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CASS 7A.3 Secondary pooling events

CASS 7A.3.1R

A secondary pooling event occurs on the failure of a person3 to which client money held by the firm has been transferred underCASS 7.13.3R (1) to CASS 7.13.3R (3) (Depositing client money) or CASS 7.14.2 R2 (Client money held by a third party3).

2
CASS 7A.3.2R

CASS 7A.3.6 R to CASS 7A.3.12AR3 do not apply if, on the failure of the relevant person:3

  1. (1)

    there is no secondary pooling shortfall; or3

  2. (2)

    where there is a secondary pooling shortfall, the firm pays an amount equal to the amount of client money which would have been held at that person if a secondary pooling shortfall had not occurred either:3

    1. (a)

      to its clients in the appropriate amounts such that they are compensated by the amount of the secondary pooling shortfall that they would otherwise be required to bear under this section; or3

    2. (b)

      into a client bank account at an unaffected bank with the effect that any shortfall that would otherwise arise for the purposes of CASS 7.15 (Records, accounts and reconciliations) is avoided.3

CASS 7A.3.3G

[deleted]3

CASS 7A.3.4G

When a person to which client money held by the firm has been transferred under CASS 7.13.3R(1) to CASS 7.13.3R(3) (Depositing client money) or CASS 7.14.2R (Client money held by a third party) fails,3 and the firm decides not to make good any secondary pooling shortfall3 in the amount of client money held at that person (see CASS 7A.3.2R(2))3, a secondary pooling event will occur3. The firm should3 reflect the secondary pooling shortfall3 that arises3 in the general pool (where the firm maintains only a general pool) and, where relevant, in a particular sub-pool (where the firm maintains both a general pool and one or more sub-pools) 2in its records of the entitlement of clients and of money held with third parties under CASS 7.15 2 (Records, accounts and reconciliations)2.

2
CASS 7A.3.5G

The client money distribution and transfer rules3 seek to ensure that clients who have previously specified that they are not willing to accept the risk of the bank that has failed, and who therefore requested that their client money be placed in a designated client bank account at a different bank, should not suffer the loss of the bank that has failed.

Failure of a bank: pooling

CASS 7A.3.6R

If a secondary pooling event occurs as a result of the failure of a bank where one or more general client bank accounts are held, and/or where one or more designated client bank accounts or designated client fund accounts are held,3 for the general pool or a3 particular sub-pool2, then:

  1. (1)

    in relation to every general client bank account of the firm maintained in respect of that pool2, the provisions of CASS 7A.3.8 R, CASS 7A.3.13 R and CASS 7A.3.14 R will apply;

  2. (2)

    in relation to every designated client bank account held by the firm with the failed bank for the relevant pool2, the provisions of CASS 7A.3.10 R, CASS 7A.3.13 R and CASS 7A.3.14 R will apply;

  3. (3)

    in relation to each designated client fund account held by the firm with the failed bank for the relevant pool2, the provisions of CASS 7A.3.11 R, CASS 7A.3.13 R and CASS 7A.3.14 R will apply;

  4. (4)

    any money held at a bank, other than the bank that has failed, in designated client bank accounts for the relevant pool2, is not pooled with any other client money held for that pool or any other pool2; and

  5. (5)

    any money held in a designated client fund account in respect of that pool2, no part of which is held by the bank that has failed, is not pooled with any other client money held for that pool or any other pool2.

CASS 7A.3.6AG

3Depending on the person at which the secondary pooling event occurs, the types of client bank accounts and client transaction accounts that are affected by the secondary pooling shortfall, and the nature of a firm’s business with a particular client, it is possible that the client’s overall entitlement to client money held by the firm may be affected by a combination of CASS 7A.3.8R, CASS 7A.3.8AR, CASS 7A.3.10R and CASS 7A.3.11R.

CASS 7A.3.7R

[deleted]3

2

Failure of an exchange, clearing house, intermediate broker, settlement agent or OTC counterparty: pooling

CASS 7A.3.7AR

3If a secondary pooling event occurs as a result of the failure of an exchange, clearing house, intermediate broker, settlement agent or OTC counterparty, then, in relation to every general client bank account and client transaction account of the firm, CASS 7A.3.8R and CASS 7A.3.13R will apply, and CASS 7A.3.8AR will additionally apply in the case of the failure of an authorised central counterparty.

