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CASS 7.13 1Segregation of client money

Application and purpose

CASS 7.13.1G

1The segregation of client money from a firm's own money is an important safeguard for its protection.

CASS 7.13.2R

Where a firm establishes one or more sub-pools, the provisions of CASS 7.13 (Segregation of client money) shall be read as applying separately to the firm's general pool and each sub-pool in line with CASS 7.19.3 R and CASS 7.19.12 R.

Depositing client money

CASS 7.13.3R

A firm, on receiving any client money, must promptly place this money into one or more accounts opened with any of the following:

  1. (1)

    a central bank;

  2. (2)

    a CRD credit institution;

  3. (3)

    a bank authorised in a third country;

  4. (4)

    a qualifying money market fund.

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

CASS 7.13.4G

A firm should ensure that any money other than client money that is deposited in a client bank account is promptly paid out of that account unless such money is a minimum sum required to open the account, or to keep the account open.

Approaches for the segregation of client money

CASS 7.13.5G

The two approaches that a firm can adopt in discharging its obligations under this section are:

  1. (1)

    the 'normal approach'; or

  2. (2)

    the 'alternative approach' (see CASS 7.13.54 G to CASS 7.13.69 G).

The normal approach

CASS 7.13.6R

Unless otherwise permitted by any other rule in this chapter2, a firm using the normal approach must ensure that all client money it receives is paid directly into a client bank account at an institution referred to in CASS 7.13.3 R (1) to CASS 7.13.3 R (3), rather than being first received into the firm's own account and then segregated.

CASS 7.13.7G

Firms should ensure that clients and third parties make transfers and payments of any money which will be client money directly into the firm's client bank accounts.

Selection, appointment and review of third parties

CASS 7.13.8R

A firm that does not deposit client money with a central bank must exercise all due skill, care and diligence in the selection, appointment and periodic review of the CRD credit institution, bank or qualifying money market fund where the money is deposited and the arrangements for the holding of this money.

[Note: article 18(3) of the MiFID implementing Directive]

CASS 7.13.9G

Firms should ensure that their consideration of a CRD credit institution, bank or qualifying money market fund under CASS 7.13.8 R focuses on the specific legal entity in question and not simply that person's group as a whole.

CASS 7.13.10R

When a firm makes the selection, appointment and conducts the periodic review of a CRD credit institution, a bank or a qualifying money market fund, it must take into account:

  1. (1)

    the expertise and market reputation of the third party; and

  2. (2)

    any legal requirements or market practices related to the holding of client money that could adversely affect clients' rights.

[Note: article 18(3) of the MiFID implementing Directive]

CASS 7.13.11G

In complying with CASS 7.13.8 R and CASS 7.13.10 R, a firm should consider, as appropriate, together with any other relevant matters:

  1. (1)

    the capital of the CRD credit institution or bank;

  2. (2)

    the amount of client money placed, as a proportion of the CRD credit institution or bank's capital and deposits, and, in the case of a qualifying money market fund, compared to any limit the fund may place on the volume of redemptions in any period;

  3. (3)

    the extent to which client money that the firm deposits or holds with any CRD credit institution or bank incorporated outside the UK would be protected under a deposit protection scheme in the relevant jurisdiction;

  4. (4)

    the credit-worthiness of the CRD credit institution or bank; and

  5. (5)

    to the extent that the information is available, the level of risk in the investment and loan activities undertaken by the CRD credit institution or bank and affiliated companies.

Client bank accounts

CASS 7.13.12R

A firm must take the necessary steps to ensure that client money deposited, in accordance with CASS CASS 7.13.3 R, in a central bank, a credit institution, a bank authorised in a third country or a qualifying money market fund is held in an account or accounts identified separately from any accounts used to hold money belonging to the firm.

[Note: article 16(1)(e) of the MiFID implementing Directive]

CASS 7.13.13R
  1. (1)

    An account which the firm uses to deposit client money under CASS 7.13.3 R (1) to CASS 7.13.3 R (3) must be a client bank account.

  2. (2)

    Each client bank account used by a firm must be held on terms under which:

    1. (a)

      the relevant bank's contractual counterparty is the firm that is subject to the requirement under CASS 7.13.3 R; and

    2. (b)

      unless the firm has agreed terms that comply with CASS 7.13.13 R (3), the firm is able to make withdrawals of client money promptly and, in any event, within one business day of a request for withdrawal.

    Transitional provision CASS TP 1.1.10AR applies to (2).

  3. (3)

    Firms may use client bank accounts held on terms under which withdrawals are, without exception, prohibited until the expiry of a fixed term or a notice period of a maximum of 30 days.

  4. (4)

    Paragraphs (2)(b) and (3) do not apply in respect of client money received by a firm in its capacity as a trustee firm.

CASS 7.13.14G

CASS 7.13.13 R (2)(b) and CASS 7.13.13 R (3) do not prevent a firm from depositing client money on terms under which a withdrawal may be made before the expiry of a fixed term or a notice period (whatever the duration), including where such withdrawal would incur a penalty charge to the firm.

