it to the order of, the client.

01/12/2004

Notification and acknowledgement of trust (banks)

CASS 4.3.48

When a firm opens a client bank account, the firm must give or have given written notice to the bank requesting the bank to acknowledge to it in writing:

(1) that all money standing to the credit of the account is held by the firm as trustee (or if relevant, as agent) and that the bank is not entitled to combine the account with any other account or to exercise any right of set-off or counterclaim against money in that account in respect of any sum owed to it on any other account of the firm; and
(2) that the title of the account sufficiently distinguishes that account from any account containing money that belongs to the firm, and is in the form requested by the firm.

01/12/2004

CASS 4.3.49

In the case of a client bank account in the United Kingdom, if the bank does not provide the acknowledgement referred to in CASS 4.3.48 R within 20 business days after the firm dispatched the notice, the firm must withdraw all money standing to the credit of the account and deposit it in a client bank account with another bank as soon as possible.

01/12/2004

CASS 4.3.50

In the case of a client bank account outside the United Kingdom, if the bank does not provide the acknowledgement referred to in CASS 4.3.48 R within 20 business days after the firm dispatched the notice, the firm must notify the client of this fact as set out in CASS 4.3.56 R(3).

01/12/2004

CASS 4.3.51

Firms are reminded of the provisions of CASS 4.3.40 R(4), that sets out the notification and consents required when using a bank that is not an approved bank.

01/12/2004

Notification and acknowledgement of trust (exchange, clearing house, intermediate broker or OTC counterparty)

CASS 4.3.52

A firm which undertakes any contingent liability investment for clients through an exchange, clearing house, intermediate broker or OTC counterparty must, before the client transaction account is opened with the exchange, clearing house, intermediate broker or OTC counterparty:

(1) notify the person with whom the account is to be opened that the firm is under an obligation to keep client money separate from the firm's own money, placing client money in a client bank account;
(2) instruct the person with whom the account is to be opened that any money paid to it in respect of that transaction is to be credited to the firm's client transaction account; and
(3) require the person with whom the account is to be opened to acknowledge in writing that the firm's client transaction account is not to be combined with any other account, nor is any right of set-off to be exercised by that person against money credited to the client transaction account in respect of any sum owed to that person on any other account.

01/12/2004

CASS 4.3.53

If the intermediate broker or OTC counterparty does not provide the acknowledgement required by CASS 4.3.52 R(3) within 20 business days of the dispatch of the notice and instruction, the firm must cease using the client transaction account with that broker or counterparty and arrange as soon as possible for the transfer or liquidation of any open positions and the repayment of any money.

01/12/2004

CASS 4.3.54

If a firm knows or reasonably ought to know that an intermediate broker or OTC counterparty will not provide the acknowledgement required by CASS 4.3.52 R, the firm should not open a client transaction account with that intermediate broker or OTC counterparty.

01/12/2004

CASS 4.3.55

If the exchange or clearing house does not provide the acknowledgement required by CASS 4.3.52 R(3) within 20 business days of the despatch of the notice and instruction, the firm must notify the client that a particular exchange or clearing house has not accepted that it has no right of set-off or counterclaim against money held in a client transaction account in respect of any sum owed on any other account of the firm, in that particular case or generally in an agreement entered into between the firm and its client.

01/12/2004

Notification to clients: use of an approved bank outside the United Kingdom

CASS 4.3.56

A firm must not hold client money in a client bank account outside the United Kingdom, unless the firm has previously disclosed to the client in writing:

(1) that his money may be deposited in a client bank account outside the United Kingdom;
(2) that in such circumstances, the legal and regulatory regime applying to the approved bank will be different from that of the United Kingdom and, in the event of a failure of the bank, his money may be treated in a different manner from that which would apply if the client money was held by a bank in the United Kingdom; and
(3) if it is the case, that a particular bank has not accepted that it has no right of set-off or counterclaim against money held in a client bank account in respect of any sum owed on any other account of the firm, notwithstanding the firm's request to the bank as required by CASS 4.3.48 R.

01/12/2004

CASS 4.3.57

There is no need for a firm to make a separate disclosure under CASS 4.3.56 R(1) and (2) in relation to each jurisdiction.

01/12/2004

CASS 4.3.58

Firms are reminded of the provisions of CASS 4.3.40 R(4), that sets out the notification and consents required when using a bank that is an not approved bank.

01/12/2004

CASS 4.3.59

If a client has notified a firm in writing before entering into a transaction that client money is not to be held in a particular jurisdiction, the firm must either:

(1) hold the client money in a client bank account in a jurisdiction to which the client has not objected; or
(2) return the client money to, or to the order of, the client.

01/12/2004

CASS 4.3.60

Firms are reminded of the provisions of CASS 4.3.40 R(4), that sets out the notification and consents required when using a bank that is not an approved bank.

01/12/2004

Notification to clients: use of an intermediate broker, settlement agent or OTC counterparty outside the United Kingdom.

