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Status: You are viewing the version of the handbook as on 2009-03-31.

CASS 7.1 Application and Purpose

Application

CASS 7.1.1R

1This chapter (the client money rules) applies to 2 a firm that receives money from or holds money for, or on behalf of, a client in the course of, or in connection with3:

  1. (1)

    [deleted]3

    3
    1. (a)

      [deleted]3

      3
    2. (b)

      [deleted]3

      3
  2. (2)

    [deleted]3

    3
  3. (3)

    its MiFID business; and/or3

  4. (4)

    its designated investment business, that is not MiFID business in respect of any investment agreement entered into, or to be entered into, with or for a client;3

unless otherwise specified in this section.

CASS 7.1.2G

[deleted]3

3

Opt-in to the client money rules 3

CASS 7.1.3R
  1. (1)

    A firm that receives or holds money to which this chapter applies in relation to: 3

    3
    1. (a)

      its MiFID business; or3

    2. (b)

      its MiFID business and its designated investment business which is not MiFID business; 3

    and holds money in respect of which CASS 5 applies, may elect to comply with the provisions of this chapter in respect of all such money and if it does so, this chapter applies as if all such money were money that the firm receives and holds in the course of, or in connection with, its MiFID business.

  2. (1A)

    [deleted]3

    3
  3. (1B)

    A firm that receives or holds money to which this chapter applies solely in relation to its designated investment business which is not MiFID business and receives or holds money in respect of which the insurance client money chapter applies, may elect to comply with the provisions of this chapter in respect of all such money and if it does so, this chapter 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.3

  4. (2)

    A firm must make and retain a written record of any election it makes under this rule, including the date from which the election is to be effective. The firm must make the record on the date it makes the election and must keep it for a period of five years after ceasing to use it.

CASS 7.1.4G

The opt-in to the client money rules in2this chapter 2does not apply in respect of money that a firm holds outside of the scope of the insurance client money chapter.3

323
  1. (2)

    relevant cash deposit ISA wrapper;

CASS 7.1.5G

If a firm has opted to comply with this chapter, the insurance client money chapter will have no application to the activities to which the election applies.

3
CASS 7.1.6G

A firm that is only subject to the insurance client money chapter may not opt to comply with this chapter.

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CASS 7.1.7G

[deleted]3

3
CASS 7.1.7AG

[deleted]3

3

Professional client opt-out

CASS 7.1.7BR

3CASS 7.1.7C G to CASS 7.1.7I G do not apply to a firm in relation to money held in connection with its MiFID business to which this chapter applies or in relation to money for which the firm has made an election under CASS 7.1.3 R (1).

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

CASS 7.1.7CG

3The 'opt out' provisions provide a firm with the option of allowing a professional client to choose whether their money is subject to the client money rules (unless the firm is conducting insurance mediation activity).

CASS 7.1.7DR

3Subject to CASS 7.1.7F 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 professional client, other than in the course of insurance mediation activity, and the firm has obtained written acknowledgement from the professional client that:

  1. (1)

    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 professional client will rank only as a general creditor of the firm.

'Opt-outs' for non-IMD business

CASS 7.1.7EG

3For a firm whose business is not governed by the Insurance Mediation Directive, it is possible to 'opt out' on a one-way basis. However, in order to maintain a comparable regime to that applying to MiFID business, all 'MiFID type' business undertaken outside the scope of MiFID, should comply with the client money rules or be 'opted out' on a two-way basis.

CASS 7.1.7FR

3Money is not client money if a firm, in respect of designated investment business which is not an investment service or activity, an ancillary service, a listed activity or insurance mediation activity:

  1. (1)

    holds it on behalf of or receives it from a professional client who is not an authorised person; and

  2. (2)

    has sent a separate written notice to the professional client stating the matters set out in CASS 7.1.7DR (1) to CASS 7.1.7DR (3).

CASS 7.1.7GG

3When a firm undertakes a range of business for a professional client 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 7.1.7D R or CASS 7.1.7F R, elect to segregate client money in connection with securities transactions and not segregate (by complying with CASS 7.1.7D R or CASS 7.1.7F R) money in connection with contingent liability investments for the same client.

CASS 7.1.7HR

3When a firm transfers client money to another person, the firm must not enter into an agreement under CASS 7.1.7D R or CASS 7.1.7F 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 7.1.7IG

3CASS 7.1.7H R prevents a firm, when passing client money to another person under CASS 7.5.2 R (transfer of client money to a third party), from making use of the 'opt out' provisions under CASS 7.1.7D R or CASS 7.1.7F R.

Credit institutions and approved banks3

CASS 7.1.8R

The client money rules do not apply to a BCD credit institution in relation to deposits within the meaning of the BCD held by that institution.