CASS 7.13.15G

CASS 7.13.13 R does not prevent a firm from depositing client money in overnight money market deposits which are clearly identified as being client money (for example, in the client bank account acknowledgment letter).

CASS 7.13.16G

Firms are reminded of their obligations under CASS 7.18 (Acknowledgment letters) for client bank accounts. Firms should also ensure that client bank accounts meet the requirements in the relevant Glossary definitions, including regarding the titles given to the accounts.

CASS 7.13.17G

A firm may open one or more client bank accounts in the form of a general client bank account, a designated client bank account or a designated client fund account (see CASS 7A.2.1 G (Failure of the authorised firm: primary pooling event)). The requirements of CASS 7.13.13 R (2) and CASS 7.13.13 R (3) apply for each type of client bank account.

CASS 7.13.18G

A designated client bank account may be used for a client only where that client has consented to the use of that account. If a firm deposits client money into a designated client bank account then, in the event of a secondary pooling event in respect of the relevant bank, the account will not be pooled with any general client bank account or designated client fund account.

CASS 7.13.19G

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. For example, 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. If a firm deposits client money into a designated client fund account then, in the event of a secondary pooling event in respect of the relevant bank, the account will not be pooled with any general client bank account or designated client bank account.

Diversification of client money

CASS 7.13.20R

Notwithstanding the requirement at CASS 7.13.22 R a firm must limit the funds that it deposits or holds with a relevant group entity or combination of such entities so that the value of those funds do not at any point in time exceed 20 per cent of the total of all the client money held by the firm in its client bank accounts.

CASS 7.13.21R

For the purpose of CASS 7.13.20 R an entity is a relevant group entity if it is:

  1. (1)

    a CRD credit institution or a bank authorised in a third country; and

  2. (2)

    a member of the same group as that firm.

CASS 7.13.22R

Subject to the requirement at CASS 7.13.20 R, and in accordance with Principle 10 and CASS 7.12.1 R, a firm must:

  1. (1)

    periodically assess whether it is appropriate to diversify (or further diversify) the third parties with which it deposits some or all of the client money that the firm holds; and

  2. (2)

    whenever it concludes that it is appropriate to do so, it must make adjustments accordingly to the third parties it uses and to the amounts of client money deposited with them.

CASS 7.13.23G

In complying with the requirement in CASS 7.13.22 R to periodically assess whether diversification (or further diversification) is appropriate, a firm should have regard to:

  1. (1)

    whether it would be appropriate to deposit client money in client bank accounts opened at a number of different third parties;

  2. (2)

    whether it would be appropriate to limit the amount of client money the firm holds with third parties that are in the same group as each other;

  3. (3)

    whether risks arising from the firm's business models create any need for diversification (or further diversification);

  4. (4)

    the market conditions at the time of the assessment; and

  5. (5)

    the outcome of any due diligence carried out in accordance with CASS 7.13.8 R and CASS 7.13.10 R.

CASS 7.13.24G

The rules in SUP 16.14 provide that CASS large firms and CASS medium firms must report to the FCA in relation to the identity of the entities with which they deposit client money and the amounts of client money deposited with those entities. The FCA will use that information to monitor compliance with the diversification rule in CASS 7.13.20 R.

CASS 7.13.25R
  1. (1)

    A firm must make a record of the grounds upon which it satisfies itself as to the appropriateness of its selection and appointment of a bank or a qualifying money market fund under CASS 7.13.8 R. The firm must make the record on the date it makes the selection or appointment and must keep it from that date until five years after the firm ceases to use that particular person for the purposes of depositing client money under CASS 7.13.3 R.

  2. (2)

    A firm must make a record of each periodic review of its selection and appointment of a bank or a qualifying money market fund that it conducts under CASS 7.13.8 R, its considerations and conclusions. The firm must make the record on the date it completes the review and must keep it from that date until five years after the firm ceases to use that particular person for the purposes of depositing client money under CASS 7.13.3 R.

  3. (3)

    A firm must make a record of each periodic review that it conducts under CASS 7.13.22 R, its considerations and conclusions. The firm must make the record on the date it completes out the review and must keep it for five years from that date.

Qualifying money market funds

CASS 7.13.26R

Where a firm deposits client money with a qualifying money market fund, the firm's holding of those units in that fund will be subject to any applicable requirements of the custody rules.

[Note: recital 23 to the MiFID implementing Directive]

CASS 7.13.27G

A firm that places client money in a qualifying money market fund should ensure that it has the permissions required to invest in and hold units in that fund and must comply with the rules that are relevant for those activities.

CASS 7.13.28R

A firm must give a client the right to oppose the placement of his money in a qualifying money market fund.

