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CASS 7.18 Acknowledgment letters

Purpose

CASS 7.18.1G

The main purposes of an acknowledgement letter are:

  1. (1)

    to put the bank, exchange, clearing house, intermediate broker, OTC counterparty or other person (as the case may be) on notice of a firm's clients' interests in client money that has been deposited with, or has been allowed to be held by, such person;

  2. (2)

    to ensure that the client bank account or client transaction account has been opened in the correct form (eg, whether the client bank account is being correctly opened as a general client bank account, a designated client bank account or a designated client fund account), and is distinguished from any account containing money that belongs to the firm; and

  3. (3)

    to ensure that the bank, exchange, clearing house, intermediate broker, OTC counterparty or other person (as the case may be) understands and agrees that it will not have any recourse or right against money standing to the credit of the client bank account or client transaction account, in respect of any sum owed to such person, or to any other third person, on any other account.

Client bank account acknowledgment letters

CASS 7.18.2R
  1. (1)

    For each client bank account, a firm must, in accordance with CASS 7.18.6 R, complete and sign a client bank account acknowledgement letter clearly identifying the client bank account, and send it to the bank with whom the client bank account is, or will be, opened, requesting the bank to acknowledge and agree to the terms of the letter by countersigning it and returning it to the firm.

  2. (2)

    Subject to CASS 7.18.14 R and CASS 7.18.15 R, a firm must not hold or receive any client money in or into a client bank account unless it has received a duly countersigned client bank account acknowledgement letter from the relevant bank that has not been inappropriately redrafted (see CASS 7.18.8 R) and clearly identifies the client bank account.

Client transaction account acknowledgement letters

CASS 7.18.3R
  1. (1)

    This rule does not apply to a firm to which CASS 7.18.4 R (1) applies.

  2. (2)

    For each client transaction account, a firm must, in accordance with CASS 7.18.6 R, complete and sign a client transaction account acknowledgement letter clearly identifying the client transaction account. That letter must be sent to the person with whom the client transaction account is, or will be, opened, requesting such person to acknowledge and agree to the terms of the letter by countersigning it and returning it to the firm.

  3. (3)

    Subject to CASS 7.18.14 R and CASS 7.18.15 R, a firm must not allow the relevant person to hold any client money in a client transaction account maintained by that person for the firm, unless the firm has received a duly countersigned client transaction account acknowledgement letter from that person that has not been inappropriately redrafted (see CASS 7.18.8 R) and that clearly identifies the client transaction account.

Authorised central counterparty acknowledgment letters

CASS 7.18.4R
  1. (1)

    A firm which places client money at an authorised central counterparty in connection with a regulated clearing arrangement must, in accordance with CASS 7.18.6 R, complete and sign an authorised central counterparty acknowledgement letter clearly identifying the relevant client transaction account. That letter must be sent to the authorised central counterparty with whom the client transaction account is, or will be, opened, requesting such authorised central counterparty to acknowledge receipt of the letter by countersigning it and returning it to the firm.

  2. (2)

    A firm which has complied with CASS 7.18.4 R (1) may allow the authorised central counterparty to hold client money on the relevant client transaction account, whether or not the authorised central counterparty has countersigned and returned the authorised central counterparty acknowledgement letter it received from the firm.

Acknowledgement letters in general

CASS 7.18.5G

In drafting acknowledgement letters under CASS 7.18.2 R, CASS 7.18.3 R or CASS 7.18.4 R, a firm is required to use the relevant template in CASS 7 Annex 2 R, CASS 7 Annex 3 R or CASS 7 Annex 4 R, respectively.

CASS 7.18.6R

When completing an acknowledgment letter under CASS 7.18.2 R (1), CASS 7.18.3 R (1) or CASS 7.18.4 R (1), a firm:

  1. (1)

    must not amend any of the acknowledgement letter fixed text;

  2. (2)

    subject to (3), must ensure the acknowledgement letter variable text is removed, included or amended as appropriate; and

  3. (3)

    must not amend any of the acknowledgement letter variable text in a way that would alter or otherwise change the meaning of the acknowledgement letter fixed text.

CASS 7.18.7G

CASS 7 Annex 5 G contains guidance on using the template acknowledgment letters, including when and how firms should amend the acknowledgement letter variable text that is in square brackets.

