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CASS 5.4 Non-statutory client money trust

Introduction

CASS 5.4.1G
  1. (1)

    CASS 5.4 permits a firm, which has adequate resources, systems and controls, to declare a trust on terms which expressly authorise it, in its capacity as trustee, to make advances of credit to the firm's clients. The client money trust required by CASS 5.4 extends to such debt obligations which will arise if the firm, as trustee, makes credit advances, to enable a client's3 premium obligations to be met before the premium is remitted to the firm and similarly if it allows claims and premium refunds to be paid to the client before receiving remittance of those monies from the insurance undertaking.

  2. (2)

    CASS 5.4 does not permit a firm to make advances of credit to itself out of the client money trust. Accordingly, CASS 5.4 does not permit a firm to withdraw commission from the client money trust before it has received the premium from the client in relation to the non-investment insurance contract which generated the commission.

Voluntary nature of this section

CASS 5.4.2R

A firm may elect to comply with the requirements in this section, and may do so for some of its business whilst complying with CASS 5.3 for other parts.

CASS 5.4.3R

A firm is not subject to CASS 5.3 when and to the extent that it acts in accordance with this section.

Conditions for using the non-statutory client money trust

CASS 5.4.4R

A firm may not handle client money in accordance with the rules in this section unless each of the following conditions is satisfied:

  1. (1)

    the firm must have and maintain systems and controls which are adequate to ensure that the firm is able to monitor and manage its client money transactions and any credit risk arising from the operation of the trust arrangement and, if in accordance with CASS 5.4.2 R a firm complies with both the rules in CASS 5.3 and CASS 5.4, such systems and controls must extend to both arrangements;

  2. (2)

    the firm must obtain, and keep current, written confirmation from its auditor that it has in place systems and controls which are adequate to meet the requirements in (1);

  3. (3)

    the firm must designate a manager with responsibility for overseeing the firm's day to day compliance with the systems and controls in (1) and the rules in this section;

  4. (4)

    the firm (if, under the terms of the non-statutory trust, it is to handle client money for retail customers) must have and at all times maintain capital resources of not less than £50,000 calculated in accordance with 2MIPRU 4.4.1 R; and

    2
  5. (5)

    in relation to each of the clients for whom the firm holds money in accordance with CASS 5.4, the firm must take reasonable steps to ensure that its terms of business or other client agreements adequately explain, and obtain the client's informed consent to, the firm holding the client's money in accordance with CASS 5.4 (and in the case of a client which is an insurance undertaking (when acting as such) there must be an agreement which satisfies CASS 5.1.5A R)1.

CASS 5.4.5G

The amount of a firm's capital resources maintained for the purposes of 2MIPRU 4.2.11 R2 will also satisfy (in whole or in part) the requirement in CASS 5.4.4 R (4).

Client money to be received under the non-statutory client money trust

CASS 5.4.6R

Except to the extent that a firm acts in accordance with CASS 5.3, a1firm must not receive or hold any client money unless it does so as trustee (or, in Scotland, as agent) and has properly executed a deed (or equivalent formal document) to that effect.

Contents of trust deed

CASS 5.4.7R

The deed referred to in CASS 5.4.6 R must provide that the money (and, if appropriate, designated investments) are held:

  1. (1)

    for the purposes of and on the terms of:

    1. (a)

      CASS 5.4;

    2. (b)

      the applicable provisions of CASS 5.5; and

    3. (c)

      the client money (insurance) distribution rules

  2. (2)

    subject to (41), for the clients (other than clients which are insurance undertakings when acting as such) 1for whom that money is held, according to their respective interests in it;

  3. (3)

    after all valid claims in (2) have been met for clients which are insurance undertakings according to their respective interests in it;1

  4. (4)

    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 (3)1; and

  5. (5)

    after all valid claims and costs under (2) to (4) 1have been met, for the firm itself.

CASS 5.4.8R

The deed (or equivalent formal document) referred to in CASS 5.4.6 R may provide that:

  1. (1)

    the firm, acting as trustee (or, in Scotland, as agent), has power to make advances or give credit to clients or insurance undertakings from client money, provided that it also provides that any debt or other obligation of a client or resulting obligation of an insurance undertaking, in relation to an advance or credit, is held on the same terms as CASS 5.4.7 R;

  2. (2)

    the benefit of a letter of credit or unconditional guarantee provided by an approved bank on behalf of a firm to satisfy any shortfall in the firm's client money resource (as calculated under CASS 5.5.65 R) when compared with the firm's client money requirement (as calculated under CASS 5.5.66 R or as appropriate CASS 5.5.68 R), is held on the same terms as CASS 5.4.7 R.