[Note: article 18(3) to the MiFID implementing Directive]

CASS 7.13.29G

If a firm that intends to place client money in a qualifying money market fund 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 will be held in a qualifying money market fund; and

  2. (2)

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

  3. (3)

    if it is the case, that the units will be held as the client's safe custody assets in accordance with the custody rules.

Segregation in different currency

CASS 7.13.30R

A firm may segregate client money in a different currency from that in which it was received or in which the firm is liable to the relevant client. 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.

Mixed remittance

CASS 7.13.31R

Except in the circumstances described in CASS 7.13.72 R (1)(a), where a firm using the normal approach receives a mixed remittance it should:

  1. (1)

    in accordance with CASS 7.13.6 R, take necessary steps to ensure the mixed remittance is paid directly into a client bank account; and

  2. (2)

    promptly and, in any event no later than one business day after the payment of the mixed remittance into the client bank account has cleared, pay the money that is not client money out of the client bank account.

Physical receipts of client money

CASS 7.13.32R

Where a firm receives client money in the form of cash, a cheque or other payable order, it must:

  1. (1)

    pay the money in accordance with CASS 7.13.6 R, promptly, and no later than on the business day after it receives the money into a client bank account, unless either:

    1. (a)

      the money is received by a business line for which the firm uses the alternative approach, in which case the money must be paid into the firm's own bank account promptly, and no later than on the business day after it receives the money; or

    2. (b)

      the firm is unable to meet the requirement in (1) because of restrictions under the regulatory system or law regarding the receipt and processing of money, in which case the money must be paid in accordance with CASS 7.13.6 R as soon as possible;

  2. (2)

    if the firm holds the money in the meantime before paying it in accordance with CASS 7.13.6 R (or in the case of (1)(a), into its own bank account), hold it in a secure location in line with Principle 10; and

  3. (3)

    in any case, record the receipt of the money in the firm's books and records in line with CASS 7.15 (Records, accounts and reconciliations).

CASS 7.13.33R

Where a firm receives client money in the form of a cheque that is dated with a future date, unless the firm returns the cheque it must:

  1. (1)

    pay the money in accordance with CASS 7.13.6 R, promptly, and no later than the date on the cheque if the date is a business day or the next business day after the date on the cheque;

  2. (2)

    in the meantime, hold it in a secure location in accordance with Principle 10; and

  3. (3)

    record the receipt of the money in the firm's books and records in accordance with CASS 7.15 (Records, accounts and reconciliations).

Appointed representatives, tied agents, field representatives and other agents

CASS 7.13.34R

A firm must ensure that client money received by its appointed representatives, tied agents, field representatives or other agents is:

  1. (1)

    received directly into a client bank account of the firm, where this would have been required if such client money had been received by the firm otherwise than through its appointed representatives, tied agents, field representatives or other agents (see CASS 7.13.6 R and CASS 7.13.7 G); or

  2. (2)

    if it is received in the form of a cheque or other payable order:

    1. (a)

      paid into a client bank account of the firm promptly and, in any event, no later than the next business day after receipt; or

    2. (b)

      forwarded to the firm or, in the case of a field representative, forwarded to a specified business address of the firm, to ensure that the money arrives at the specified business address promptly and, in any event, no later than the close of the third business day.

CASS 7.13.35G

Under CASS 7.13.34 R (2)(b), client money received on business day one should be forwarded to the firm or specified business address of the firm promptly and, in any event, 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 in the form of a cheque to be sent to the firm or the specified business address of the firm by first class post and, in any event, no later than the next business day after receipt, would fulfil CASS 7.13.34 R (2)(b).

Allocation of client money receipts

CASS 7.13.36R
  1. (1)

    A firm must allocate any client money it receives to an individual client promptly and, in any case, no later than ten business days following the receipt (or where subsequent to the receipt of money it has identified that the money, or part of it, is client money under CASS 7.13.37 R, no later than ten business days following that identification).

  2. (2)

    Pending a firm's allocation of a client money receipt to an individual client under (1), it must record the received client money in its books and records as "unallocated client money".

CASS 7.13.37R

If a firm receives money (either in a client bank account or an account of its own) which it is unable to immediately identify as client money or its own money, it must:

  1. (1)

    take all necessary steps to identify the money as either client money or its own money;

  2. (2)

    if it considers it reasonably prudent to do so, given the risk that client money may not be adequately protected if it is not treated as such, treat the entire balance of money as client money and record the money in its books and records as "unidentified client money" while it performs the necessary steps under (1).

CASS 7.13.38G

If a firm is unable to identify money that it has received as either client money or its own money under CASS 7.13.37 R, it should consider whether it would be appropriate to return the money to the person who sent it or to the source from where it was received (3for example, the banking institution).

Money due to a client from a firm

CASS 7.13.39R

Pursuant to the client money segregation requirements, a firm that is operating the normal approach and is liable to pay money to a client should promptly, and in any event no later than one business day after the money is due and payable, pay the money:

  1. (1)

    to, or to the order of, the client; or

  2. (2)

    into a client bank account.