CASS 4.3.61

A firm must not undertake any transaction for a client that involves client money being passed to an intermediate broker, settlement agent or OTC counterparty located in a jurisdiction outside the United Kingdom, unless the firm has previously disclosed in writing to the client:

(1) that his client money may be passed to a person outside the United Kingdom; and
(2) that, in such circumstances, the legal and regulatory regime applying to the intermediate broker, settlement agent or OTC counterparty will be different from that of the United Kingdom and, in the event of a failure of the intermediate broker, settlement agent or OTC counterparty, this money may be treated in a different manner from that which would apply if the money was held by an intermediate broker, settlement agent or OTC counterparty in the United Kingdom.

01/12/2004

CASS 4.3.62

There is no need for a firm to make a separate disclosure under CASS 4.3.61 R in relation to each jurisdiction.

01/12/2004

CASS 4.3.63

If a client has notified a firm before entering into a transaction that he does not wish his money to be passed to an intermediate broker, settlement agent or OTC counterparty located in a particular jurisdiction, the firm must either:

(1) hold the client money in a client bank account in the United Kingdom or a jurisdiction to which the client has not objected and pay its own money to the firm's own account with the broker, agent or counterparty; or
(2) return the money to, or to the order of, the client.

01/12/2004

Notification to the FSA: failure of a bank, intermediate broker, settlement agent or OTC counterparty

CASS 4.3.64

On the failure of a third party with which money is held, a firm must notify the FSA:

(1) as soon as it becomes aware of the failure of any bank, intermediate broker, settlement agent, OTC counterparty or other entity with which it has placed, or to which it has passed, client money; and
(2) as soon as reasonably practical, whether it intends to make good any shortfall that has arisen or may arise and of the amounts involved.

01/12/2004

Client money calculation

CASS 4.3.65

The purpose of the client money calculation is:

(1) for the normal approach, to act as a check that the amount of client money that is segregated at banks and third parties is sufficient to meet the firm's obligations to its clients on a daily basis;
(2) for the alternative approach, to calculate the appropriate amount of client money to be segregated at banks and third parties which is sufficient to meet a firm's obligations to its clients on a daily basis.

01/12/2004

CASS 4.3.66

Each business day, a firm that adopts the normal approach in accordance with CASS 4.3.8 R must:

(1) check whether its client money resource, being the aggregate balance on the firm's client bank accounts, as at the close of business on the previous business day, was at least equal to the client money requirement, as defined in CASS 4.3.71 R, as at the close of business on that day; and
(2) ensure that:

(a) any shortfall is paid into a client bank account by the close of business on the day the calculation is performed; or
(b) any excess is withdrawn within the same time period unless CASS 4.3.5 R or CASS 4.3.6 R applies.

01/12/2004

CASS 4.3.67

Each business day, a firm that adopts the alternative approach, in accordance with CASS 4.3.8 R, must ensure that its client money resource, being the aggregate balance on the firm's client bank accounts, as at the close of business on that business day is at least equal to the client money requirement, as defined in CASS 4.3.71 R, as at the close of business on the previous business day.

01/12/2004

CASS 4.3.68

No excess or shortfall should arise when adopting the alternative approach.

01/12/2004

CASS 4.3.69

If a firm is operating under the alternative approach allowed by CASS 4.3.8 R, and draws a cheque on its own bank account, it will be expected to account for those cheques that have not yet cleared under CASS 4.3.101 R when performing the client money calculation in CASS 4.3.67 R. An historic average estimate of uncleared cheques may be used to satisfy this obligation.

01/12/2004

CASS 4.3.70

For the purposes of CASS 4.3.66 R and CASS 4.3.67 R, a firm should use the values contained in its accounting records, for example its cash book, rather than values contained in statements received from its banks and other third parties.

01/12/2004

Client money requirement

CASS 4.3.71

The client money requirement is either:

(1) (subject to CASS 4.3.85 R) the sum of, for all clients:

(a) the individual client balances calculated in accordance with CASS 4.3.72 R, excluding:

(i) individual client balances which are negative (that is, debtors); and
(ii) clients' equity balances calculated in accordance with CASS 4.3.79 R; and

(b) the total margined transaction requirement, calculated in accordance with CASS 4.3.81 R; or

(2) the sum of:

(a) for each client bank account:

(i) the amount which the firm's records show as held on that account; and
(ii) an amount that offsets each negative net amount which the firm's records show attributed to that account for an individual client; and

(b) the total margined transaction requirement, which is calculated in accordance with CASS 4.3.81 R.

01/12/2004

General transactions

CASS 4.3.72

The individual client balance for each client is calculated in accordance with CASS 4.3.73 R.

01/12/2004

CASS 4.3.73

This table belongs to CASS 4.3.72 R.

