Handbook at 01 August, 2015

Printed on 01 August, 2015

Combined View / CASS

CASS 1.1 Application and purpose

Application

CASS 1.1.1
01/12/2004
FCA
CASS applies to a firm as specified in the remainder of this chapter.

Purpose

CASS 1.1.2
01/12/2004
FCA
The purpose of this chapter is to set out to whom, for what activities, and within what territorial limits the rules, evidential provisions and guidance in CASS apply.

CASS 1.2 General application: who? what?

General application: who?

CASS 1.2.1
01/12/2004
FCA
The rules in CASS 1.2 set out the maximum scope of this sourcebook. The application of CASS is modified for certain activities by 1CASS 1.4. Also particular chapters or sections of CASS may have provisions which limit their application.
CASS 1.2.2
01/12/2004
FCA
CASS applies to every firm, except as provided for in CASS 1.2.3 R, with respect to the carrying on of:
(1) all regulated activities except to the extent that a provision of CASS provides for a narrower application; and
(2) unregulated activities to the extent specified in any provision of CASS.
CASS 1.2.3
01/12/2004
FCA
CASS does not apply to:
(1) an ICVC; or
(2) an incoming EEA firm other than an insurer, with respect to its passported activities; or
(3) a UCITS qualifier.
CASS 1.2.4
01/11/2007
FCA
With the exception of this chapter and the insurance client money chapter, CASS does not apply to:
(1) an authorised professional firm with respect to its non-mainstream regulated activities; or
(2) the Society.
CASS 1.2.5
01/04/2013
FCA
The insurance client money chapter does not apply to an authorised professional firm with respect to its non-mainstream regulated activities, which are insurance mediation activities, if:
(1) the firm's designated professional body has made rules which implement article 4 of the Insurance Mediation Directive;
(2) those rules have been approved by the FCA under section 332(5) of the Act; and
(3) the firm is subject to the rules in the form in which they were approved.
CASS 1.2.6
01/11/2007
[deleted]

General application: what?

CASS 1.2.7
01/07/2014
FCA
(1) [deleted]
(2) [deleted]
(3) [deleted]
(3A) [deleted]
(4) [deleted]
(5) [deleted]
(6) [deleted]
(7) The debt management client money chapter applies to CASS debt management firms receiving or holding client money for, or on behalf of, a client in the course of or in connection with debt management activity.

Application for retail clients, professional clients and eligible counterparties

CASS 1.2.8
01/07/2014
FCA
(1) CASS applies directly in respect of activities conducted with or for all categories of clients.
(2) [deleted]
(3) The insurance client money chapter does not generally distinguish between different categories of client. However, the term consumer is used for those to whom additional obligations are owed, rather than the term retail client. This is to be consistent with the client categories used in the Insurance: New Conduct of Business sourcebook.
(4) Each provision in the collateral rules, custody chapter, the client money chapter and CASS 9 (Information to clients) makes it clear whether it applies to activities carried on for retail clients, professional clients or both.
(4A) There is no further modification of the rules in the chapters referred to in (4) for activities carried on for eligible counterparties. Such clients are treated in the same way as other professional clients for the purposes of these rules.
(5) The debt management client money chapter generally applies in respect of relevant dealings with the client category known as customers. In general, the client categories of retail clients, professional clients, as well as eligible counterparties, have no relevance to credit-related regulated activities, including debt management activities.
CASS 1.2.9
01/11/2007
[deleted]

Application for affiliates

CASS 1.2.9A
01/06/2015
FCA
(1) The fact that a firm's client is an affiliated company for MiFID business does not affect the operation of CASS to the firm in relation to that client.
(2) For business that is not MiFID business, the operation of the custody chapter or the client money chapter may differ if a firm's client is an affiliated company and depending on certain other conditions (see, for example, CASS 6.1.10B R and CASS 7.10.26 R).

Investments and money held under different regimes

CASS 1.2.10
01/01/2009
[deleted]
CASS 1.2.11
01/06/2015
FCA
(1) A firm must not keep money in respect of which any one of the following chapters applies in the same client bank account or client transaction account as money in respect of which another of the following chapters applies:
(a) the client money chapter;
(b) the insurance client money chapter;
(c) the debt management client money chapter.
(2) In accordance with CASS 7.10.36 R, a firm which is subject to the client money chapter and holds money both (i) in its capacity as a trustee firm and (ii) other than in its capacity as a trustee firm must not keep money held in its capacity as a trustee firm in the same client bank account or client transaction account as money held other than in its capacity as a trustee firm.
(3) To the extent that the restriction under (1) or (2) applies to a firm, the client bank accounts and client transaction accounts that a firm holds in respect of different chapters or in its different capacities (as the case may be) must be separately designated.
CASS 1.2.12
01/11/2007
FCA
The purpose of the rules regarding the segregation of investments and money held under different regimes is to reduce the risk of confusion between assets held under different regimes either on an on-going basis or on the failure of a firm or a third party holding those assets.
CASS 1.2.13
01/06/2015
FCA
A firm may, where permitted by the relevant rules opt to hold under a single chapter money that would otherwise be held under different chapters (see CASS 7.10.3 R and CASS 7.10.30 R). However, making such an election does not remove the requirement under CASS 1.2.11R (1).

CASS 1.3 General application: where?

CASS 1.3.1
01/12/2004
FCA
The rules in CASS 1.3 set out the maximum territorial scope of this sourcebook. Particular rules may have express territorial limitations.

UK establishments: general

CASS 1.3.2
01/12/2004
FCA
Except as provided for in CASS 1.2.3 R (2), CASS applies to every firm, in relation to regulated activities carried on by it from an establishment in the United Kingdom.

UK firms: passported activities from EEA branches

CASS 1.3.3
01/12/2004
FCA
CASS applies to every UK firm, other than an insurer, in relation to passported activities carried on by it from a branch in another EEA State.
CASS 1.3.4
01/11/2007
FCA
CASS does not apply to an incoming ECA provider acting as such.

CASS 1.4 Application: particular activities

Occupational pension scheme firms (OPS firms)

CASS 1.4.1
01/12/2004
FCA
In the case of OPS activity undertaken by an OPS firm, CASS applies with the following general modifications:
(1) references to customer are to the OPS or welfare trust, whichever fits the case, in respect of which the OPS firm is acting or intends to act, and with or for the benefit of which the relevant activity is to be carried on; and
(2) if an OPS firm is required by any rule in CASS to provide information to, or obtain consent from, a customer, that firm must ensure that the information is provided to, or consent obtained from, each of the trustees of the OPS or welfare trust in respect of which that firm is acting, unless the context requires otherwise.

Stock lending activity with or for clients

CASS 1.4.2
01/01/2009
FCA
(1) The custody chapter and the client money chapter apply in respect of any stock lending activity that is undertaken with or for a client by a firm.
(2) The collateral rules apply, where relevant, in respect of stock lending activity.

Corporate finance business

CASS 1.4.3
01/01/2009
FCA
(1) The custody chapter and the client money chapter apply in respect of corporate finance business that is undertaken by a firm.
(2) The collateral rules apply, where relevant, in respect of corporate finance business.

Oil market activity and energy market activity

CASS 1.4.4
01/01/2009
FCA
(1) The custody chapter and the client money chapter apply in respect of oil market activity and other energy market activity that is undertaken by a firm.
(2) The collateral rules apply, where relevant, in respect of energy market activity.

Appointed representatives and tied agents

CASS 1.4.5
01/11/2007
FCA
(1) Although CASS does not apply directly to a firm's appointed representatives, a firm will always be responsible for the acts and omissions of its appointed representatives in carrying on business for which the firm has accepted responsibility (section 39(3) of the Act). In determining whether a firm has complied with any provision of CASS, anything done or omitted by a firm's appointed representative (when acting as such) will be treated as having been done or omitted by the firm (section 39(4) of the Act). Equally, CASS does not apply directly to tied agents. A MiFID investment firm will be fully and unconditionally responsible for the acts and omission of the tied agents that it appoints.
(2) Firms should also refer to SUP 12 (Appointed representatives), which sets out requirements which apply to firms using appointed representatives and tied agents.

