CASS 11.13 Client money distribution in the event of a failure of a firm or approved bank

Application

CASS 11.13.1R

Purpose

CASS 11.13.2G

The debt management client money distribution rules seek, in the event of the failure of a CASS debt management firm or of an approved bank at which the CASS debt management firm holds client money, to protect client money and to facilitate the timely payment of sums to creditors or the timely return of client money to clients.

Failure of a CASS debt management firm: primary pooling event

CASS 11.13.3R

A primary pooling event occurs:

  1. (1)

    on the failure of a CASS debt management firm;

  2. (2)

    on the vesting of assets in a trustee in accordance with an 'assets requirement' imposed under section 55P(1)(b) or (c) (as the case may be) of the Act where such a requirement is imposed in respect of all client money held by the firm.

Pooling and distribution after a primary pooling event

CASS 11.13.4R

If a primary pooling event1 occurs, then:2

  1. (1)

    all client money:2

    1. (a)

      held in the CASS debt management firm's client bank accounts; and

    2. (b)

      received by the CASS debt management firm on behalf of a client but not yet paid into the firm's client bank accounts;

    is treated as pooled together to form a notional pool;

  2. (2)

    a CASS debt management firm must calculate the amount it should be holding on behalf of each individual client as at the time of the primary pooling event using the method of calculating individual client balance provided for by CASS 11.11.21 R;

  3. (3)

    a CASS debt management firm must decide whether it is in the best interests of its clients to transfer all its debt management activity business to another CASS debt management firm.

Distribution if client money not transferred to another firm

CASS 11.13.5R

Where a primary pooling event1 occurs and the client money is not transferred to another firm in accordance with CASS 11.13.4 R, a CASS debt management firm must distribute client money comprising the notional pool so that each client 2 receives a sum that is rateable to their entitlement to the notional pool calculated in CASS 11.13.4 R (2).

22

Transfer of client money to another firm

CASS 11.13.6G

If in the event of a primary pooling event occurring the debt management activity business undertaken by a CASS debt management firm ("the transferor") is to be transferred to another CASS debt management firm ("the transferee"), then the transferor may also move the client money associated with that business to the transferee.

CASS 11.13.7R

The remaining client money may be transferred under CASS 11.13.6 G only if it will be held by the transferee in accordance with the debt management client money chapter, including the statutory trust in CASS 11.6.1 R.

CASS 11.13.8R

If there is a shortfall in the client money transferred under CASS 11.13.6 G then the client money must be allocated to each of the clients for whom the client money was held so that each client is allocated a sum which is rateable to that client's client money entitlement in accordance with CASS 11.13.4 R (2). This calculation may be done by either transferor or transferee in accordance with the terms of any transfer.

CASS 11.13.9R

The transferee must, within seven days after the transfer of client money under CASS 11.13.6 G notify clients that:

  1. (1)

    their money has been transferred to the transferee; and

  2. (2)

    they have the option of having client money returned to them or to their order by the transferee, otherwise the transferee will hold the client money for the clients and conduct debt management activities for those clients.

Failure of an approved bank: secondary pooling event

CASS 11.13.10R
CASS 11.13.11R
  1. (1)

    Subject to (2), if a secondary pooling event occurs as a result of the failure of an approved bank where one or more client bank accounts are held then in relation to every client bank account of the firm, the provisions of CASS 11.13.12 R (1), CASS 11.13.12 R (2) and CASS 11.13.12 R (3) will apply.

  2. (2)

    CASS 11.13.12 R does not apply if, on the failure of the approved bank, the CASS debt management firm pays to its clients, or pays into a client bank account at an unaffected approved bank, an amount equal to the amount of client money that would have been held if a shortfall had not occurred as a result of the failure.

CASS 11.13.12R

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

  1. (1)

    any shortfall in client money held, or which should have been held, in client bank accounts, that has arisen as a result of the failure of the approved bank, must be borne by all clients whose client money is held in a client bank account of the firm, rateably in accordance with their entitlements to the pool;

  2. (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. (3)

    the CASS debt management firm must make and retain a record of each client's share of the client money shortfall at the failed approved bank until the client is repaid; and

  4. (4)

    the firm must use the new client entitlements, calculated in accordance with (2), when performing the client money calculation in CASS 11.11.17 R.

CASS 11.13.13R

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

CASS 11.13.14R

Any interest earned on client money following a primary or secondary pooling event will be due to clients in accordance with CASS 11.9.11 R (Interest).