Individual client balance calculation

Free money (no trades) and

sale proceeds due to the client:

(a)

in respect of principal deals when the client has delivered the designated investments; and

(b)

in respect of agency deals, when either:

(i)

the sale proceeds have been received by the firm and the client has delivered the designated investments; or

(ii)

the firm holds the designated investments for the client; and

the cost of purchases:

(c)

in respect of principal deals, paid for by the client but the firm has not delivered the designated investments to the client; and

(d)

in respect of agency deal, paid for by the client when either:

(i)

the firm has not remitted the money to, or to the order of, the counterparty; or

(ii)

the designated investments have been received by the firm but have not been delivered to the client;

Less

money owed by the client in respect of unpaid purchases by or for the client if delivery of those designated investments has been made to the client; and

Proceeds remitted to the client in respect of sales transactions by or for the client if the client has not delivered the designated investments.

Individual Client Balance 'X' = (A+B+C1+C2+D+E1+E2)-F-G

01/12/2004

CASS 4.3.74

In CASS 4.3.72 R a firm must calculate the individual client balance using the contract value of any client purchases or sales.

01/12/2004

CASS 4.3.75

A firm may choose to segregate designated investments instead of the value identified in CASS 4.3.73 R (except E1) if it ensures that the designated investments are held in such a manner that the firm cannot use them for its own purposes.

01/12/2004

CASS 4.3.76

Segregation in the context of CASS 4.3.75 R can take many forms, including the holding of a safe custody investment in a nominee name and the safekeeping of certificates evidencing title in a fire resistant safe. It is not the intention that all the custody rules should be applied to designated investments held in the course of settlement.

01/12/2004

CASS 4.3.77

In determining the client money requirement under CASS 4.3.71 R, a firm need not include money held in accordance with CASS 4.1.15 R and CASS 4.1.16 R (delivery versus payment).

01/12/2004

CASS 4.3.78

Firms are reminded of the provisions of CASS 4.3.10 R and CASS 4.3.12 R which require a firm to segregate client money into client bank accounts within a certain period. In determining the client money requirement under CASS 4.3.71 R, a firm:

(1) should include dividends received and interest earned and allocated;
(2) may deduct outstanding fees, calls, rights and interest charges and other amounts owed by the client in accordance with CASS 4.1.20 E;
(3) need not include client money which, under CASS 4.3.21 R(2), is not required to be segregated nor include client money forwarded to the firm, in accordance with CASS 4.3.17 R, but not received;
(4) should take into account any client money arising from CASS 4.3.95 R; and
(5) should include any unallocated client money.

01/12/2004

Equity balance

CASS 4.3.79

A client's equity balance is the amount which the firm would be liable (ignoring for the purposes of this rule any non-cash collateral held) to pay to a client (or the client to the firm) in respect of his margined transactions if each of his open positions was liquidated at the closing or settlement prices published by the relevant exchange or other appropriate pricing source and his account closed.

01/12/2004

CASS 4.3.80

A firm's equity balance, whether with an exchange, intermediate broker or OTC counterparty, means the amount which the firm would be liable to pay to the exchange, intermediate broker or OTC counterparty (or vice versa) in respect of the firm's margined transactions if each of the open positions of the firm's clients was liquidated at the closing or settlement prices published by the relevant exchange or other appropriate pricing source and the firm's account with the exchange, intermediate broker or OTC counterparty is closed.

01/12/2004

Margined transaction requirement

CASS 4.3.81

The total margined transaction requirement is:

(1) the sum of each of the client's equity balances, as defined in CASS 4.3.79 R, which are positive;

Less

(2) the proportion of any individual negative client equity balance which is secured by approved collateral; and
(3) the net aggregate of the firm's equity balance (negative balances being deducted from positive balances) on transaction accounts for customers with exchanges, clearing houses, intermediate brokers and OTC counterparties.

01/12/2004

CASS 4.3.82

To meet a shortfall that has arisen in respect of the requirement in CASS 4.3.71 R(2), a firm may utilise its own approved collateral provided it is held on terms specifying when it is to be realised for the benefit of clients, it is clearly identifiable from the firm's own property and the relevant terms are evidenced in writing by the firm. In addition, the proceeds of the sale of that collateral should be paid into a client bank account.

01/12/2004

CASS 4.3.83

If a firm's total margined transaction requirement is negative, the firm should treat it as zero for the purposes of calculating its client money requirement in accordance with CASS 4.3.71 R(2).

01/12/2004

CASS 4.3.84

The terms 'client equity balance' in CASS 4.3.79 R and 'firm's equity balance' in CASS 4.3.80 R refer to cash values and do not include non-cash collateral or other designated investments held in respect of a margined transaction.

01/12/2004

Reduced client money requirement option

CASS 4.3.85

(1) When, in respect of a client, there is a positive individual client balance and a negative client equity balance, a firm may offset the credit against the debit and hence have a reduced individual client balance in CASS 4.3.72 R for that client.
(2) When, in respect of a client, there is a negative individual client balance and a positive client equity balance, a firm may offset the credit against the debit and hence have a reduced client equity balance in CASS 4.3.81 R for that client.