CASS 7.13.40G

Where the firm has payment instructions from the client the firm should pay the money to the order of the client, rather than into a client bank account.

Prudent segregation

CASS 7.13.41R

If it is prudent to do so to prevent a shortfall in client money on the occurrence of a primary pooling event, a firm may pay money of its own into a client bank account and subsequently retain that money in the client bank account (prudent segregation). Money that the firm retains in a client bank account under this rule is client money for the purposes of the client money rules and the client money distribution rules.

CASS 7.13.42G

A firm must make and retain an up-to-date record of all payments made under CASS 7.13.41 R. (See further CASS 7.13.50 R to CASS 7.13.53 R: the prudent segregation record.)

CASS 7.13.43R

If a firm intends to pays its own money into a client bank account under CASS 7.13.41 R it must establish a written policy that is approved by its governing body (and retain such policy for a period of at least five years after the date it ceases to retain such money in a client bank account under CASS 7.13.41 R) detailing:

  1. (1)

    the specific anticipated risks in relation to which it would be prudent for the firm to make such payments into a client bank account;

  2. (2)

    why the firm considers that the use of such a payment is a reasonable means of protecting client money against each of the risks set out in the policy; and

  3. (3)

    the method that the firm will use to calculate the amount required to address each risk set out in the policy.

CASS 7.13.44R

The firm may amend its written policy to reflect changes in the specific anticipated risks in relation to which it would be prudent for the firm to make payments into a client bank account under CASS 7.13.41 R.

CASS 7.13.45R

The firm's written policy must not conflict with the client money rules or the client money distribution rules. If there is a conflict, the client money rules and the client money distribution rules will prevail.

CASS 7.13.46G

In the event the firm faces a risk not contemplated under its current policy it will not be prevented from prudently segregating money as client money in accordance with these rules but the policy must be created or amended, as applicable, as soon as reasonably practicable.

CASS 7.13.47G

Examples of the types of risks that a firm may wish to provide protection for under CASS 7.13.41 R include systems failures and business that is conducted on non-business days where the firm would be unable to pay any anticipated shortfall into its client bank accounts.

CASS 7.13.48R

To the extent that the firm no longer considers it prudent to retain money in its client bank account pursuant to CASS 7.13.41 R in order to ensure that client money is protected, the firm may cease to treat that money as client money.

CASS 7.13.49R

Any money that the firm ceases to treat as client money pursuant to CASS 7.13.48 R must be withdrawn from its client bank account as an excess under CASS 7.15.29 R as part of its next reconciliation.

Prudent segregation record

CASS 7.13.50R

A firm must create and keep up-to-date records so that the amount of money paid into client bank accounts and retained as client money pursuant to CASS 7.13.41 R or withdrawn pursuant to CASS 7.13.49 R, and the reasons for such payment, retention and withdrawal can be easily ascertained (the prudent segregation record).

CASS 7.13.51R

The prudent segregation record must record:

  1. (1)

    the outcome of the firm's calculation of its prudent segregation;

  2. (2)

    the amounts paid into or withdrawn from a client bank account pursuant to CASS 7.13.41 R or CASS 7.13.49 R;

  3. (3)

    why each payment or withdrawal is made;

  4. (4)

    in respect of the firm's written policy required by CASS 7.13.43 R the firm must record, as applicable, either:

    1. (a)

      that the payment or withdrawal is made in accordance with that policy; or

    2. (b)

      that the policy will be created or amended to include the reasons for this payment or withdrawal;

  5. (5)

    that the money was paid by the firm in accordance with CASS 7.13.41 R or withdrawn by the firm in accordance with CASS 7.13.49 R; and

  6. (6)

    the up-to-date total amount of client money held pursuant to CASS 7.13.41 R.

CASS 7.13.52G

Firms are reminded that payments and records made in accordance with CASS 7.13.51 R should not be used as a substitute for a firm keeping accurate and timely records in accordance with CASS 7.15 (Records, accounts and reconciliations) and requirements under SYSC 4.1.1 R (General requirements) and SYSC 6.1.1 R (Compliance).

CASS 7.13.53R

The prudent segregation record must be retained for five years after the firm ceases to retain money as client money pursuant to CASS 7.13.41 R.

The alternative approach to client money segregation

CASS 7.13.54G
  1. (1)

    In certain circumstances, use of the normal approach for a particular business line of a firm could lead to significant operational risks to client money protection. These may include a business line under which clients' transactions are complex, numerous, closely related to the firm's proprietary business and/or involve a number of currencies and time zones. In such circumstances, subject to meeting the relevant criteria and fulfilling the relevant notification and audit requirements, a firm may use the alternative approach to segregating client money for that business line.

  2. (2)

    Under the alternative approach, client money is received into and paid out of a firm's own bank account. A firm that adopts the alternative approach to segregating client money should (in line with CASS 7.15.16 R (2)) carry out an internal client money reconciliation on each business day ('T0') and calculate how much money it either needs to withdraw from, or place in from its own bank account or its client bank account as a result of any discrepancy arising between its client money requirement and its client money resource as at the close of business on the previous business day ('T-1').