Depositaries

CASS 1.4.6
01/01/2009
FCA
The client money chapter does not apply to a depositary when acting as such.
CASS 1.4.6A
22/07/2013
FCA
Firms acting as trustee or depositary of an AIF are reminded of the obligations in FUND 3.11 (Depositaries) and Chapter IV (Depositary) of the AIFMD level 2 regulation which apply in addition to those in CASS.
CASS 1.4.7
22/07/2013
FCA
Subject to CASS 1.4.6 R, CASS applies to a depositary, when acting as such, with the following general modification: 'client' means 'trustee', 'trust', 'AIF', 'AIFM acting on behalf of the AIF', or 'collective investment scheme', as appropriate.
CASS 1.4.8
01/07/2014
(1) Other than the mandate rules, CASS does not apply to a trustee firm which is not a depositary, or the trustee of a personal pension scheme or stakeholder pension scheme, unless MiFID applies to it, in which case the custody chapter and the client money chapter do apply.
(2) In the custody chapter, the client money chapter and the mandate rules, 'client' means 'trustee', 'trust', 'trust instrument' or 'beneficiary', as appropriate.
CASS 1.4.8A
01/07/2014
FCA
(1) The application of CASS for a trustee firm acting as a depositary is set out in CASS 1.4.6 R and CASS 1.4.7 R.
(2) The application of CASS for a trustee firm that is not acting as a depositary is limited as follows:
(a) the mandate rules apply;
(b) for MiFID business, the custody chapter and the client money chapter apply; and
(c) for business that is not MiFID business, the custody chapter and the client money chapter apply only to trustee firms acting as trustees of personal pension schemes or stakeholder pension schemes, including SIPPs.
(3) To the extent that CASS applies to a trustee firm, it applies with the following general modification: 'client' means 'relevant trustee', 'trust', or 'beneficiary', as appropriate.

Auction regulation bidding

CASS 1.4.9
27/07/2012
FCA
Where a firm carries on auction regulation bidding it may elect to comply with CASS (but not CASS 5) in respect of this activity, subject to the general modifications in CASS 1.4.10 R.
CASS 1.4.10
27/07/2012
FCA
Where a firm has made an election in accordance with CASS 1.4.9 R, CASS is modified so that in relation to that firm:
(1) each reference to:
(a) designated investments;
(b) safe custody assets; and
(c) contingent liability investments;
includes a reference to a two-day emissions spot;
(2) each reference to designated investment business includes auction regulation bidding;
(3) each reference to safeguarding and administering investments, including safeguarding and administration of assets (without arranging) and arranging safeguarding and administration of assets, includes those activities where they are carried on in relation to a two-day emissions spot; and
(4) the reference in CASS 6.2.3A R to an 'emissions auction product that is a financial instrument' includes a two-day emissions spot;
CASS 1.4.11
27/07/2012
FCA
The effect of CASS 1.4.10 R is that when a firm makes an election in accordance with CASS 1.4.9 R:
(1) a two-day emissions spot falls within the scope of each chapter in CASS (save for CASS 5), for example:
(a) the reference in CASS 6.1.1 R (1)(b) to safeguarding and administering investments is modified to include the activity of safeguarding and administering a two-day emissions spot; and
(b) any money that the firm receives or holds for or on behalf of a client in the course of or in connection with its auction regulation bidding activities will be treated as client money and so will need to be dealt with in accordance with the client money rules; and
(2) that election also has effect in relation to rules and guidance elsewhere in the Handbook, including:
(a) COBS 3 (Client categorisation);
(b) COBS 6.1.7 R (Information concerning safeguarding of designated investments belonging to clients and client money);
(c) COBS 6.1.11 R (Timing of disclosure);
(d) COBS 16.4 (Statements of client designated investments or client money);
(e) SUP 3 (Auditors);
(f) SUP 10A.4.4 R (the table of controlled functions) and SUP 10A.7.9 R (CASS operational oversight function (CF10a)); and
(g) SUP 16.14 (Client money and asset return).
CASS 1.4.12
27/07/2012
FCA
The option to elect to comply with CASS set out in CASS 1.4.9 R only applies to the extent the firm is carrying on auction regulation bidding. Where a firm is carrying on MiFID business bidding, CASS applies to it in accordance with the general application rules in CASS for a firm that is carrying on MiFID business.
CASS 1.4.13
27/07/2012
FCA
Where a firm makes an election in accordance with CASS 1.4.9 R it must:
(1) make a written record of the election, including the date from which the election is to be effective, on the date it makes the election;
(2) keep that record from the date that it is made for a period of five years after ceasing to use the opt in.
CASS 1.4.14
27/07/2012
FCA
Where a firm that has opted in to CASS under CASS 1.4.9 R subsequently decides to cease its use of that opt in it must:
(1) make a written record of this decision, including the date from which the decision is to be effective, on the date it takes the decision;
(2) keep that record from the date that it is made for a period of five years after the date it is to be effective; and
(3) discharge any outstanding fiduciary obligations that had arisen because the firm had elected to comply with CASS.

Debt management activities

CASS 1.4.15
01/04/2014
FCA
(1) The debt management client money chapter applies to CASS debt management firms receiving or holding client money.
(2) The mandate rules apply, where relevant, to CASS debt management firms carrying on debt management activity.

CASS 1.5 Application: electronic media and E-Commerce

Application to electronic media

CASS 1.5.1
01/12/2004
FCA
GEN 2.2.14 R (References to writing) has the effect that electronic media may be used to make communications that are required by the Handbook to be "in writing" unless a contrary intention appears.
CASS 1.5.2
01/12/2004
FCA
For any electronic communication with a customer, a firm should:
(1) have in place appropriate arrangements, including contingency plans, to ensure the secure transmission and receipt of the communication; it should also be able to verify the authenticity and integrity of the communication; the arrangements should be proportionate and take into account the different levels of risk in a firm's business;
(2) be able to demonstrate that the customer wishes to communicate using this form of media; and
(3) if entering into an agreement, make it clear to the customer that a contractual relationship is created that has legal consequences.
CASS 1.5.3
01/12/2004
FCA
Firms should note that GEN 2.2.14 R does not affect any other legal requirement that may apply in relation to the form or manner of executing a document or agreement.
CASS 1.5.4
01/11/2007
[deleted]

CASS 1A.1 Application

CASS 1A.1.1
01/04/2015
FCA
(1) Subject to (2), (3) and (4), this chapter applies to a firm to which either or both of CASS 6 (Custody rules) and CASS 7 (Client money rules) applies.
(2) In relation to a firm to which CASS 5 (Client money: insurance mediation activity) and CASS 7 (Client money rules) apply, this chapter does not apply in relation to client money that a firm holds in accordance with CASS 5.
(3) The rules and guidance in CASS 1A.2 apply to a firm even if at the date of the determination or, as the case may be, the notification, either or both of CASS 6 and CASS 7 do not apply to it, provided that:
(a) either or both of those chapters applied to it during part or all of the previous calendar year; or
(b) it projects that either or both will apply to it in the current calendar year.
(4) This chapter does not apply to a firm to which only CASS 6 applies, applied or is projected to apply, merely because:
(a) it is, was, or is projected to be a firm which arranges safeguarding and administration of assets; or
(b) when acting as a small AIFM and in relation to excluded custody activities, it would be, would have been or would be projected to be a firm which arranges safeguarding and administration of assets but for the exclusion in article 72AA of the RAO.