01/12/2004

CASS 4.3.86

The effect of CASS 4.3.85 R is to allow a firm to offset, on a client by client basis, a negative amount with a positive amount arising out of the calculations in CASS 4.3.72 R and CASS 4.3.81 R, and, by so doing, reduce the amount the firm is required to segregate.

01/12/2004

Failure to perform calculations

CASS 4.3.87

A firm must notify the FSA immediately if it is unable to, or does not, perform the daily calculation required by CASS 4.3.66 R or CASS 4.3.67 R.

01/12/2004

CASS 4.3.88

A firm must notify the FSA immediately it becomes aware that it may not be able to make good any shortfall identified by CASS 4.3.66 R by the close of business on the day the calculation is performed.

01/12/2004

Reconciliation of client money balances: frequency of reconciliation

CASS 4.3.89

A firm must perform a reconciliation of the client money balances which it holds, or for which it is responsible, as frequently as is necessary to ensure the accuracy of its record of money so held, and no less than once in every 25 business days.

01/12/2004

CASS 4.3.90

In determining whether the minimum acceptable frequency is sufficient, a firm should consider the risks to which the business is exposed, such as the volume of business, and where and with whom the client money is held.

01/12/2004

CASS 4.3.91

A firm must complete the reconciliation of client money within ten business days of the date to which the reconciliation relates.

01/12/2004

Reconciliation method

CASS 4.3.92

A firm must compare:

(1) the balance on each client bank account as recorded by the firm with the balance on that account as set out on the statement or other form of confirmation issued by the bank with which those accounts are held; and
(2) the balance, currency by currency, on each client transaction account as recorded by the firm, with the balance on that account as set out in the statement or other form of confirmation issued by the person with whom the account is held;

and identify any discrepancies between them.

01/12/2004

CASS 4.3.93

Any approved collateral held in accordance with the client money rules must be included within this reconciliation.

01/12/2004

Reconciliation discrepancies

CASS 4.3.94

When any discrepancy arises as a result of the reconciliation carried out under CASS 4.3.92 R, the firm must identify the reason for the discrepancy and correct it as soon as possible, unless the discrepancy arises solely as a result of timing differences between the accounting systems of the party providing the statement or confirmation and that of the firm.

01/12/2004

CASS 4.3.95

While a firm is unable to resolve a difference arising from a reconciliation, and one record or a set of records examined by the firm during its reconciliation indicates that there is a need to have a greater amount of client money or approved collateral than is in fact the case, the firm must assume, until the matter is finally resolved, that the record or set of records is accurate and pay its own money into a relevant account.

01/12/2004

CASS 4.3.96

Items recorded or held within a suspense or error account fall within the scope of discrepancies.

01/12/2004

CASS 4.3.97

A firm must notify the FSA as soon as possible if it is unable to comply with any of the requirements of CASS 4.3.89 R, CASS 4.3.91 R, CASS 4.3.92 R, CASS 4.3.94 R and CASS 4.3.95 R.

01/12/2004

Discharge of fiduciary duty

CASS 4.3.98

The purpose of CASS 4.3.99 R to CASS 4.3.102 R is to set out those situations in which a firm will have fulfilled its contractual and fiduciary obligations in relation to any client money held for or on behalf of its client, in relation to the firm's ability to require repayment of that money.

01/12/2004

CASS 4.3.99

Money ceases to be client money if it is paid:

(1) to the client, or a duly authorised representative of the client; or
(2) to a third party on the instruction of the client, unless it is transferred to a third party in the course of effecting a transaction, in accordance with CASS 4.3.30 R; or
(3) into a bank account of the client (not being an account which is also in the name of the firm); or
(4) to the firm itself, when it is due and payable to the firm in accordance with CASS 4.1.19 R to CASS 4.1.24 G; or
(5) to the firm itself, when it is an excess in the client bank account as set out in CASS 4.3.66 R(2)(b).

01/12/2004

CASS 4.3.100

When a firm wishes to transfer client money balances to a third party in the course of transferring its business to another firm, it should do so in compliance with CASS 4.3.99 R.

01/12/2004

CASS 4.3.101

When a firm draws a cheque or other payable order to discharge its fiduciary duty under CASS 4.3.99 R, it must continue to treat the sum concerned as client money until the cheque or order is presented and paid by the bank.

01/12/2004

CASS 4.3.102

For the purposes of CASS 4.1.19 R, if a firm makes a payment to, or on the instructions of, a client, from an account other than a client bank account, until that payment has cleared, no equivalent sum from a client bank account for reimbursement will become due and payable to the firm.

01/12/2004

Allocated but unclaimed client money

CASS 4.3.103

The purpose of CASS 4.3.104 R is to allow a firm, in the normal course of its business, to cease to treat as client money any balances, allocated to an individual client, when those balances remain unclaimed.

01/12/2004

CASS 4.3.104

A firm may cease to treat as client money any unclaimed client money balance if it can demonstrate that it has taken reasonable steps to trace the client concerned and to return the balance.