  3. (3)

    The alternative approach mandatory prudent segregation required under CASS 7.13.65 R is designed to address the risks that:

    1. (a)

      client money in a firm's own bank account may not be available to be pooled for distribution to clients on the occurrence of a primary pooling event; and

    2. (b)

      at the time of a primary pooling event the firm may not have segregated in its client bank account a sufficient amount of client money to meet its client money requirement.

CASS 7.13.55R

A firm that wishes to adopt the alternative approach for a particular business line must first establish, and document in writing, its reasons for concluding, that:

  1. (1)

    adopting the normal approach would lead to greater operational risks to client money protection compared to the alternative approach;

  2. (2)

    adopting the alternative approach (including complying with the requirements for alternative approach mandatory prudent segregation under CASS 7.13.65 R), would not result in undue operational risk to client money protection; and

  3. (3)

    the firm has systems and controls that are adequate to enable it to operate the alternative approach effectively and in compliance with Principle 10 (Clients' assets).

CASS 7.13.56R

A firm must retain any documents created under CASS 7.13.55 R in relation to a particular business line for a period of at least five years after the date it ceases to use the alternative approach in connection with that business line.

CASS 7.13.57R

At least three months before adopting the alternative approach for a particular business line, a firm must:

  1. (1)

    inform the FCA in writing that it intends to adopt the alternative approach for that particular business line; and

  2. (2)

    if requested by the FCA, make any documents it created under CASS 7.13.55 R2 available to the FCA for inspection.

CASS 7.13.58R
  1. (1)

    In addition to the requirement under CASS 7.13.57 R, before adopting the alternative approach, a firm must send a written report to the FCA prepared by an independent auditor of the firm in line with a reasonable assurance engagement, stating the matters set out in (2).

  2. (2)

    The written report in (1) must state whether, in the auditor's opinion:

    1. (a)

      the firm's systems and controls are suitably designed to enable it to comply with CASS 7.13.62 R to CASS 7.13.65 R; and

    2. (b)

      the firm's calculation of its alternative approach mandatory prudent segregation amount under CASS 7.13.65 R is suitably designed to enable the firm to comply with CASS 7.13.65 R.

CASS 7.13.59R
  1. (1)

    A firm that uses the alternative approach must review, at least on an annual basis and with no more than one year between each review, whether its reasons for adopting the alternative approach for a particular business line, as documented under CASS 7.13.55 R, continue to be valid.

  2. (2)

    If, following the review in (1), a firm finds that its reasons for adopting the alternative approach are no longer valid for a particular business line, it must stop using the alternative approach for that business line as soon as reasonably practicable, and in any event within six months of the conclusion of its review in (1).

CASS 7.13.60R

A firm that uses the alternative approach must not materially change how it will calculate and maintain the alternative approach mandatory prudent segregation amount under CASS 7.13.65 R unless:

  1. (1)

    an auditor of the firm has prepared a report that complies with the requirements in CASS 7.13.58 R (2)(b) in respect of the firm's proposed changes; and

  2. (2)

    the firm provides a copy of the report prepared by the auditor under (a) to the FCA before implementing the change.

CASS 7.13.61G

A firm is reminded that, under SUP 3.4.2 R, it must take reasonable steps to ensure that its auditor has the required skill, resources and experience to perform its function.

CASS 7.13.62R

A firm that uses the alternative approach for a particular business line must, on each business day ('T0'):

  1. (1)

    receive any money from and pay any money to (or, in either case, on behalf of) clients into and out of its own bank accounts;

  2. (2)

    perform the necessary reconciliations of records and accounts required under CASS 7.15 (Records, accounts and reconciliations);

  3. (3)

    adjust the balances held in its client bank account (by effecting transfers between its own bank account and its client bank account) to address any difference arising between its client money requirement and its client money resource as at the close of business on the previous business day ('T-1'), so that the correct amount reflected in the reconciliations under (2) is segregated in its client bank account; and

  4. (4)

    subject to CASS 7.13.63R below, keep segregated in its client bank account the balance held under (3) until it has performed a reconciliation on the following business day ('T+1') and as a result of that reconciliation is undertaking further adjustments under (3).