CASS 1A.2 CASS firm classification

CASS 1A.2.1
01/01/2013
FCA
The application of certain rules in this chapter depends upon the 'CASS firm type' within which a firm falls. The 'CASS firm types' are defined in accordance with CASS 1A.2.7 R. The 'CASS firm type' within which a firm falls is also used to determine whether it is required to have the CASS operational oversight function described in CASS 1A.3.1A R and whether the reporting obligations in SUP 16.14 (Client money and asset return) apply to it.
CASS 1A.2.2
01/01/2013
FCA
(1) A firm must once every year, and by the time it is required to make a notification in accordance with CASS 1A.2.9R (4), determine whether it is a CASS large firm, CASS medium firm or a CASS small firm according to the amount of client money or safe custody assets which it holds, using the limits set out in the table in CASS 1A.2.7 R.
(2) For the purpose of determining its 'CASS firm type' in accordance with CASS 1A.2.7 R, a firm must:
(a) if it currently holds client money or safe custody assets, calculate the higher of the highest total amount of client money and the highest total value of safe custody assets held during the previous calendar year ending on 31 December and use that figure to determine its 'CASS firm type';
(b) if it did not hold client money or safe custody assets in the previous calendar year but projects that it will do so in the current calendar year, calculate the higher of the highest total amount of client money and the highest total value of safe custody assets that it projects that it will hold during that year and use that figure to determine its 'CASS firm type'; but
(c) in either case, exclude from its calculation any client money held in accordance with CASS 5 (Client money: insurance mediation activity).
CASS 1A.2.3
01/01/2011
FCA
For the purpose of calculating the value of the total amounts of client money and safe custody assets that it holds on any given day during a calendar year a firm must:
(1) in complying with CASS 1A.2.2R (2)(a), base its calculation upon internal reconciliations performed during the previous year;
(2) in relation to client money or safe custody assets denominated in a currency other than sterling, translate the value of that money or that safe custody assets into sterling at the previous day's closing spot exchange rate; and
(3) in relation to safe custody assets only, calculate their total value using the previous day's closing mark to market valuation, or if in relation to a particular safe custody asset none is available, the most recent available valuation.
CASS 1A.2.4
01/01/2011
FCA
One of the consequences of CASS 1A.2.2 R is that a firm that determines itself to be a CASS small firm or a CASS medium firm will, at least if it exceeds during the course of a calendar year either of the limits in CASS 1A.2.7 R that applies to it, become in the next calendar year:
(1) in the case of a CASS small firm, a CASS medium firm or a CASS large firm; and
(2) in the case of a CASS medium firm, a CASS large firm.
CASS 1A.2.5
01/04/2013
FCA
(1) Notwithstanding CASS 1A.2.2 R, provided that the conditions in (2) are satisfied a firm may elect to be treated:
(a) as a CASS medium firm, in the case of a firm that is classed by the application of the limits in CASS 1A.2.7 R as a CASS small firm; and
(b) as a CASS large firm, in the case of a firm that is classed by the application of the limits in CASS 1A.2.7 R as a CASS medium firm.
(2) The conditions to which (1) refers are that in either case:
(a) the election is notified to the FCAin writing;
(b) the notification in accordance with (a) is made at least one week before the election is intended to take effect; and
(c) the FCA has not objected.
CASS 1A.2.6
01/01/2011
FCA
CASS 1A.2.5 R provides a firm with the ability to opt in to a higher category of 'CASS firm type'. This may be useful for a firm whose holding of client money and safe custody assets is near the upper categorisation limit for a CASS small firm or a CASS medium firm.
CASS 1A.2.7
01/01/2011
FCA
CASS firm types
CASS firm typeHighest total amount of client money held during the firm's last calendar year or as the case may be that it projects that it will hold during the current calendar yearHighest total value of safe custody assets held by the firm during the firm's last calendar year or as the case may be that it projects that it will hold during the current calendar year
CASS large firmmore than £1 billion more than £100 billion
CASS medium firman amount equal to or greater than £1 million and less than or equal to £1 billionan amount equal to or greater than £10 million and less than or equal to £100 billion
CASS small firmless than £1 millionless than £10 million

CASS 1A.2.8
01/01/2013
[deleted]
CASS 1A.2.8A
01/01/2013
[deleted]
CASS 1A.2.9
01/04/2013
FCA
Once every calendar year a firm must notify to the FCA in writing the information specified in (1), (2) or (3) as applicable, and the information specified in (4), in each case no later than the day specified in (1) to (4):
(1) if it held client money or safe custody assets in the previous calendar year, the highest total amount of client money and the highest total value of safe custody assets held during the previous calendar year, notification of which must be made no later than the fifteenth business day of January; or
(2) if it did not hold client money or safe custody assets in the previous calendar year but at any point up to the fifteenth business day of January the firm projects that it will do so in the current calendar year, the highest total amount of client money and the highest total value of safe custody assets that the firm projects that it will hold during the current calendar year, notification of which must be made no later than the fifteenth business day of January; or
(3) in any other case, the highest total amount of client money and the highest total value of safe custody assets that the firm projects that it will hold during the remainder of the current calendar year, notification of which must be made no later than the business day before the firm begins to hold client money or safe custody assets; and
(4) in every case, of its 'CASS firm type' classification, notification of which must be made at the same time the firm makes the notification under (1), (2) or (3).
CASS 1A.2.10
01/01/2013
FCA
For the purpose of the annual notification to which CASS 1A.2.9 Rrefers, a firm must apply the calculation rule in CASS 1A.2.3 R.
CASS 1A.2.11
01/04/2013
FCA
For the purpose of CASS 1A.2.9R (1), the FCA will treat that obligation as satisfied if a firm submitted a CMAR for each period within the previous calendar year in compliance with SUP 16.14.3 R.
CASS 1A.2.12
01/04/2013
FCA
A firm's 'CASS firm type' and any change to it takes effect:
(1) if the firm notifies the FCA in accordance with CASS 1A.2.9 R (1) or CASS 1A.2.9 R (2), on 1 February following the notification; or
(2) if the firm notifies the FCA in accordance with CASS 1A.2.9 R (3), on the day it begins to hold client money or safe custody assets; or
(3) if the firm makes an election under CASS 1A.2.5 R (1), and provided the conditions in CASS 1A.2.5 R (2) are satisfied, on the day the notification made under CASS 1A.2.5 R (2)(a) states that the election is intended to take effect.
CASS 1A.2.13
01/04/2013
FCA
Any written notification made to the FCA under this chapter should be marked for the attention of: "Client Assets Firm Classification".

CASS 1A.3 Responsibility for CASS operational oversight

CASS 1A.3.1
01/01/2013
FCA
A CASS small firm must allocate to a director performing a significant influence function or a senior manager performing a significant influence function responsibility for:
(1) oversight of the firm's operational compliance with CASS; and
(2) reporting to the firm's governing body in respect of that oversight.

CF10a: the CASS operational oversight function

CASS 1A.3.1A
01/04/2013
FCA
A CASS medium firm and a CASS large firm must allocate to a director or senior manager the function of:
(1) oversight of the operational effectiveness of that firm's systems and controls that are designed to achieve compliance with CASS;
(2) reporting to the firm's governing body in respect of that oversight; and
(3) completing and submitting a CMAR to the FCA in accordance with SUP 16.14.
CASS 1A.3.1B
01/10/2011
FCA
CASS 1A.3.1A R describes the controlled function known as the CASS operational oversight function. The table of controlled functions in SUP 10.4.5 R together with SUP 10.7.9 R specify the CASS operational oversight function as a required function for a firm to which CASS 1A.3.1A R applies.
CASS 1A.3.1C
01/04/2013
FCA
If, at the time a firm becomes a CASS medium firm or a CASS large firm in accordance with CASS 1A.2.12 R (1) or CASS 1A.2.12 R (2), the firm is not able to comply with CASS 1A.3.1A R because it has no director or senior manager who is an approved person in respect of the CASS operational oversight function, the firm must:
(1) take the necessary steps to ensure that it complies with CASS 1A.3.1A R as soon as practicable, which must at least include submitting an application for a candidate in respect of the CASS operational oversight function within 30 business days of the firm becoming a CASS medium firm or a CASS large firm; and
(2) until such time as it is able to comply with CASS 1A.3.1A R, allocate to a director performing a significant influence function or a senior manager performing a significant influence function responsibility for:
(a) oversight of the firm's operational compliance with CASS;
(b) reporting to the firm's governing body in respect of that oversight; and
(c) completing and submitting the CMAR to the FCA in accordance with SUP 16.14.
CASS 1A.3.2
01/10/2011
[deleted]
CASS 1A.3.3
01/01/2013
FCA
(1) Subject to (2), a firm must make and retain an appropriate record of the person to whom responsibility is allocated in accordance with CASS 1A.3.1 R, CASS 1A.3.1A R or CASS 1A.3.1C R (2).
(2) A CASS small firm must make and retain such a record only where it allocates responsibility to a person other than the person in that firm who performs the compliance oversight function.
(3) A firm must ensure that the record made under this rule is retained for a period of five years after it is made.
31/12/2008 is the last day this material was in force

CASS 3.1 Application and Purpose

Application

CASS 3.1.1
01/11/2007
FCA
This chapter applies to a firm when it receives or holds assets in connection with an arrangement to secure the obligation of a client in the course of, or in connection with, its designated investment business, including MiFID business.
CASS 3.1.2
01/11/2007
FCA
Firms are reminded that this chapter does not apply to an incoming EEA firm, other than an insurer, with respect to its passported activities. The application of this chapter is also dependent on the location from which the activity is undertaken (see CASS 1.3.2 R and CASS 1.3.3 R).
CASS 3.1.3
01/11/2007
FCA
This chapter does not apply to a firm that has only a bare security interest (without rights to hypothecate) in the client's asset. In such circumstances, the firm must comply with the custody rules or client money rules as appropriate.
CASS 3.1.4
01/11/2007
FCA
For the purpose of this chapter only, a bare security interest in the client's asset gives a firm the right to realise the assets only on a client's default and without the right to use other than in default.