01/12/2004

CASS 4.3.105

(1) Reasonable steps should include:

(a) entering into a written agreement, in which the client consents to the firm releasing, after the period of time specified in (b), any client money balances, for or on behalf of that client, from client bank accounts;
(b) determining that there has been no movement on the client's balance for a period of at least six years (notwithstanding any payments or receipts of charges, interest or similar items);
(c) writing to the client at the last known address informing the client of the firm's intention of no longer treating that balance as client money, giving the client 28 days to make a claim;
(d) making and retaining records of all balances released from client bank accounts; and
(e) undertaking to make good any valid claim against any released balances;

(2) Compliance with (1) may be relied on as tending to establish compliance with CASS 4.3.104 R;
(3) Contravention of (1) may be relied on as tending to establish contravention of CASS 4.3.104 R.

01/12/2004

CASS 4.3.106

When a firm gives an undertaking in CASS 4.3.105 E(1)(e), it should make arrangements authorised by the firm's relevant controllers that are legally enforceable by any person with a valid claim to such money.

01/12/2004

Commodity Futures Trading Commission Part 30 exemption order

CASS 4.3.106A

United States (US) legislation restricts the ability of non-US firms to trade on behalf of US customers on non-US futures and options exchanges. The relevant US regulator (the CFTC) operates an exemption system for firms authorised by the FSA. The FSA sponsors the application from a firm for exemption from Part 30 of the General Regulations under the US Commodity Exchange Act in line with this system. The application forms and associated information can be found on the FSA website in the "Forms" section.

01/01/2005

CASS 4.3.107

A firm with a Part 30 exemption order undertakes to the CFTC that it will refuse to allow any US customer to opt not to have his money treated as client money if it is held or received in respect of transactions on non-US exchanges, unless that US customer is an "eligible contract participant" as defined in section 1a(12) of the Commodity Exchange Act, 7 U.S.C. In doing so, the firm is representing that it will not make use of the opt-out arrangements in CASS 4.1.8 G to CASS 4.1.11 R in relation to that business.

01/01/2005

CASS 4.3.108

A firm with a Part 30 exemption order which also operates an LME bond arrangement for the benefit of US-resident investors, must exclude the client's equity balances, as defined in CASS 4.3.79 R, for transactions undertaken on the London Metal Exchange on behalf of those US-resident investors from the calculation required by CASS 4.3.81 R.

01/12/2004

CASS 4.3.109

A firm must not reduce the amount of, or cancel a letter of credit issued under, an LME bond arrangement where this will cause the firm to be in breach of its Part 30 exemption order.

01/12/2004

CASS 4.3.110

A firm must notify the FSA immediately it arranges the issue of an individual letter of credit under an LME bond arrangement.

01/12/2004

Records

CASS 4.3.111

A firm must ensure that proper records, sufficient to show and explain the firm's transactions and commitments in respect of its client money, are made and retained for a period of three years after they were made.

01/12/2004

CASS 4.4

Client money distribution

01/12/2004

Application

CASS 4.4.1

CASS 4.4 (the client money distribution rules) applies to a firm that holds client money which is subject to the client money rules when a primary pooling event or a secondary pooling event occurs.

01/12/2004

CASS 4.4.2

The client money distribution rules have force and effect on any firm that holds client money. Therefore, they will apply to a UK branch of a non-EEA firm. In this case the UK branch of the firm may be treated as if the branch itself is a free standing entity subject to the client money distribution rules.

01/12/2004

Purpose

CASS 4.4.3

The client money distribution rules seek to facilitate the timely return of client money to a client in the event of the failure of a firm or third party at which the firm holds client money.

01/12/2004

Failure of the authorised firm: primary pooling event

CASS 4.4.4

A primary pooling event triggers a notional pooling of all the client money, in every type of client money account, and the obligation to distribute it.

01/12/2004

CASS 4.4.5

A primary pooling event occurs:

(1) on the failure of the firm; or
(2) on the vesting of assets in a trustee in accordance with an 'assets requirement' imposed under section 48(1)(b) of the Act; or
(3) on the coming into force of a requirement for all client money held by the firm; or
(4) when the firm notifies, or is in breach of its duty to notify, the FSA, in accordance with CASS 4.3.97 R, that it is unable correctly to identify and allocate in its records all valid claims arising as a result of a secondary pooling event.

01/12/2004

CASS 4.4.6

CASS 4.4.5 R(4) does not apply so long as:

(1) the firm is taking steps, in consultation with the FSA, to establish those records; and
(2) there are reasonable grounds to conclude that the records will be capable of rectification within a reasonable period.

01/12/2004

Pooling and distribution

CASS 4.4.7

If a primary pooling event occurs:

(1) client money held in each client money account of the firm is treated as pooled; and
(2) the firm must distribute that client money in accordance with CASS 4.2.3 R, so that each client receives a sum which is rateable to the client money entitlement calculated in accordance with CASS 4.3.85 R.

01/12/2004

CASS 4.4.8

A client's main claim is for the return of client money held in a client bank account. A client may claim for any shortfall against money held in a firm's own account. For that claim, the client will be an unsecured creditor of the firm.