CASS 7.13.63R

During the period between the adjustment in CASS 7.13.62 R (3) and the completion of the next reconciliations in CASS 7.13.62 R (2), a firm that uses the alternative approach for a particular business line may:

  1. (1)

    increase the balance held in its client bank account by making intra-day transfers (during T0) from its own bank account to its client bank account before the completion of the internal client money reconciliation under CASS 7.13.62 R (2) (that is expected sometime later on T0) only if:

    1. (a)

      the firm reasonably expects that the client money requirement for the previous business day (T-1) will increase above the client money resource currently (during T0) held in its client bank account; and

    2. (b)

      such reasonable expectations are based on the working calculation of the client money requirement relating to the previous business day (T-1) that the firm has already determined on that business day (during T0) (as part of the process of completing its internal client money reconciliation); or

  2. (2)

    decrease the balance held in its client bank account by making intra-day transfers (during T0) from its client bank account to its own bank account before the completion of the internal client money reconciliation under CASS 7.13.62 R (2) (that is expected sometime later on T0) only if:

    1. (a)

      the firm reasonably expects that the client money requirement for the previous business day (T-1) will decrease below the client money resource currently held (during T0) in its client bank account; and

    2. (b)

      such reasonable expectations are based on the working calculation of the client money requirement relating to the previous business day (T-1) that the firm has already determined on that business day (during T0) (as part of the process of completing its internal client money reconciliation).

However, in doing so, a firm must act prudently and should take appropriate steps to manage the risk of not having segregated an amount that appropriately reflects its actual client money requirement at any given time.

CASS 7.13.64G

It is anticipated that CASS 7.13.63 R may be used by firms which maintain client bank accounts in a number of different time zones and making adjustments to the balances of those client bank accounts is dependent on meeting cut off times for money transfers in those time zones.

CASS 7.13.65R
  1. (1)

    A firm that uses the alternative approach must, in addition to CASS 7.13.62 R, pay an amount (determined in accordance with this rule) of its own money into its client bank account and subsequently retain that money in its client bank account (alternative approach mandatory prudent segregation). The amount segregated by a firm in its client bank account under this rule is client money for the purposes of the client money rules and the client money distribution rules.

  2. (2)

    The amount required to be segregated under this rule must be an amount that a firm reasonably determines would be sufficient, at the time it makes the determination, to protect client money against the risk that at any time in the following three months the following categories of client money may not have been fully segregated in its client bank account or may not be (or become) available for pooling under CASS 7A.2.4R (1), were a primary pooling event to occur:

    1. (a)

      client money that is received and held by the firm in its own bank account during the period between:

      1. (i)

        the firm's adjustment of client bank account balances under CASS 7.13.62 R (3) on a particular business day; and

      2. (ii)

        the firm's subsequent adjustments under CASS 7.13.62 R (3) on the following business day; and

    2. (b)

      money received and held by the firm in its own bank account which the firm does not initially identify as part of its client money requirement, but which subsequently does become part of its client money requirement;

    with the effect that the firm's alternative approach mandatory prudent segregation under this rule will reduce, as far as possible, any shortfall that might have been produced as a result of (a) or (b) on the occurrence of a primary pooling event.

  3. (3)
    1. (a)

      Subject to (c), in reaching its determination under (2) of the amount of money that would be sufficient to address the risks referred to in (2) for the forthcoming three months, a firm must take into account the following in respect of each business line for which it uses the alternative approach, and for at least the previous three months:

      1. (i)

        the firm's client money requirement over the course of that prior period (excluding any amount that was required to be segregated under this rule during that prior period for the purposes of alternative approach mandatory prudent segregation);

      2. (ii)

        the daily adjustment payments that the firm made into its client bank account under CASS 7.13.62 R (3) during that prior period; and

      3. (iii)

        the amount of money received by the firm in its own bank account which it did not initially identify as part of its client money requirement, but which subsequently, and during that prior period, became part of its client money requirement;

    as shown in its internal records.

    1. (b)

      In reaching its determination under (2) a firm must also take into account, but at all times having regard to the requirement under (2), any impact that particular events, the seasonal nature of each relevant business line, or any other aspect of those business lines may have on:

      1. (i)

        the firm's client money requirement during the forthcoming three months for which the amount of alternative approach mandatory prudent segregation required under this rule is being determined;

      2. (ii)

        the daily adjustment payments that the firm is likely to make into its client bank account under CASS 7.13.62 R (3) in that same period; and

      3. (iii)

        the amount of unidentified receipts of money that the firm is likely to receive into its own bank account and which will subsequently, in that same period, become part of its client money requirement.

    2. (c)

      If, at the time of its determination under (2), the firm has not been trading for three months in a business line for which it is using the alternative approach, then it must use the records that are available to it and must also factor in reasonable forecasts, as required under (b), to establish a three-month reference period.

  4. (4)
    1. (a)

      A firm must, at regular intervals that are at least quarterly, repeat and complete the combined process of:

      1. (i)

        determining the amount that it is required to segregate for the purposes of alternative approach mandatory prudent segregation under (2) and (3);

      2. (ii)

        making necessary adjustments to its records to reflect any changes to its client money requirement (in accordance with CASS 7.16.16 R (3) and CASS 7.16.17 R (2)); and

      3. (iii)

        paying any additional amounts of its own money into its client bank account to increase the firm's alternative approach mandatory prudent segregation or withdrawing any excess amounts from its client bank account to decrease the firm's alternative approach mandatory prudent segregation after it has adjusted its records under (ii).