Purpose

CASS 3.1.5
01/11/2007
FCA
The purpose of this chapter is to ensure that an appropriate level of protection is provided for those assets over which a client gives a firm certain rights. The arrangements covered by this chapter are those under which the firm is given a right to use the asset, and the firm treats the asset as if legal title and associated rights to that asset had been transferred to the firm subject only to an obligation to return equivalent assets to the client upon satisfaction of the client's obligation to the firm. The rights covered in this chapter do not include those arrangements by which the firm has only a bare security interest in the client's asset (in which case the custody rules or client money rules apply).
CASS 3.1.6
01/11/2007
FCA
Examples of the arrangements covered by this chapter include the taking of collateral by a firm, under the ISDA English Law (transfer of title) and the New York Law Credit Support Annexes (assuming the right to rehypothecate has not been disapplied).
CASS 3.1.7
01/11/2007
FCA
This chapter recognises the need to apply a differing level of regulatory protection to the assets which form the basis of the two different types of arrangement described in CASS 3.1.5 G. Under the bare security interest arrangement, the asset continues to belong to the client until the firm's right to realise that asset crystallises (that is, on the client's default). But under a "right to use arrangement", the client has transferred to the firm the legal title and associated rights to the asset, so that when the firm exercises its right to treat the asset as its own, the asset ceases to belong to the client and in effect becomes the firm's asset and is no longer in need of the full range of client asset protection. The firm may exercise its right to treat the asset as its own by, for example, clearly so identifying the asset in its own books and records.
CASS 3.1.7A
01/07/2014
FCA
Firms are reminded of the client's best interests rule which requires a firm to act honestly, fairly and professionally, in accordance with the best interests of its clients, when agreeing to, entering into, exercising its rights under and fulfilling its obligations under an arrangement covered by this chapter, and when structuring its business to include such arrangements.
CASS 3.1.8
01/03/2011
FCA
A prime brokerage firm is reminded of the additional obligations in CASS 9.3.1R which apply to prime brokerage agreements.

CASS 3.2 Requirements

Application

CASS 3.2.1
01/11/2007
[deleted]
CASS 3.2.2
01/11/2007
FCA
A firm that receives or holds a client's assets under an arrangement to which this chapter applies and which exercises its right to treat the assets as its own must ensure that it maintains adequate records to enable it to meet any future obligations including the return of equivalent assets to the client.
CASS 3.2.3
01/12/2004
FCA
If the firm has the right to use the client's asset under a "right to use arrangement" but has not yet exercised its right to treat the asset as its own, the client money rules or the custody rules will continue to apply as appropriate until such time as the firm exercises its right, at which time CASS 3.2.2 R will apply.
CASS 3.2.4
01/06/2015
FCA
When appropriate, firms that enter into the arrangements with retail clientscovered in this chapter will be expected to identify in the statement of custody assets sent to the client in accordance with COBS 16.4 (Statements of client designated investments or client money) or CASS 9.5 (Reporting to clients on request) details of the assets which form the basis of the arrangements. Where the firm utilises global netting arrangements, a statement of the assets held on this basis will suffice.
31/12/2008 is the last day this material was in force

CASS 5.1 Application

CASS 5.1.1
06/04/2010
FCA
(1) CASS 5.1 to CASS 5.6 apply, subject to (2), (3) and CASS 5.1.3 R to CASS 5.1.6 R, to a firm that receives or holds money in the course of or in connection with its insurance mediation activity.
(2) CASS 5.1 to CASS 5.6 do not, subject to (3), apply:
(a) to a firm to the extent that it acts in accordance with the client money chapter; or
(b) to a firm in carrying on an insurance mediation activity which is in respect of a reinsurance contract; or
(c) to an insurance undertaking in respect of its permitted activities; or
(d) to a managing agent when acting as such; or
(e) with respect to money held by a firm which:
(i) is an approved bank; and
(ii) has requisite capital under article 4(4)(b) of the Insurance Mediation Directive;
but only when held by the firm in an account with itself, in which case the firm must notify the client (whether through a client agreement, terms of business, or otherwise in writing) that:
(iii) 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
(iv) as a result, the money will not be held in accordance with CASS 5.1 to CASS 5.6.
(3) A firm may elect to comply with:
(a) CASS 5.1 to CASS 5.6 in respect of client money which it receives in the course of carrying on insurance mediation activity in respect of reinsurance contracts; and
(b) CASS 5.1, CASS 5.2 and CASS 5.4 to CASS 5.6 in respect of money which it receives in the course of carrying on an activity which would be insurance mediation activity, and which money would be client money, but for article 72D of the Regulated Activities Order (Large risks contracts where risk situated outside the EEA);
but the election must be in respect of all the firm's business which consists of that activity.
(4) A firm must keep a record of any election in (3).
CASS 5.1.2
14/01/2005
FCA
A firm that is an approved bank, and relies on the exemption under CASS 5.1.1 R (2)(e), 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.
CASS 5.1.3
09/12/2011
FCA
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 that, with respect to its regulated activities, is subject to the rules of its designated professional body as specified in CASS 5.1.4 R, in force on 14 January 2005, must comply with those rules and if it does so, it will be deemed to comply with CASS 5.2 to CASS 5.6.
CASS 5.1.4
14/01/2005
FCA
For the purposes of CASS 5.1.3 R the relevant rules are:
(1) If regulated by the Law Society (of England and Wales);
(a) the Solicitors' Accounts Rules 1998; or
(b) where applicable, the Solicitors Overseas Practice Rules 1990;
(2) if regulated by the Law Society of Scotland, the Solicitors' (Scotland) Accounts, Accounts Certificate, Professional Practice and Guarantee Fund Rules 2001;
(3) if regulated by the Law Society of Northern Ireland, the Solicitors' Accounts Regulations 1998.
CASS 5.1.4A
14/01/2005
FCA
(1)  A firm will, subject to (3), be deemed to comply with CASS 5.3 to CASS 5.6 if it receives or holds client money and it either:
(a)  in relation to a service charge, complies with the requirement to segregate such money in accordance with section 42 of the Landlord and Tenant Act 1987 ("the 1987 Act"); or
(b)  in relation to money which is clients' money for the purpose of the Royal Institution of Chartered Surveyors' Rules of Conduct ("RICS rules") in force as at 14 January 2005, it complies with the requirement to segregate and account for such money in accordance with the RICS Members' Accounts rules.
(2)  Paragraph (1)(a) also applies to a firm in Scotland or in Northern Ireland if in acting as a property manager the firm receives or holds a service charge and complies (so far as practicable) with section 42 of the 1987 Act as if the requirements of that provision applied to it.
(3)  In addition to complying with (1), a firm must ensure that an account in which money held pursuant to the trust fund mentioned in section 42(3) of the 1987 Act or an account maintained in accordance with the RICS rules satisfies the requirements in CASS 5.5.49 R to the extent that the firm will hold money as trustee or otherwise on behalf of its clients.
CASS 5.1.5
14/01/2005
FCA
Subject to CASS 5.1.5A R money is not client money when:
(1) it becomes properly due and payable to the firm:
(a) for its own account; or
(b) in its capacity as agent of an insurance undertaking where the firm acts in accordance with CASS 5.2; or
(2) it is otherwise received by the firm pursuant to an arrangement made between an insurance undertaking and another person (other than a firm) by which that other person has authority to underwrite risks, settle claims or handle refunds of premiums on behalf of that insurance undertaking outside the United Kingdom and where the money relates to that business.
CASS 5.1.5A
14/01/2005
FCA
CASS 5.1.5 R (1)(b) and CASS 5.1.5 R (2) do not apply, and hence money is client money, in any case where:
(1)  in relation to an activity specified in CASS 5.2.3 R (1) (a) to CASS 5.2.3 R (1) (c), the insurance undertaking has agreed that the firm may treat money which it receives and holds as agent of the undertaking, as client money and in accordance with the provisions of CASS 5.3 to CASS 5.6; and
(2)  the agreement in (1) is in writing and adequate to show that the insurance undertaking consents to its interests under the trusts (or in Scotland agency) in CASS 5.3.2 R or CASS 5.4.7 R being subordinated to the interests of the firm's other clients.
CASS 5.1.6
14/01/2005
FCA
Except where a firm and an insurance undertaking have (in accordance with CASS 5.1.5A R) agreed otherwise, for the purposes of CASS 5.1 to CASS 5.6 an insurance undertaking (when acting as such) with whom a firm conducts insurance mediation activity is not to be treated as a client of the firm.