01/12/2004

Client money received after the failure of the firm

CASS 4.4.9

Client money received by the firm after a primary pooling event must not be pooled with client money held in any client money account operated by the firm at the time of the primary pooling event. It must be placed in a client bank account that has been opened after that event and must be handled in accordance with the client money rules, and returned to the relevant client without delay, except to the extent that:

(1) it is client money relating to a transaction that has not settled at the time of the primary pooling event; or
(2) it is client money relating to a client, for whom the client money entitlement, calculated in accordance with CASS 4.3.85 R, shows that money is due from the client to the firm at the time of the primary pooling event.

01/12/2004

CASS 4.4.10

Client money received after the primary pooling event relating to an unsettled transaction should be used to settle that transaction. Examples of such transactions include:

(1) an equity transaction with a trade date before the date of the primary pooling event and a settlement date after the date of the primary pooling event; or
(2) a contingent liability investment that is 'open' at the time of the primary pooling event and is due to settle after the primary pooling event.

01/12/2004

CASS 4.4.11

If a firm receives a mixed remittance after a primary pooling event, it must:

(1) pay the full sum into the separate client bank account opened in accordance with CASS 4.4.9 R; and
(2) pay the money that is not client money out of that client bank account into a firm's own bank account within one business day of the day on which the firm would normally expect the remittance to be cleared.

01/12/2004

CASS 4.4.12

Whenever possible the firm should seek to split a mixed remittance before the relevant accounts are credited.

01/12/2004

Failure of a bank, intermediate broker, settlement agent or OTC counterparty: secondary pooling events

CASS 4.4.13

If both a primary pooling event and a secondary pooling event occur, the provisions of this section relating to a primary pooling event apply.

01/12/2004

CASS 4.4.14

A secondary pooling event occurs on the failure of a third party to which client money held by the firm has been transferred under CASS 4.3.8 R or CASS 4.3.30 R.

01/12/2004

CASS 4.4.15

CASS 4.4.20 R to CASS 4.4.32 R do not apply if, on the failure of the third party, the firm repays to its clients or pays into a client bank account, at an unaffected bank, an amount equal to the amount of client money which would have been held if a shortfall had not occurred at that third party.

01/12/2004

CASS 4.4.16

When client money is transferred to a third party, a firm continues to owe a fiduciary duty to the client. However, consistent with a fiduciary's responsibility (whether as agent or trustee) for third parties under general law, a firm will not be held responsible for a shortfall in client money caused by a third party failure if it has complied with those duties.

01/12/2004

CASS 4.4.17

To comply with its duties the firm should show proper care:

(1) in the selection of a third party; and
(2) when monitoring the performance of the third party.

By demonstrating compliance with CASS 4.3.42 R, a firm should be able to demonstrate that it has taken reasonable steps to comply with its duties.

01/12/2004

Failure of a bank

CASS 4.4.18

When a bank fails and the firm decides not to make good the shortfall in the amount of client money held at that bank, a secondary pooling event will occur in accordance with CASS 4.4.20 R. The firm would be expected to reflect the shortfall that arises at the failed bank in the daily client money calculation by reducing the client money resource and client money requirement accordingly.

01/12/2004

CASS 4.4.19

The client money distribution rules seek to ensure that clients who have previously specified that they are not willing to accept the risk of the bank that has failed, and who therefore requested that their client money be placed in a designated client bank account at a different bank, should not suffer the loss of the bank that has failed.

01/12/2004

Failure of a bank: pooling

CASS 4.4.20

If a secondary pooling event occurs as a result of the failure of a bank where one or more general client bank accounts are held, then:

(1) in relation to every general client bank account of the firm, the provisions of CASS 4.4.22 R and CASS 4.4.27 R to CASS 4.4.29 G will apply:
(2) in relation to every designated client bank account held by the firm with the failed bank, the provisions of CASS 4.4.24 R and CASS 4.4.27 R to CASS 4.4.29 G will apply;
(3) in relation to each designated client fund account held by the firm with the failed bank, the provisions of CASS 4.4.25 R and CASS 4.4.27 R to CASS 4.4.29 G will apply;
(4) any money held at a bank, other than the bank that has failed, in designated client bank accounts, is not pooled with any other client money; and
(5) any money held in a designated client fund account, no part of which is held by the bank that has failed, is not pooled with any other client money.

01/12/2004

CASS 4.4.21

If a secondary pooling event occurs as a result of the failure of a bank where one or more designated client bank accounts or designated client fund accounts are held, then;

(1) in relation to every designated client bank account held by the firm with the failed bank, the provisions of CASS 4.4.24 R and CASS 4.4.27 R to CASS 4.4.29 G will apply; and
(2) in relation to each designated client fund account held by the firm with the failed bank, the provisions of CASS 4.4.25 R and CASS 4.4.27 R to CASS 4.4.29 G will apply.