Failure of a bank, intermediate broker, settlement agent, OTC counterparty, exchange or clearing house: treatment of general client bank accounts and client transaction accounts

CASS 7A.3.8R

Money Subject to CASS 7A.3.8AR, if a secondary pooling event occurs as a result of the failure of a bank, intermediate broker, settlement agent, OTC counterparty, exchange or clearing house, money3 held in each general client bank account and client transaction account of the firm for the general pool or a sub-pool2must be treated as pooled and:

  1. (1)

    any secondary pooling shortfall3 in client money held, or which should have been held, in general client bank accounts and client transaction accounts for the relevant pool2, that has arisen as a result of the failure of the bank, exchange, clearing house, intermediate broker, settlement agent or OTC counterparty,3 must be borne by all the clients of that pool2 whose client money is held in such 2general client bank account or client transaction account of the firm, rateably in accordance with their entitlements;

    2
  2. (2)

    a new client money entitlement must be calculated for each client of the relevant pool 2by the firm, to reflect the requirements in paragraph3 (1), and the firm's records must be amended to reflect the reduced client money entitlement;

  3. (3)

    the firm must make and retain a record of each client's share of the secondary pooling shortfall3 until the client is repaid; and

  4. (4)

    the firm must use the new client money entitlements, calculated in accordance with paragraph3 (2), for the purposes of reconciliations pursuant to CASS 7.15.3 R 2 (Records and accounts) for that pool23.

    2
CASS 7A.3.8AR

3If a secondary pooling event occurs as a result of the failure of an authorised central counterparty:

  1. (1)

    any money held in a client transaction account that is an individual client account at the failed authorised central counterparty is not pooled by the firm with any of its other client money;

  2. (2)

    any money held in a client transaction account that is an omnibus client account at the failed authorised central counterparty is not pooled by the firm with any of its other client money provided that:

    1. (a)

      no client money in excess of the amount recorded in that omnibus client account is held by the firm as margin in relation to the positions recorded in that omnibus client account; and

    2. (b)

      the client or clients of the firm to whom the amount recorded in that omnibus client account relates is or are readily apparent from information provided to the firm by the authorised central counterparty or, in the case of indirect clients, the clearing member;

  3. (3)

    any money held in a client transaction account that is a net margined omnibus client account at the failed authorised central counterparty in respect of which the firm maintains a sub-pool is not pooled by the firm with any of its other client money;

  4. (4)

    the proportion of any secondary pooling shortfall that arises as a result of client money held, or which should have been held, in an individual client account to which paragraph (1) applies must be borne by the client whose client money was held in that individual client account;

  5. (5)

    the proportion of any secondary pooling shortfall that arises as a result of client money held, or which should have been held, in an omnibus client account to which paragraph (2) applies must either:

    1. (a)

      be borne by all the clients whose client money is held in that account, rateably in accordance with their entitlements; or

    2. (b)

      if the firm is required under applicable law to allocate the secondary pooling shortfall other than as under (a), be allocated as required by applicable law;

  6. (6)

    the proportion of any secondary pooling shortfall that arises as a result of client money held, or which should have been held, in a net margined omnibus client account to which paragraph (3) applies must be borne by all the clients whose client money is held in the relevant sub-pool, rateably in accordance with their entitlements;

  7. (7)

    a new client money entitlement must be calculated for each relevant client of the relevant pool, to reflect the requirements in paragraphs (1), (2) and (3), and the firm’s records must be amended to reflect the reduced client money entitlement;

  8. (8)

    the firm must make and retain a record of each client’s share of the secondary pooling shortfall until the client is repaid; and

  9. (9)

    the firm must use the new client money entitlements calculated under paragraph (7) for the purposes of reconciliations pursuant to CASS 7.15.3R (Records and accounts) for the relevant pool.

CASS 7A.3.9G

The term "which should have been held" is a reference to the relevant failed person’s3 failure1 to hold the client money at the time of its failure3.

CASS 7A.3.9AG
  1. (1)

    3CASS 7A.3.8AR(5)(b) enables a firm to allocate the relevant part of a secondary pooling shortfall that arises in an omnibus client account under CASS 7A.3.8AR(2) other than on a “pro rata” basis, where this is required by applicable law.

  2. (2)

    This would include, for example, where applicable law requires the firm to attribute a secondary pooling shortfall only to a particular client or clients.