Purpose

CASS 5.1.7
01/11/2007
FCA
(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 handling of client money. The rules in CASS 5.1 to CASS 5.6 also give effect to the requirement in article 4.4 of the Insurance Mediation Directive that all necessary measures should be taken to protect clients against the inability of an insurance intermediary to transfer premiums to an insurance undertaking or to transfer the proceeds of a claim or premium refund to the insured.
(2) There are two particular approaches which firms can adopt which reflect options given in article 4.4. The first is to provide by law or contract for a transfer of risk from the insurance intermediary to the insurance undertaking (CASS 5.2). The second is that client money is strictly segregated by being transferred to client accounts that cannot be used to reimburse other creditors in the event of the firm's insolvency (CASS 5.3 and CASS 5.4 provide different means of achieving such segregation). CASS 5.1.5A R permits a firm subject to certain conditions to treat money which it collects as agent of an insurance undertaking as client money; the principle of strict segregation is, however, satisfied because such undertakings must agree to their interests being subordinated to the interests of the firm's other clients.
CASS 5.1.8
01/11/2007
FCA
Firms which carry on designated investment business which may, for example, involve them handling client money in respect of life assurance business should refer to the non-directive client money chapter which includes provisions enabling firms to elect to comply solely with that chapter or with the insurance client money chapter in respect of that business. Firms that also carry on MiFID or equivalent third country business may elect to comply solely with the MiFID client money chapter with respect of client money in respect of which the non-directive client money chapter or the insurance client money chapter apply.
CASS 5.1.9
14/01/2005
FCA
Firms are reminded that SUP 3 contains provisions which are relevant to the preparation and delivery of reports by auditors.

CASS 5.2 Holding money as agent of insurance undertaking

Introduction

CASS 5.2.1
14/01/2005
FCA
If a firm holds money as agent of an insurance undertaking then the firm's clients (who are not insurance undertakings) will be adequately protected to the extent that the premiums which it receives are treated as being received by the insurance undertaking when they are received by the agent and claims money and premium refunds will only be treated as received by the client when they are actually paid over. The rules in CASS 5.2 make provision for agency agreements between firms and insurance undertakings to contain terms which make clear when money should be held by a firm as agent of an undertaking. Firms should refer to CASS 5.1.5 R to determine the circumstances in which they may treat money held on behalf of insurance undertakings as client money.
CASS 5.2.2
14/01/2005
FCA
(1) Agency agreements between insurance intermediaries and insurance undertakings may be of a general kind and facilitate the introduction of business to the insurance undertaking. Alternatively, an agency agreement may confer on the intermediary contractual authority to commit the insurance undertaking to risk or authority to settle claims or handle premium refunds (often referred to as "binding authorities"). CASS 5.2.3 R requires that binding authorities of this kind must provide that the intermediary is to act as the agent of the insurance undertaking for the purpose of receiving and holding premiums (if the intermediary has authority to commit the insurance undertaking to risk), claims monies (if the intermediary has authority to settle claims on behalf of the insurance undertaking) and premium refunds (if the intermediary has authority to make refunds of premium on behalf of the insurance undertaking). Accordingly such money is not, except where a firm and an insurance undertaking have in compliance with CASS 5.1.5A R agreed otherwise, client money for the purposes of CASS 5.
(2) Other introductory agency agreements may also, depending on their precise terms, satisfy some or all of the requirements of the type of written agreement described in CASS 5.2.3 R. It is desirable that an intermediary should, before informing its clients (in accordance with CASS 5.2.3 R (3)) that it will receive money as agent of an insurance undertaking, agree the terms of that notification with the relevant insurance undertakings.

Requirement for written agreement before acting as agent of insurance undertaking

CASS 5.2.3
06/04/2010
FCA
(1) A firm must not agree to:
(a)  deal in investments as agent for an insurance undertaking in connection with insurance mediation; or
(b)  act as agent for an insurance undertaking for the purpose of settling claims or handling premium refunds; or
(c)  otherwise receive money as agent of an insurance undertaking;
unless:
(d)  it has entered into a written agreement with the insurance undertaking to that effect; and
(e)  it is satisfied on reasonable grounds that the terms of the policies issued by the insurance undertaking to the firm's clients are likely to be compatible with such an agreement; and
(f)  
(i) (in the case of (a)) the agreement required by (d) expressly provides for the firm to act as agent of the insurance undertaking for the purpose of receiving premiums from the firm's clients; and
(ii) (in the case of (b)) the agreement required by (d) expressly provides for the firm to act as agent of the insurance undertaking for the purpose of receiving and holding claims money (or, as the case may be, premium refunds) prior to transmission to the client making the claim (or, as the case may be, entitled to the premium refund) in question.
(2) A firm must retain a copy of any agreement it enters pursuant to (1) for a period of at least six years from the date on which it is terminated.
(3) Where a firm holds, or is to hold, money as agent for an insurance undertaking it must ensure that it informs those of its clients which are not insurance undertakings and whose transactions may be affected by the arrangement (whether in its terms of business, client agreements or otherwise in writing) that it will hold their money as agent of the insurance undertaking and if necessary the extent of such agency and whether it includes all items of client money or is restricted, for example, to the receipt of premiums.
(4) A firm may (subject to the consent of the insurance undertaking concerned) include in an agreement in (1) provision for client money received by its appointed representative, field representatives and other agents to be held as agent for the insurance undertaking (in which event it must ensure that the representative or agent provides the information to clients required by (3)).
CASS 5.2.4
14/01/2005
FCA
Firms are reminded that CASS 5.1.5A R provides that, if the insurance undertaking has agreed in writing, money held in accordance with an agreement made under CASS 5.2.3 R may be treated as client money and may (but not otherwise) be kept in a client bank account.
CASS 5.2.5
14/01/2005
FCA
A firm which provides for the protection of a client(which is not an insurance undertaking) under CASS 5.2 is relieved of the obligation to provide protection for that client under CASS 5.3 or CASS 5.4 to the extent of the items of client money protected by the agency agreement.
CASS 5.2.6
14/01/2005
FCA
A firm may, in accordance with CASS 5.2.3 R (4), arrange for an insurance undertaking to accept responsibility for the money held by its appointed representatives, field representatives, and other agents, in which event CASS 5.5.18 R to CASS 5.5.25 G will not apply.
CASS 5.2.7
14/01/2005
FCA
A firm may operate on the basis of an agency agreement as provided for by CASS 5.2.3 R for some of its clients and with protection provided by a client money trust in accordance with CASS 5.3 or CASS 5.4 for other clients. A firm may also operate on either basis for the same client but in relation to different transactions. A firm which does so should be satisfied that its administrative systems and controls are adequate and, in accordance with CASS 5.2.4 G, should ensure that money held for both types of client and business is kept separate.