    2. (b)

      The combined process of (a)(i) to (iii) must take no longer than ten business days.

    3. (c)

      To the extent that a firm's compliance with (a)(i) and (ii) results in there being an excess in the firm's client bank account, the firm may cease to treat that money as client money.

  5. (5)

    A firm must ensure that the individual responsible for CASS oversight under CASS 1A.3.1 R, CASS 1A.3.1A R or CASS 1A.3.1C R (as appropriate) reviews the adequacy of the amount of the firm's alternative approach mandatory prudent segregation maintained under this rule at least annually.

CASS 7.13.66R

A firm must create and keep up-to-date records so that any amount of money that is, pursuant to CASS 7.13.65 R:

  1. (1)

    paid into a client bank account and retained as client money; or

  2. (2)

    withdrawn from a client bank account;

can be easily ascertained (the alternative approach mandatory prudent segregation record).

CASS 7.13.67R

The alternative approach mandatory prudent segregation record under CASS 7.13.66 R must record:

  1. (1)

    the date of the first determination under CASS 7.13.65 R (2) and each subsequent review undertaken under CASS 7.13.65 R (4), and the total amount that the firm determined was required to be segregated under CASS 7.13.65 R (2) as at that date;

  2. (2)

    the date of any payment of the firm's own money into a client bank account, or withdrawal of any excess from a client bank account under CASS 7.13.65 R, and for each such occasion:

    1. (a)

      the amount of the payment or withdrawal;

    2. (b)

      the fact that the money was paid or withdrawn by the firm in accordance with CASS 7.13.65 R; and

    3. (c)

      as at that date, the total amount actually segregated by the firm under CASS 7.13.65 R.

CASS 7.13.68R

The alternative approach mandatory prudent segregation record must be retained for five years after the firm ceases to segregate any money in accordance with CASS 7.13.65 R.

CASS 7.13.69G

Nothing in CASS 7.13.54 G to CASS 7.13.68 R prevents a firm from also making use of the prudent segregation rule in CASS 7.13.41 R.

Use of the normal approach in relation to certain regulated clearing arrangements

CASS 7.13.70G

CASS 7.13.72 R sets out the circumstances under which a firm, that would otherwise be required to comply with the requirement in CASS 7.13.6 R to receive client money directly into a client bank account, must receive (or is permitted to receive) 5client money into its own bank account.

CASS 7.13.71R

A firm that is also a clearing member that is using the normal approach in connection with regulated clearing arrangements must use reasonable endeavours to ensure it is not required under its arrangements with an authorised central counterparty to receive mixed remittances from or pay mixed remittances to the authorised central counterparty through a single bank account.

CASS 7.13.72R
  1. (1)

    If, notwithstanding its reasonable endeavours in accordance with CASS 7.13.71 R, the firm is required under its arrangements with an authorised central counterparty to:

    1. (a)

      receive mixed remittances from the authorised central counterparty 5into a single bank account and pay mixed remittances to the authorised central counterparty from that bank account; or

    2. (b)

      pay mixed remittances to the authorised central counterparty using a single bank account;

then such arrangements for client money are permitted if the firm complies, 5as applicable, with (2) and CASS 7.13.73 R.

5
  1. (2)
    1. (a)

      In either or both of the circumstances described in (1):5

      5
      1. (i)

        the firm must pay any mixed remittances to the authorised central counterparty 5from its own bank account; and5

        5
      2. (ii)

        the firm is permitted to pay any remittances to the authorised central counterparty that consist only of client money from that same bank account.

    2. (aa)

      In the circumstances described in (1)(a), the firm is permitted to receive any remittances that consist only of client money from the authorised central counterparty into the same bank account that it uses under (2)(a), if it complies with (b).5

    3. (b)

      Where, in the circumstances described in (1)(a), a 5mixed remittance or a remittance that consists only of client money from an authorised central counterparty is 5received into a firm's own account, the firm 5must transfer any 5client money element of the remittance 4to its client bank account promptly and, in any event, no later than the next business day after receipt.

      55555
CASS 7.13.73R
  1. (1)

    Where the circumstances described in CASS 7.13.72 R (1)(a) apply to a firm it must pay an amount (determined in accordance with this rule) of its own money into its client bank account and retain that money in its client bank account (clearing arrangement mandatory prudent segregation). The amount segregated by a firm in its client bank account under this rule will be client money for the purposes of the client money rules and the client money distribution rules.

  2. (2)

    The amount required to be segregated under this rule must be an amount that a firm reasonably determines would be sufficient, at the time it makes the determination, to protect client money against the risk that at any time in the following three months client money received from the authorised central counterparty and held by the firm in its own bank account following receipt of these monies underCASS 7.13.72 R (1)(a) and until their transfer in accordance with CASS 7.13.72 R (2)(b) may not have been fully segregated in its client bank account or may not be (or become) available for pooling under CASS 7A.2.4R (1), were a primary pooling event to occur with the effect that the firm's clearing arrangement mandatory prudent segregation under this rule will reduce, as far as possible, any shortfall that might have been produced as a result of this risk on the occurrence of a primary pooling event.