01/12/2004

CASS 4.4.22

Money held in each general client bank account and client transaction account of the firm must be treated as pooled and:

(1) any shortfall in client money held, or which should have been held, in general client bank accounts and client transaction accounts, that has arisen as a result of the failure of the bank, must be borne by all the clients whose client money is held in either a general client bank account or client transaction account of the firm, rateably in accordance with their entitlements;
(2) a new client money entitlement must be calculated for each client by the firm, to reflect the requirements in (1), and the firm's records must be amended to reflect the reduced client money entitlement;
(3) the firm must make and retain a record of each client's share of the client money shortfall at the failed bank until the client is repaid; and
(4) the firm must use the new client entitlements, calculated in accordance with (2), when performing the daily client money calculation in accordance with CASS 4.3.65 G to CASS 4.3.85 R.

01/12/2004

CASS 4.4.23

The term 'which should have been held' is a reference to the failed bank's failure to hold the client money at the time of the pooling event.

01/12/2004

CASS 4.4.24

For each client with a designated client bank account held at the failed bank:

(1) any shortfall in client money held, or which should have been held, in designated client bank accounts that has arisen as a result of the failure, must be borne by all the clients whose client money is held in a designated client bank account of the firm at the failed bank, rateably in accordance with their entitlements;
(2) a new client money entitlement must be calculated for each of the relevant clients by the firm, and the firm's records must be amended to reflect the reduced client money entitlement;
(3) the firm must make and retain a record of each client's share of the client money shortfall at the failed bank until the client is repaid; and
(4) the firm must use the new client money entitlements, calculated in accordance with (2), when performing the daily client money calculation, in accordance with CASS 4.3.65 G to CASS 4.3.85 R.

01/12/2004

CASS 4.4.25

Money held in each designated client fund account with the failed bank must be treated as pooled with any other designated client fund accounts of the firm which contain part of the same designated fund and:

(1) any shortfall in client money held, or which should have been held, in designated client fund accounts that has arisen as a result of the failure, must be borne by each of the clients whose client money is held in that designated fund, rateably in accordance with their entitlements;
(2) a new client entitlement must be calculated for each client by the firm, in accordance with (1), and the firm's records must be amended to reflect the reduced client money entitlement;
(3) the firm must make and retain a record of each client's share of the client money shortfall at the failed bank until the client is repaid; and
(4) the firm must use the new client money entitlements, calculated in accordance with (2), when performing the daily client money calculation in accordance with COB 9.3.99 to COB 9.3.119.

01/12/2004

CASS 4.4.26

A client whose money was held, or which should have been held, in a designated client bank account with a bank that has failed is not entitled to claim in respect of that money against any other client bank account or client transaction account of the firm.

01/12/2004

Client money received after the failure of a bank

CASS 4.4.27

Client money received by the firm after the failure of a bank, that would otherwise have been paid into a client bank account at that bank:

(1) must not be transferred to the failed bank unless specifically instructed by the client in order to settle an obligation of that client to the failed bank; and
(2) must be, subject to (1), placed in a separate client bank account that has been opened after the secondary pooling event and either:

(a) on the written instruction of the client, transferred to a bank other than the one that has failed; or
(b) returned to the client as soon as possible.

01/12/2004

CASS 4.4.28

If a firm receives a mixed remittance after the secondary pooling event which consists of client money that would have been paid into a general client bank account, a designated client bank account or a designated client fund account maintained at the bank that has failed, it must:

(1) pay the full sum into a client bank account other than one operated at the bank that has failed; and
(2) pay the money that is not client money out of that client bank account within one business day of the day on which the firm would normally expect the remittance to be cleared.

01/12/2004

CASS 4.4.29

Whenever possible the firm should seek to split a mixed remittance before the relevant accounts are credited.

01/12/2004

Failure of an intermediate broker, settlement agent or OTC counterparty: Pooling

CASS 4.4.30

If a secondary pooling event occurs as a result of the failure of an intermediate broker, settlement agent or OTC counterparty, then in relation to every general client bank account and client transaction account of the firm, the provisions of CASS 4.4.31 R and CASS 4.4.27 R to CASS 4.4.29 G will apply.

01/12/2004

CASS 4.4.31

Money held in each general client bank account and client transaction account of the firm must be treated as pooled and:

(1) any shortfall in client money held, or which should have been held, in general client bank accounts and client transaction account, that has arisen as a result of the failure, must be borne by all the clients whose client money is held in either a general client bank account or a client transaction accounts of the firm, rateably in accordance with their entitlements;
(2) a new client money entitlement must be calculated for each client by the firm, to reflect the requirements of (1), and the firm's records must be amended to reflect the reduced client money entitlement;
(3) the firm must make and retain a record of each client's share of the client money shortfall at the failed intermediate broker, settlement agent or OTC counterparty until the client is repaid; and
(4) the firm must use the new client money entitlements, calculated in accordance with (2), when performing the daily client money calculation, in accordance with CASS 4.3.65 G to CASS 4.3.85 R.