CASS 5.3 Statutory trust

CASS 5.3.1
01/04/2013
FCA
Section 137B(1) of the Act (Miscellaneous ancillary matters) provides that rules may make provision which results in client money being held by a firm on trust (England and Wales and Northern Ireland) or as agent (Scotland only). CASS 5.3.2 R creates a fiduciary relationship between the firm and its client under which client money is in the legal ownership of the firm but remains in the beneficial ownership of the client. In the event of failure of the firm, costs relating to the distribution of client money may have to be borne by the trust.
CASS 5.3.2
14/01/2005
FCA
A firm (other than a firm acting in accordance with CASS 5.4) receives and holds client money as trustee (or in Scotland as agent) on the following terms:
(1) for the purposes of and on the terms of CASS 5.3, CASS 5.5 and the client money (insurance) distribution rules;
(2) subject to (4), for the clients (other than clients which are insurance undertakings when acting as such) for whom that money is held, according to their respective interests in it;
(3) after all valid claims in (2) have been met, for clients which are insurance undertakings according to their respective interests in it;
(4) on the 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); and
(5)  after all valid claims and costs under (2) to (4) have been met, for the firm itself.
CASS 5.3.3
14/01/2005
FCA
(1) A firm which holds client money can discharge its obligation to ensure adequate protection for its clients in respect of such money by complying with CASS 5.3 which provides for such money to be held by the firm on the terms of a trust imposed by the rules.
(2) The trust imposed by CASS 5.3 is limited to a trust in respect of client money which a firm receives and holds. The consequential and supplementary requirements in CASS 5.5 are designed to secure the proper segregation and maintenance of adequate client money balances. In particular, CASS 5.5 does not permit a firm to use client money balances to provide credit for clients (or potential clients) such that, for example, their premium obligations may be met in advance of the premium being remitted to the firm. A firm wishing to provide credit for clients may however do so out of its own funds.

CASS 5.4 Non-statutory client money trust

Introduction

CASS 5.4.1
06/04/2010
FCA
(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's 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) 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 5.4.2
14/01/2005
FCA
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 5.4.3
14/01/2005
FCA
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 5.4.4
01/01/2007
FCA
A firm may not handle client money in accordance with the rules in this section unless each of the following conditions is satisfied:
(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) 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) 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) 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 MIPRU 4.4.1 R; and
(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).
CASS 5.4.5
01/01/2007
FCA
The amount of a firm's capital resources maintained for the purposes of MIPRU 4.2.11 R 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 5.4.6
14/01/2005
FCA
Except to the extent that a firm acts in accordance with CASS 5.3, afirm 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 5.4.7
14/01/2005
FCA
The deed referred to in CASS 5.4.6 R must provide that the money (and, if appropriate, designated investments) are held:
(1) for the purposes of and on the terms of:
(a) CASS 5.4;
(b) the applicable provisions of CASS 5.5; and
(c) the client money (insurance) distribution rules
(2) subject to (4 ), for the clients (other than clients which are insurance undertakings when acting as such) for whom that money is held, according to their respective interests in it;
(3) after all valid claims in (2) have been met for clients which are insurance undertakings according to their respective interests in it;
(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); and
(5)  after all valid claims and costs under (2) to (4) have been met, for the firm itself.
CASS 5.4.8
14/01/2005
FCA
The deed (or equivalent formal document) referred to in CASS 5.4.6 R may provide that:
(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) 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.

CASS 5.5 Segregation and the operation of client money accounts

Application

CASS 5.5.1
14/01/2005
FCA
Unless otherwise stated each of the provisions in CASS 5.5 applies to firms which are acting in accordance with CASS 5.3 (Statutory trust) or CASS 5.4 (Non-statutory trust).
CASS 5.5.2
14/01/2005
FCA
One purpose of CASS 5.5 is to ensure that, unless otherwise permitted, client money is kept separate from the firm's own money. Segregation, in the event of a firm's failure, is important for the effective operation of the trust that is created to protect client money. The aim is to clarify the difference between client money and general creditors' entitlements in the event of the failure of the firm.

Requirement to segregate

CASS 5.5.3
14/01/2005
FCA
A firm must, except to the extent permitted by CASS 5.5, hold client money separate from the firm's money.

Money due to a client from a firm

CASS 5.5.4
14/01/2005
FCA
If a firm is liable to pay money to a client, it must as soon as possible, and no later than one business day after the money is due and payable:
(1) pay it into a client bank account, in accordance with CASS 5.5.5 R; or
(2) pay it to, or to the order of, the client.

Segregation

CASS 5.5.5
14/01/2005
FCA
A firm must segregate client money by either:
(1) paying it as soon as is practicable into a client bank account; or
(2) paying it out in accordance with CASS 5.5.80 R.
CASS 5.5.6
01/04/2013
FCA
The FCA expects that in most circumstances it will be practicable for a firm to pay client money into a client bank account by not later than the next business day after receipt.
CASS 5.5.7
06/01/2008
FCA
Where an insurance transaction involves more than one firm acting in a chain such that for example money is transferred from a "producing" broker who has received client money from a consumer to an intermediate broker and thereafter to an insurance undertaking, each broker firm will owe obligations to its immediate client to segregate client money which it receives (in this example the producing broker in relation to the consumer and the intermediate broker in relation to the producing broker). A firm which allows a third party broker to hold or control client money will not thereby be relieved of its fiduciary obligations (see CASS 5.5.34 R).
CASS 5.5.8
14/01/2005
FCA
A firm may segregate client money in a different currency from that of receipt. If it does so, the firm must ensure that the amount held is adjusted at intervals of not more than twenty five business days 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.
CASS 5.5.9
14/01/2005
FCA
A firm must not hold money other than client money in a client bank account unless it is:
(1) a minimum sum required to open the account, or to keep it open; or
(2) money temporarily in the account in accordance with CASS 5.5.16 R (Withdrawal of commission and mixed remittance); or
(3) interest credited to the account which exceeds the amount due to clients as interest and has not yet been withdrawn by the firm.
CASS 5.5.10
14/01/2005
FCA
If it is prudent to do so to ensure that client money is protected (and provided that doing so would otherwise be in accordance with CASS 5.5.63 R (1)(b)(ii)), a firm may pay into, or maintain in, a client bank account money of its own, and that money will then become client money for the purposes of CASS 5 and the client money (insurance) distribution rules.
CASS 5.5.11
14/01/2005
FCA
A firm, when acting in accordance with CASS 5.3 (statutory trust), must ensure that the total amount of client money held for each client in any of the firm's client money bank accounts is positive and that no payment is made from any such account for the benefit of a client unless the client has provided the firm with cleared funds to enable the payment to be made.
CASS 5.5.11A
14/01/2005
FCA
When a firm acts in accordance with CASS 5.3 (Statutory trust) it should not make a payment from the client bank account unless it is satisfied on reasonable grounds that the client has provided it with cleared funds. Accordingly, a firm should normally allow a reasonable period of time for cheques to clear. If a withdrawal is made and the client's cheque is subsequently dishonoured it will be the firm's responsibility to make good the shortfall in the account as quickly as possible (and without delay whilst a cheque is re-presented).
CASS 5.5.12
14/01/2005
FCA
If client money is received by the firm in the form of an automated transfer, the firm must take reasonable steps to ensure that:
(1) the money is received directly into a client bank account; and
(2) if money is received directly into the firm's own account, the money is transferred into a client bank account no later than the next business day after receipt.
CASS 5.5.13
14/01/2005
FCA
A firm can hold client money in either a general client bank account (CASS 5.5.38 R) or a designated client bank account (CASS 5.5.39 R). A firm holds all client money in general client bank accounts for its clients as part of a common pool of money so those particular clients do not have a claim against a specific sum in a specific account; they only have a claim to the client money in general. A firm holds client money in designated client bank accounts for those clients who requested that their client money be part of a specific pool of money, so those particular clients do have a claim against a specific sum in a specific account; they do not have a claim to the client money in general unless a primary pooling event occurs. If the firm becomes insolvent, and there is (for whatever reason) a shortfall in money held for a client compared with that client's entitlements, the available funds will be distributed in accordance with the client money (insurance) distribution rules.

Non-statutory trust - segregation of designated investments

CASS 5.5.14
06/01/2008
FCA
(1) A firm which handles client money in accordance with the rules for a non-statutory trust in CASS 5.4 may, to the extent it considers appropriate, but subject to (2), satisfy the requirement to segregate client money by segregating or arranging for the segregation of designated investments with a value at least equivalent to such money as would otherwise have been segregated into a client bank account.
(2) A firm may not segregate designated investments unless it:
(a) takes reasonable steps to ensure that any consumers whose client money interests may be protected by such segregation are aware that the firm may operate such an arrangement and have (whether through its terms of business, client agreements, or otherwise in writing) an adequate opportunity to give their informed consent;
(b) ensures that the terms on which it will segregate designated investments include provision for it to take responsibility for meeting any shortfall in its client money resource which is attributable to falls in the market value of a segregated investment;
(c) provides in the deed referred to in CASS 5.4.6 R for designated investments which it segregates to be held by it on the terms of the non-statutory trust; and
(d) takes reasonable steps to ensure that the segregation is at all times in conformity with the range of permitted investments, general principles and conditions in CASS 5 Annex 1 R.
CASS 5.5.15
14/01/2005
FCA
A firm which takes advantage of CASS 5.5.14 R will need to consider whether its permission should include the permitted activity of managing investments. If the firm is granted a power to manage with discretion the funds over which it is appointed as trustee under the trust deed required by CASS 5.4 then it will be likely to need a permission to manage investments. It is unlikely to need such a permission, however, if it is merely granted a power to invest but the deed stipulates that the funds may only be managed with discretion by another firm (which has the necessary permission). Such an arrangement would not preclude the firm holding client money as trustee from appointing another firm (or firms) as manager and setting an appropriate strategy and overall asset allocation, subject to the limits set out in CASS 5 Ann 1 R. A firm may also need to consider whether it needs a permission to operate a collective investment scheme if any of its clients are to participate in the income or gains arising from the acquisition or disposal of designated investments.