  3. (3)
    1. (a)

      Subject to (c), in reaching its determination under (2) of the amount of money that would be sufficient to address the risks referred to in (2) for the forthcoming three months, a firm must take into account the following for at least the previous three months:

      1. (i)

        the firm's client money requirement over the course of that prior period (excluding any amount that was required to be segregated under this rule during that prior period for the purposes of clearing arrangement mandatory prudent segregation); and

      2. (ii)

        the payments that the firm made into its client bank account under CASS 7.13.72 R (2)(b) during that prior period;

    as shown in its internal records.

    1. (b)

      In reaching its determination under (2) a firm must also take into account, at all times having regard to the requirement under (2), any impact that particular events, the seasonal nature of each relevant business line, or any other aspect of those business line(s) may have on:

      1. (i)

        the firm's client money requirement during the forthcoming three months for which the amount of clearing arrangement mandatory prudent segregation required under this rule is being determined; and

      2. (ii)

        the payments that the firm is likely to make into its client bank account under CASS 7.13.72 R (2)(b).

    2. (c)

      If, at the time of its determination under (2), the firm has not been trading for three months in a business line for which it is using the normal approach in connection with regulated clearing arrangements, then it must use the records that are available to it and must also factor in reasonable forecasts, as required under (b), to make up a three-month reference period.

  4. (4)
    1. (a)

      A firm must, at regular intervals that are at least quarterly, repeat and complete the combined process of:

      1. (i)

        determining the amount that it is required to segregate for the purposes of clearing arrangement mandatory prudent segregation under (2) and (3);

      2. (ii)

        making necessary adjustments to its records to reflect any changes to its client money requirement in accordance with CASS 7.16.16 R (3) and CASS 7.16.17 R (1); and

      3. (iii)

        paying any additional amounts of its own money into its client bank account to increase the firm's clearing arrangement mandatory prudent segregation or withdrawing any excess amounts from its client bank account to decrease the firm's clearing arrangement mandatory prudent segregation after it has adjusted its records under (ii).

    2. (b)

      The combined process of (a)(i) to (iii) must take no longer than ten business days.

    3. (c)

      To the extent that a firm's compliance with (a)(i) and (ii) results in there being an excess in the firm's client bank account, the firm may cease to treat that money as client money.

  5. (5)

    A firm must ensure that the individual responsible for CASS oversight under CASS 1A.3.1 R, CASS 1A.3.1A R or CASS 1A.3.1C R (as appropriate) reviews the adequacy of the amount of the firm's clearing arrangement mandatory prudent segregation maintained under this rule at least annually.

Clearing arrangement mandatory prudent segregation record

CASS 7.13.74R

A firm must create and keep up-to-date records so that any amount of money that is, pursuant to CASS 7.13.73 R:

  1. (1)

    paid into a client bank account and retained as client money; or

  2. (2)

    withdrawn from a client bank account;

can be easily ascertained (the clearing arrangement mandatory prudent segregation record).

CASS 7.13.75R

The clearing arrangement mandatory prudent segregation record under CASS 7.13.74 R must record:

  1. (1)

    the date of the first determination under CASS 7.13.73 R (2) and each subsequent review undertaken under CASS 7.13.73 R (4), and the total amount that the firm determined was required to be segregated under CASS 7.13.73 R (2) as at that date;

  2. (2)

    the date of any payment of the firm's own money into a client bank account, or withdrawal of any excess from a client bank account under CASS 7.13.73 R (4)(a)(iii), and for each such occasion:

    1. (a)

      the amount of the payment or withdrawal;

    2. (b)

      the fact that the money was paid or withdrawn by the firm in accordance with CASS 7.13.73 R; and

    3. (c)

      as at that date, the total amount actually segregated by the firm under CASS 7.13.73 R.

CASS 7.13.76R

The clearing arrangement mandatory prudent segregation record must be retained for five years after the firm ceases to segregate any money in accordance with CASS 7.13.73 R.

CASS 7.13.77G

Nothing in CASS 7.13.73 R to CASS 7.13.76 R prevents a firm from making use of the prudent segregation rule in CASS 7.13.41 R.

CASS 7.13.78G

The obligation to use reasonable endeavours referred to in CASS 7.13.71 R is a continuing obligation. Firms should at least on an annual basis, whether it is possible for payments of client money between the firm and the authorised central counterparties to be made separately from house monies and for such payments to be received into and made from its client bank accounts.

CASS 7.13.79G

Where a firm operates a sub-pool in accordance with CASS 7.19 (Clearing member client money sub-pools), the references to client bank accounts in CASS 7.13.70 G to CASS 7.13.78 G should be read as client bank accounts pertaining to the relevant sub-pool.