Content Options

View Options

Status: You are viewing the version of the handbook as on 2005-06-30.

CASS 4.1 Application and Purpose

Application

CASS 4.1.1R

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. (1)

    its designated investment business; or1

  2. (2)

    1in the circumstances set out in CASS 4.1.1A R, insurance mediation activity;

1except where CASS 4.1.2 R applies.1

CASS 4.1.1AR

1A 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.

CASS 4.1.2R

The client money rules do not apply with respect to:

  1. (1)

    the permitted activities of a long-term insurer or a friendly society; or

  2. (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. (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:

    1. (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

    2. (b)

      as a result, the money will not be held in accordance with the client money rules;

      1
  4. (4)

    money held by depositaries which are regulated by COB 11;

  5. (5)

    1client money held by a firm which:

    1. (a)

      receives or holds client money in relation to contracts of insurance; but which

    2. (b)

      in relation to such client money elects to act in accordance with CASS 5.1 to 5.6.

CASS 4.1.2AR

1A 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).

CASS 4.1.2BG

1

  1. (1)

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

    1. (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

    2. (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. (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.

CASS 4.1.3G

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).

CASS 4.1.4G

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.

CASS 4.1.5G

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.

CASS 4.1.6G

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.

General purpose

CASS 4.1.7G

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.

Money that is not client money: 'opt outs' for any business (including ISD business) other than insurance mediation activity3

CASS 4.1.8G

The 'opt out' provisions provide a firm with the option of allowingan 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).3

CASS 4.1.9R

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:3

  1. (1)

    the money will not be subject to the protections conferred by the client money rules;

  2. (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. (3)

    the market counterparty or intermediate customer will rank only as a general creditor of the firm.

'Opt-outs' for non-ISD or non-IMD business3

CASS 4.1.10G

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.3

CASS 4.1.11R

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:3

  1. (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. (2)

    has sent a separate written notice stating the matters set out in CASS 4.1.9 R (1) to (3).

CASS 4.1.12G

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.

CASS 4.1.13R

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.

CASS 4.1.14G

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.

Money in connection with a "delivery versus payment" transaction

CASS 4.1.15R

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. (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. (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.

CASS 4.1.16R

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. (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:

    1. (a)

      following the date of the receipt of the money from the client; or

    2. (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. (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.2

Affiliated companies

CASS 4.1.17G

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.

CASS 4.1.18R

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

  1. (1)

    the firm has been notified by the affiliated company that the money belongs to a client of the affiliated company; or

  2. (2)

    the affiliated company is a client dealt with at arm's length; or

  3. (3)

    the affiliated company is a manager of an occupational pension scheme or is an overseas company; and

    1. (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

    2. (b)

      the firm has been notified by the affiliated company that the money is to be treated as client money.

Money due and payable to the firm

CASS 4.1.19R

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

CASS 4.1.20E
  1. (1)

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

    1. (a)

      they have been accurately calculated and are in accordance with a formula or basis previously disclosed to the client by the firm; or

    2. (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

    3. (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. (2)

    Compliance with (1) may be relied on as tending to establish compliance with CASS 4.1.19 R;

  3. (3)

    Contravention of (1) may be relied on as tending to establish contravention of CASS 4.1.19 R.

CASS 4.1.21G

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.

CASS 4.1.22G

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.

CASS 4.1.23G

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.

CASS 4.1.24G

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).

Solicitors

CASS 4.1.25R

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.

CASS 4.1.26R

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

  1. (1)

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

    1. (a)

      the Solicitors' Accounts Rules 1998; or

    2. (b)

      where applicable, the Solicitors Overseas Practice Rules 1990;

  2. (2)

    if regulated by the Law Society of Scotland, the Solicitors' (Scotland) Accounts, Accounts Certificate, Professional Practice and Guarantee Fund Rules 2001;

  3. (3)

    if regulated by the Law Society of Northern Ireland, the Solicitors' Accounts Regulations 1998.

Trustee firms (other than trustees of unit trust schemes)

CASS 4.1.27R

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

CASS 4.1.28R

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.

CASS 4.1.29R

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