Failure of a bank: treatment of designated client bank accounts and designated client fund accounts

CASS 7A.3.10R

For each client with a designated client bank account maintained by the firm for the general pool or a particular sub-pool and2 held at the failed bank:

  1. (1)

    any secondary pooling shortfall3 in client money held, or which should have been held, in designated client bank accounts that has arisen as a result of the failure, must be borne by all the clients of the relevant pool2 whose client money is held in a designated client bank account of the firm at the failed bank, rateably in accordance with their client money 2 entitlements;

  2. (2)

    a new client money entitlement must be calculated for each of the relevant clients of the relevant pool2 by the firm, and the firm's records must be amended to reflect the reduced client money entitlement;

  3. (3)

    the firm must make and retain a record of each client's share of the secondary pooling shortfall3 at the failed bank until the client is repaid; and

  4. (4)

    the firm must use the new client money entitlements, calculated in accordance with paragraph3 (2), for the purposes of reconciliations pursuant to 2 CASS 7.15.3 R 2 (Records and accounts) in respect of the relevant pool23.

CASS 7A.3.11R

Money held by the firm2 in each designated client fund account for the general pool or a particular sub-pool with the failed bank must be treated as pooled with any other designated client fund accounts for the general pool or a particular sub-pool as the case may be2 which contain part of the same designated fund and:

2
  1. (1)

    any secondary pooling shortfall3 in client money held, or which should have been held, in designated client fund accounts that has arisen as a result of the failure, must be borne by each of the clients of the relevant pool 2whose client money is held in that designated fund, rateably in accordance with their entitlements;

  2. (2)

    a new client money entitlement must be calculated for each client of the relevant pool2 by the firm, in accordance with paragraph3 (1), and the firm's records must be amended to reflect the reduced client money entitlement2;

    2
  3. (3)

    the firm must make and retain a record of each client's share of the secondary pooling shortfall3 at the failed bank until the client is repaid; and

  4. (4)

    the firm must use the new client money entitlements, calculated in accordance with paragraph3 (2), for the purposes of reconciliations pursuant to CASS 7.15.3 R 2 (Records and accounts) for the relevant pool23.

    2
CASS 7A.3.12R

A client whose money was held, or which should have been held, in a designated client bank account with a bank that has failed is not entitled to claim in respect of that money against any other client bank account or client transaction account of the firm.

CASS 7A.3.12AR

3A client whose money was held, or which should have been held, in a designated client fund account with a bank that has failed is not entitled to claim in respect of that money against any other client bank account of the firm that is not part of the same designated fund or against any client transaction account of the firm.

Client money received after the secondary pooling event

CASS 7A.3.13R

Client money received by the firm after the failure of a bank, exchange, clearing house, intermediate broker, settlement agent or OTC counterparty,3 that would otherwise have been paid into a client bank account or client transaction account at that bank, exchange, clearing house, intermediate broker, settlement agent or OTC counterparty, as the case may be3, for either the general pool or a particular sub-pool2:

  1. (1)

    must not be transferred to the failed person3 unless specifically instructed by the client in order to settle an obligation of that client to the failed person3; and

  2. (2)

    must be, subject to paragraph3 (1), placed in a3 client bank account or client transaction account3 relating to the general pool or the particular sub-pool as the case may be 2other than an account at the failed person.3

CASS 7A.3.14R

If a firm receives a mixed remittance after the secondary pooling event which consists of client money that would have been paid into a general client bank account, a designated client bank account or a designated client fund account maintained at the bank that has failed, it must:

  1. (1)

    pay the full sum into a client bank account other than one operated at the bank that has failed; and

  2. (2)

    pay the money that is not client money out of that client bank account within one business day of the day on which the firm would normally expect the remittance to be cleared.

CASS 7A.3.15G

Whenever possible the firm should seek to split a mixed remittance before the relevant accounts are credited.

CASS 7A.3.16R

[deleted]3

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CASS 7A.3.17R

[deleted]3

2
CASS 7A.3.18R

[deleted]3:

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Notification to the FCA of secondary pooling event

CASS 7A.3.19R

A3 firm must notify the FCA as soon as reasonably practical after it becomes aware of the failure of any bank, exchange, clearing house, intermediate broker, settlement agent, OTC counterparty or other entity with which it has placed, or whom it has allowed to hold, client money3:

  1. (1)

    [deleted]3

  2. (2)

    [deleted]3

  3. (3)

    whether it intends to make good any secondary pooling shortfall that has arisen or may arise; and3

  4. (4)

    the amount of that secondary pooling shortfall, or the expected amount if the actual amount is not known.3