[Note: article 13(8) of MiFID and article 18(1) of the MiFID implementing Directive]

CASS 7.1.9G

If a credit institution that holds money as a deposit with itself is subject to the requirement to disclose information before providing services, it should, in compliance with that obligation, notify the client that:

  1. (1)

    money held for that client in an account with the credit institution will be held by the firm as banker and not as trustee (or in Scotland as agent); and

  2. (2)

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

CASS 7.1.10G

Pursuant to Principle 10 (Clients' assets), a credit institution that holds money as a deposit with itself 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.

  1. (1)

    it should be able to account to all of its clients sums held for them at all times; and

  2. (2)

    that money should, pursuant to Principle 10, be allocated to the relevant client promptly. This should be done no later than ten business days after the firm has received the money.

CASS 7.1.11G

A credit institution is reminded that the exemption for deposits is not an absolute exemption from the client money rules.

CASS 7.1.11AR
  1. (1)

    3This rule applies to a firm which is an approved bank but not a BCD credit institution.

  2. (2)

    3The client money rules do not apply to money held by the approved bank if it is undertaking business which is not MiFID business but only when the money is 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.

Affiliated companies - MiFID business3

CASS 7.1.12G

A firm that holds money on behalf of, or receives money from, an affiliated company in respect of MiFID business must treat the affiliated company as any other client of the firm for the purposes of this chapter.

Affiliated companies - non-MiFID business3

CASS 7.1.12AR

3A firm that holds money on behalf of, or receives money from, an affiliated company in respect of designated investment business which is not MiFID business must not treat the money as client money 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.

CASS 7.1.13G

[deleted]3

3

Coins

CASS 7.1.14R

The client money rules do not apply with respect to 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.

Solicitors

CASS 7.1.15R
  1. (1)

    An authorised professional firm regulated by the Law Society (of England and Wales), the Law Society of Scotland or the Law Society of Northern Ireland must complywiththe following rules of its designated professional body and, where relevant paragraph (3), and3 if it does so, it will be deemed to comply with the client money rules.

    33
  2. (2)

    The relevant rules are:

    1. (a)

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

      1. (i)

        the Solicitors' Accounts Rules 1998; or

      2. (ii)

        where applicable, the Solicitors Overseas Practice Rules 1990;

    2. (b)

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

    3. (c)

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

  3. (3)

    If the firm in (1) is a MiFID investment firm that receives or holds money for, or on behalf of a client in the course of, or in connection with its MiFID business, it must also comply with the MiFID client money (minimum implementing) rules in relation to that business.3

3Long term insurers and friendly societies

CASS 7.1.15AR

3This chapter does not apply to the permitted activities of a long-term insurer or a friendly society, unless it is a MiFID investment firm that receives money from or holds money for or on behalf of a client in the course of, or in connection with, its MiFID business.

3Contracts of insurance

CASS 7.1.15BR

3This chapter does not apply to client money held by a firm which:

  1. (1)

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

  2. (2)

    in relation to such client money elects to act in accordance with the insurance client money chapter.

CASS 7.1.15CR

3A firm should make and retain a written record of any election which it makes under CASS 7.1.15B R .

3Life assurance business

CASS 7.1.15DG
  1. (1)

    3A firm which receives and holds client money in respect of life assurance business in the course of its designated investment business that is not MiFID business may:

    1. (a)

      under CASS 7.1.3 R (1B) elect to comply with the client money chapter in respect of such client money and in doing so avoid the need to comply with the insurance client money chapter which would otherwise apply to the firm in respect of client money received in the course of its insurance mediation activity; or

    2. (b)

      under CASS 7.1.15B R, elect to comply with the insurance client money chapter 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 the insurance client money chapter 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.

3Trustee firms (other than trustees of unit trust schemes)

CASS 7.1.15ER

3A trustee firm which holds money in relation to its designated investment business which is not MiFID business to which this chapter applies, must hold any such client money separate from its own money at all times.

CASS 7.1.15FR

3 Only the client money rules listed in the table below apply to a trustee firm in connection with money that the firm receives, or holds for or on behalf of a client in the course of or in connection with its designated investment business which is not MiFID business.

Reference

Rule

CASS 7.1.1 R to CASS 7.1.6 G, and CASS 7.1.8 R to CASS 7.1.14 R

Application

CASS 7.1.15E R and CASS 7.1.15F R

Trustee firms (other than trustees of unit trust schemes)

CASS 7.1.16 G

General principle

CASS 7.7.2 R to CASS 7.7.4 G

Requirement

CASS 7.4.1 R to CASS 7.4.6 G

Depositing client money

CASS 7.4.7 R to CASS 7.4.13 G

A firm's selection of credit institution, bank or money market fund

CASS 7.6.6 G to CASS 7.6.16 R

Reconciliation of client money balances

General purpose

CASS 7.1.16G
  1. (1)

    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 treatment of client money. The client money rules provide requirements for firms that receive or hold client money, in whatever form.

  2. (2)

    The client money rules also, where relevant 3 implement the provisions of MiFID which regulate the obligations of a firm when it holds client money in the course of its MiFID business.3