Withdrawal of commission and mixed remittance

CASS 5.5.16
14/01/2005
FCA
(1) A firm may draw down commission from the client bank account if:
(a) it has received the premium from the client (or from a third party premium finance provider on the client's behalf) ; and
(b) this is consistent with the firm's terms of business which it maintains with the relevant client and the insurance undertaking to whom the premium will become payable;
and the firm may draw down commission before payment of the premium to the insurance undertaking, provided that the conditions in (a) and (b) are satisfied.
(2) If a firm receives a mixed remittance (that is part client money and part other money), it must:
(a) pay the full sum into a client bank account in accordance with CASS 5.5.5 R; and
(b) pay the money that is not client money out of the client bank account as soon as reasonably practicable and in any event by not later than twenty-five business days after the day on which the remittance is cleared (or, if earlier, when the firm performs the client money calculation in accordance with CASS 5.5.63 R (1)).
CASS 5.5.17
14/01/2005
FCA
(1) As soon as commission becomes due to the firm (in accordance with CASS 5.5.16 R (1)) it must be treated as a remittance which must be withdrawn in accordance with CASS 5.5.16 R (2). The procedure required by CASS 5.5.16 R will also apply where money is due and payable to the firm in respect of fees due from clients (whether to the firm or other professionals).
(2) Firms are reminded that money received in accordance with CASS 5.2 must not, except where a firm and an insurance undertaking have (in accordance with CASS 5.1.5A R) agreed otherwise, be kept in a client bank account. Client money received from a third-party premium finance provider should, however, be segregated into a client bank account.
(3) Where a client makes payments of premium to a firm in instalments, CASS 5.5.16 R (1) applies in relation to each instalment.
(4)  If a firm is unable to match a remittance with a transaction it may be unable to immediately determine whether the payment comprises a mixed remittance or is client money. In such cases the remittance should be treated as client money while the firm takes steps to match the remittance to a transaction as soon as possible.

Appointed representatives, field representatives and other agents

CASS 5.5.18
06/04/2010
FCA
(1) Subject to (4), a firm must in relation to each of its appointed representatives, field representatives and other agents comply with CASS 5.5.19 R to CASS 5.5.21 R (Immediate segregation) or with CASS 5.5.23 R (Periodic segregation and reconciliation).
(2) A firm must in relation to each representative or other agent keep a record of whether it is complying with CASS 5.5.19 R to CASS 5.5.21 R or with CASS 5.5.23 R.
(3) A firm is, but without affecting the application of CASS 5.5.19 R to CASS 5.5.23 R, to be treated as the recipient of client money which is received by any of its appointed representatives, field representatives or other agents.
(4)  Paragraphs (1) to (3) do not apply in relation to an appointed representative, field representative or other agent to which (if it were a firm) CASS 5.1.4AR (1) or CASS 5.1.4AR (2) would apply, but subject to the representative or agent maintaining an account which satisfies the requirements of CASS 5.5.49 R to the extent that the representative or agent will hold client money on trust or otherwise on behalf of its clients.

Immediate segregation

CASS 5.5.19
14/01/2005
FCA
A firm must establish and maintain procedures to ensure that client money received by its appointed representatives, field representatives, or other agents of the firm is:
(1) paid into a client bank account of the firm in accordance with CASS 5.5.5 R; or
(2) forwarded to the firm, or in the case of a field representative forwarded to a specified business address of the firm, so as to ensure that the money arrives at the specified business address by the close of the third business day.
CASS 5.5.20
14/01/2005
FCA
For the purposes of CASS 5.5.19 R, the client money received on business day one should be forwarded to the firm or specified business address of the firm 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 to be sent to the firm or the specified business address of the firm by first class post no later than the next business day after receipt would meet the requirements of CASS 5.5.19 R.
CASS 5.5.21
14/01/2005
FCA
If client money is received in accordance with CASS 5.5.19 R, the firm must ensure that its appointed representatives, field representatives or other agents keep client money (whether in the form of premiums, claims money or premium refunds) separately identifiable from any other money (including that of the firm) until the client money is paid into a client bank account or sent to the firm.
CASS 5.5.22
14/01/2005
FCA
A firm which acts in accordance with CASS 5.5.19 R to CASS 5.5.21 R need not comply with CASS 5.5.23 R.

Periodic segregation and reconciliation

CASS 5.5.23
14/01/2005
FCA
(1) A firm must, on a regular basis, and at reasonable intervals, ensure that it holds in its client bank account an amount which (in addition to any other amount which it is required by these rules to hold) is not less than the amount which it reasonably estimates to be the aggregate of the amounts held at any time by its appointed representatives, field representatives, and other agents.
(2) A firm must, not later than ten business days following the expiry of each period in (1):
(a) carry out, in relation to each such representative or agent, a reconciliation of the amount paid by the firm into its client bank account with the amount of client money actually received and held by the representative or other agent; and
(b) make a corresponding payment into, or withdrawal from, the account.
CASS 5.5.24
14/01/2005
FCA
(1) CASS 5.5.23 R allows a firm with appointed representatives, field representatives and other agents to avoid the need for the representative to forward client money on a daily basis but instead requires a firm to segregate into its client money bank account amounts which it reasonably estimates to be sufficient to cover the amount of client money which the firm expects its representatives or agents to receive and hold over a given period. At the expiry of each such period, the firm must obtain information about the actual amount of client money received and held by its representatives so that it can reconcile the amount of client money it has segregated with the amounts actually received and held by its representatives and agents. The frequency at which this reconciliation is to be performed is not prescribed but it must be at regular and reasonable intervals having regard to the nature and frequency of the insurance business carried on by its representatives and agents. For example, a period of six months might be appropriate for a representative which conducts business involving the receipt of premiums only infrequently whilst for other representatives a periodic reconciliation at monthly intervals (or less) may be appropriate.
(2) Where a firm operates on the basis of CASS 5.5.23 R, the money which is segregated into its client bank account is client money and will be available to meet any obligations owed to the clients of its representatives who for this purpose are treated as the firm'sclients.
CASS 5.5.25
14/01/2005
FCA
A firm which acts in accordance with CASS 5.5.23 R need not comply with CASS 5.5.19 R to CASS 5.5.21 R.

Client entitlements

CASS 5.5.26
14/01/2005
FCA
A firm must take reasonable steps to ensure that it is notified promptly of any receipt of client money in the form of client entitlements.
CASS 5.5.27
14/01/2005
FCA
The 'entitlements' mentioned in CASS 5.5.26 R refer to any kind of miscellaneous payment which the firm receives on behalf of a client and which are due to be paid to the client.
CASS 5.5.28
14/01/2005
FCA
When a firm receives a client entitlement on behalf of a client, it must pay any part of it which is client money:
(1) for client entitlements received in the United Kingdom, into a client bank account in accordance with CASS 5.5.5 R; or
(2) for client entitlements received outside the United Kingdom, into any bank account operated by the firm, provided that such client money is:
(a) paid to, or in accordance with, the instructions of the client concerned; or
(b) paid into a client bank account in accordance with CASS 5.5.5 R (1), as soon as possible but no later than five business days after the firm is notified of its receipt.
CASS 5.5.29
14/01/2005
FCA
A firm must take reasonable steps to ensure that a client entitlement which is client money is allocated within a reasonable period of time after notification of receipt.