CASS 7.18.8R
  1. (1)

    If, on countersigning and returning the acknowledgement letter to a firm, the relevant person has also:

    1. (a)

      made amendments to any of the acknowledgement letter fixed text; or

    2. (b)

      made amendments to any of the acknowledgement letter variable text in a way that would alter or otherwise change the meaning of the acknowledgement letter fixed text;

    the acknowledgement letter will have been inappropriately redrafted for the purposes of CASS 7.18.2 R (2) or CASS 7.18.3 R (3) (as applicable).

  2. (2)

    For the purposes of CASS 7.18.2 R (2) or CASS 7.18.3 R (3), amendments made to the acknowledgement letter variable text in the acknowledgement letter returned to a firm by the relevant person, will not have the result that the letter has been inappropriately redrafted if those amendments do not affect the meaning of the acknowledgement letter fixed text, have been specifically agreed with the firm and do not cause the acknowledgement letter to be inaccurate.

CASS 7.18.9R

A firm must use reasonable endeavours to ensure that any individual that has countersigned an acknowledgement letter that has been returned to the firm was authorised to countersign the letter on behalf of the relevant person.

CASS 7.18.10R
  1. (1)

    A firm must retain each countersigned client bank account acknowledgement letter and client transaction account acknowledgement letter it receives, from the date of receipt until the expiry of five years from the date on which the last client bank account or client transaction account to which the acknowledgement letter relates is closed.

  2. (2)

    A firm must retain a copy of each authorised central counterparty acknowledgment letter it sends to an authorised central counterparty under CASS 7.18.4 R (1), from the date it was sent until the expiry of five years from the date the last client transaction account to which the acknowledgement letter relates is closed.

CASS 7.18.11R

A firm must also retain any other documentation or evidence it believes is necessary to demonstrate that it has complied with each of the applicable requirements in this section (such as any evidence it has obtained to ensure that the individual that has countersigned an acknowledgment letter returned to the firm was authorised to countersign the letter on behalf of the relevant person).

CASS 7.18.12R
  1. (1)

    This rule applies to:

    1. (a)

      any countersigned client bank account acknowledgement letter or client transaction account acknowledgement letter received by a firm under CASS 7.18.2 R (2) or CASS 7.18.3 R (3) respectively; and

    2. (b)

      any authorised central counterparty acknowledgement letter sent by a firm under CASS 7.18.4 R (1), whether or not it has been countersigned by the relevant authorised central counterparty and received by the firm.

  2. (2)

    A firm must, periodically (at least annually, and whenever it is aware that something referred to in an acknowledgement letter has changed) review each of its acknowledgement letters to ensure that they all remain accurate.

  3. (3)

    Whenever a firm finds an inaccuracy in an acknowledgement letter, it must promptly draw up a replacement acknowledgement letter under CASS 7.18.2 R or CASS 7.18.3 R or CASS 7.18.4 R, as applicable, and, if it is an acknowledgement letter required to be sent under CASS 7.18.2 R, CASS 7.18.3 R, ensure that the new acknowledgement letter is duly countersigned and returned by the relevant person.

CASS 7.18.13G

Under CASS 7.18.12 R, a firm should draw up and send out a replacement acknowledgement letter whenever:

  1. (1)

    there has been a change in any of the parties' names or addresses as set out in the letter; or

  2. (2)

    the firm becomes aware of an error or misspelling in the drafting of the letter.

CASS 7.18.14R

If a firm's client bank account or client transaction account is transferred to another person, the firm must promptly draw up a new acknowledgement letter under CASS 7.18.2 R, CASS 7.18.3 R or CASS 7.18.4 R, as applicable, and, if it is an acknowledgement letter required to be sent under CASS 7.18.2 R or CASS 7.18.3 R, ensure that the new acknowledgement letter is duly countersigned and returned by the relevant person within 20 business days of the firm sending it to that person.

CASS 7.18.15R

If a firm opens a client bank account after a primary pooling event, the firm must:

  1. (1)

    promptly draw up and send out a new acknowledgement letter under CASS 7.18.2 R;

  2. (2)

    not hold or receive any client money in or into the client bank account unless it has sent the acknowledgement letter to the relevant person; and

  3. (3)

    if the firm has not received a duly countersigned acknowledgement letter that has not been inappropriately redrafted (see CASS 7.18.8 R) within 20 business days of the firm sending the acknowledgement letter, withdraw all money standing to the credit of the account and deposit it in a client bank account with another bank as soon as possible.