01/12/2004

Client money received after the failure of an intermediate broker, settlement agent or OTC counterparty

CASS 4.4.32

Client money received by the firm after the failure of an intermediate broker, settlement agent or OTC counterparty, that would otherwise have been paid into a client transaction account at that intermediate broker, settlement agent or OTC counterparty:

(1) must not be transferred to the failed third party unless specifically instructed by the client in order to settle an obligation of that client to the failed intermediate broker, settlement agent or OTC counterparty; and
(2) must be, subject to (1), placed in a separate client bank account that has been opened after the secondary pooling event and either:

(a) on the written instruction of the client, transferred to a third party other than the one that has failed; or
(b) returned to the client as soon as possible.

01/12/2004

Notification on the failure of a bank, intermediate broker, settlement agent or OTC counterparty

CASS 4.4.33

The provisions of CASS 4.3.64 R apply.

01/12/2004

CASS 4.5

Mandate Rules

01/12/2004

Application

CASS 4.5.1

This section applies to a firm in respect of any written authority from a client under which the firm may control a client's assets or liabilities in the course of, or in connection with, the firm's designated investment business.

01/12/2004

CASS 4.5.2

Mandates or similar authorities for the purpose of CASS 4.5.1 R include a firm's authority over a client's safe custody account, for example for stock lending purposes, a firm's authority over a client's bank or building society account including direct debits in favour of the firm, and a firm holding a client's credit card details.

01/12/2004

CASS 4.5.3

Firms are reminded that, under CASS 1.2.1 G(1), the mandate rules do not apply to an incoming EEA firm, other than an insurer, with respect to its passported activities. The application of the mandate rules is also dependent on the location from which the activity is undertaken (see CASS 1.4.3 G).

01/12/2004

Purpose

CASS 4.5.4

The mandate rules apply to those firms that control, rather than hold, clients' assets or are able to create liabilities in the name of a client. These rules seek to ensure that firms establish and maintain records and internal controls to prevent the misuse of the authority granted by the client.

01/12/2004

General

CASS 4.5.5

A firm that holds authorities of the sort referred to in CASS 4.5.1 R, must establish and maintain adequate records and internal controls in respect of its use of the mandates, which must include:

(1) an up-to-date list of the authorities and any conditions placed by the client or the firm's management on the use of them;
(2) a record of all transactions entered into using the authority and internal controls to ensure that they are within the scope of authority of the person and the firm entering into the transaction; and
(3) the details of the procedures and authorities for the giving and receiving of instructions under the authority; and
(4) where the firm holds a passbook or similar documents belonging to the client, internal controls, for the safeguarding (including against loss, unauthorised destruction, theft, fraud or misuse) of any passbook or similar document belonging to the client held by the firm.

01/12/2004

CASS Client Assets Sourcebook

Client money and mandates: designated investment business

Clientmoney and mandates: designated investment business

Application and Purpose

Application

General purpose

Money that is not client money: 'opt outs' for any business (including ISD business) other than insurance mediation activity

'Opt-outs' for non-ISD or non-IMD business

Money in connection with a "delivery versus payment" transaction

Affiliated companies

Money due and payable to the firm

Solicitors

Trustee firms (other than trustees of unit trust schemes)

This table belongs to COB 9.3.28

Statutory trust

Application

Requirement

Segregation and operation of client money accounts

Application

Payment of client money into a client bank account

Mixed remittance

Appointed representatives, field representatives and other agents

Client entitlements

Money due to a client from a firm

Interest

Transfer of client money to a third party

Client bank accounts

A firm's selection of a bank

Group banks

Notification and acknowledgement of trust (banks)

Notification and acknowledgement of trust (exchange, clearing house, intermediate broker or OTC counterparty)

Notification to clients: use of an approved bank outside the United Kingdom

Notification to clients: use of an intermediate broker, settlement agent or OTC counterparty outside the United Kingdom.

Notification to the FSA: failure of a bank, intermediate broker, settlement agent or OTC counterparty

Client money calculation

Client money requirement

General transactions

This table belongs to CASS 4.3.72 R.

Equity balance

Margined transaction requirement

Reduced client money requirement option

Failure to perform calculations

Reconciliation of client money balances: frequency of reconciliation

Reconciliation method

Reconciliation discrepancies

Discharge of fiduciary duty

Allocated but unclaimed client money

Commodity Futures Trading Commission Part 30 exemption order

Records

Client money distribution

Application

Purpose

Failure of the authorised firm: primary pooling event

Pooling and distribution

Client money received after the failure of the firm

Failure of a bank, intermediate broker, settlement agent or OTC counterparty: secondary pooling events

Failure of a bank

Failure of a bank: pooling

Client money received after the failure of a bank

Failure of an intermediate broker, settlement agent or OTC counterparty: Pooling

Client money received after the failure of an intermediate broker, settlement agent or OTC counterparty

Notification on the failure of a bank, intermediate broker, settlement agent or OTC counterparty

Mandate Rules

Application

Purpose

General

Client
money and mandates: designated investment business