Interest and investment returns

CASS 5.5.30
06/01/2008
FCA
(1) In relation to consumers, a firm must, subject to (2), take reasonable steps to ensure that its terms of business or other client agreements adequately explain, and where necessary obtain a client's informed consent to, the treatment of interest and, if applicable, investment returns, derived from its holding of client money and any segregated designated investments.
(2) In respect of interest earned on client bank accounts, (1) does not apply if a firm has reasonable ground to be satisfied that in relation to insurance mediation activities carried on with or for a consumer the amount of interest earned will be not more than £20 per transaction.
CASS 5.5.31
06/01/2008
FCA
If no interest is payable to a consumer, that fact should be separately identified in the firm's client agreement or terms of business.
CASS 5.5.32
14/01/2005
FCA
If a firm outlines its policy on its payment of interest, it need not necessarily disclose the actual rates prevailing at any particular time; the firm should disclose the terms, for example, LIBOR plus or minus 'x' percentage points.

Transfer of client money to a third party

CASS 5.5.33
14/01/2005
FCA
CASS 5.5.34 R sets out the requirements a firm must comply with when it transfers client money to another person without discharging its fiduciary duty owed to that client. Such circumstances arise when, for example, a firm passes client money to another broker for the purposes of the client's transaction being effected. A firm can only discharge itself from its fiduciary duty by acting in accordance with, and in the circumstances permitted by, CASS 5.5.80 R.
CASS 5.5.34
06/01/2008
FCA
A firm may allow another person, such as another broker to hold or control client money, but only if:
(1) the firm transfers the client money for the purpose of a transaction for a client through or with that person; and
(2) in the case of a consumer , that customer has been notified (whether through a client agreement, terms of business, or otherwise in writing) that the client money may be transferred to another person.
CASS 5.5.35
14/01/2005
FCA
In relation to the notification required by CASS 5.5.34 R (2), there is no need for a firm to make a separate disclosure in relation to each transfer made.
CASS 5.5.36
14/01/2005
FCA
A firm should not hold excess client money with another broker. It should be held in a client bank account.

Client bank accounts

CASS 5.5.37
01/04/2013
FCA
The FCA generally requires a firm to place client money in a client bank account with an approved bank. However, a firm which is an approved bank must not (subject to CASS 5.1.1 R (2)(e)) hold client money in an account with itself.
CASS 5.5.38
14/01/2005
FCA
(1)  A firm must ensure that client money is held in a client bank account at one or more approved banks.
(2)  If the firm is a bank, it must not hold client money in an account with itself.
CASS 5.5.39
14/01/2005
FCA
A firm may open one or more client bank accounts in the form of a designated client bank account. Characteristics of these accounts are that:
(1) the account holds money of one or more clients;
(2) the account includes in its title the word 'designated';
(3) the clients whose money is in the account have each consented in writing to the use of the bank with which the client money is to be held; and
(4) in the event of the failure of that bank, the account is not pooled with any other type of account unless a primary pooling event occurs.
CASS 5.5.40
14/01/2005
FCA
(1) A firm may operate as many client accounts as it wishes.
(2)  A firm is not obliged to offer its clients the facility of a designated client bank account.
(3) Where a firm holds money in a designated client bank account, the effect upon either:
(a) the failure of a bank where any other client bank account is held; or
(b) the failure of a third party to whom money has been transferred out of any other client bank account in accordance with CASS 5.5.34 R;
(each of which is a secondary pooling event) is that money held in the designated client bank account is not pooled with money held in any other account. Accordingly clients whose money is held in a designated client bank account will not share in any shortfall resulting from a failure of the type described in (a) or (b).
(4) Where a firm holds client money in a designated client bank account, the effect upon the failure of the firm (which is a primary pooling event ) is that money held in the designated client bank account is pooled with money in every other client bank account of the firm. Accordingly, clients whose money is held in a designated client bank account will share in any shortfall resulting from a failureof the firm.
CASS 5.5.41
06/01/2008
FCA
A firm may hold client money with a bank that is not an approved bank if all the following conditions are met:
(1) the client money relates to one or more insurance transactions which are subject to the law or market practice of a jurisdiction outside the United Kingdom;
(2) because of the applicable law or market practice of that overseas jurisdiction, it is not possible to hold the client money in a client bank account with an approved bank;
(3) the firm holds the money with such a bank for no longer than is necessary to effect the transactions;
(4) the firm notifies each relevant client and has, in relation to a consumer , a client agreement, or terms of business which adequately explain that:
(a) client money will not be held with an approved bank;
(b) in such circumstances, the legal and regulatory regime applying to the bank with which the client money is held will be different from that of the United Kingdom and, in the event of a failure of the bank, the client money may be treated differently from the treatment which would apply if the client money were held by an approved bank in the United Kingdom; and
(c) if it is the case, the particular bank has not accepted that it has no right of set-off or counterclaim against money held in a client bank account, in respect of any sum owed on any other account of the firm, notwithstanding the firm's request to the bank as required by CASS 5.5.49 R; and
(5) the client money is held in a designated bank account.

A firm's selection of a bank

CASS 5.5.42
14/01/2005
FCA
A firm owes a duty of care to a client when it decides where to place client money. The review required by CASS 5.5.43 R is intended to ensure that the risks inherent in placing client money with a bank are minimised or appropriately diversified by requiring a firm to consider carefully the bank or banks with which it chooses to place client money. For example, a firm which is likely only to hold relatively modest amounts of client money will be likely to be able to satisfy this requirement if it selects an authorised UK clearing bank.
CASS 5.5.43
14/01/2005
FCA
Before a firm opens a client bank account and as often as is appropriate on a continuing basis (and no less than once in each financial year), it must take reasonable steps to establish that the bank is appropriate for that purpose.
CASS 5.5.44
14/01/2005
FCA
A firm should consider diversifying placements of client money with more than one bank where the amounts are, for example, of sufficient size to warrant such diversification.
CASS 5.5.45
14/01/2005
FCA
When considering where to place client money and to determine the frequency of the appropriateness test under CASS 5.5.43 R, a firm should consider taking into account, together with any other relevant matters:
(1) the capital of the bank;
(2) the amount of client money placed, as a proportion of the bank's capital and deposits;
(3) the credit rating of the bank (if available); and
(4) to the extent that the information is available, the level of risk in the investment and loan activities undertaken by the bank and its affiliated companies.
CASS 5.5.46
14/01/2005
FCA
A firm will be expected to perform due diligence when opening a client bank account with a bank that is authorised by an EEA regulator. Any continuing assessment of that bank may be restricted to verification that it remains authorised by an EEA regulator.

Group banks

CASS 5.5.47
01/11/2007
FCA
Subject to CASS 5.5.41 R, a firm that holds or intends to hold client money with a bank which is in the same group as the firm must:
(1) undertake a continuous review in relation to that bank which is at least as rigorous as the review of any bank which is not in the same group, in order to ensure that the decision to use a group bank is appropriate for the client;
(2) disclose in writing to its client at the outset of the client relationship (whether by way of a client agreement, terms of business or otherwise in writing) or, if later, not less than 20 business days before it begins to hold client money of that client with that bank:
(a) that it is holding or intends to hold client money with a bank in the same group;
(b) the identity of the bank concerned; and
(c) that the client may choose not to have his money placed with such a bank.
CASS 5.5.48
14/01/2005
FCA
If a client has notified a firm in writing that he does not wish his money to be held with a bank in the same group as the firm, the firm must either:
(1) place that client money in a client bank account with another bank in accordance with CASS 5.5.38 R; or
(2) return that client money to, or pay it to the order of, the client.

Notification and acknowledgement of trust (banks)

CASS 5.5.49
14/01/2005
FCA
When a firm opens a client bank account, the firm must give or have given written notice to the bank requesting the bank to acknowledge to it in writing:
(1) that all money standing to the credit of the account is held by the firm as trustee (or if relevant in Scotland, as agent) and that the bank is not entitled to combine the account with any other account or to exercise any right of set-off or counterclaim against money in that account in respect of any sum owed to it on any other account of the firm; and
(2) that the title of the account sufficiently distinguishes that account from any account containing money that belongs to the firm, and is in the form requested by the firm.
CASS 5.5.50
14/01/2005
FCA
In the case of a client bank account in the United Kingdom, if the bank does not provide the acknowledgement referred to in CASS 5.5.49 R within 20 business days after the firm dispatched the notice, the firm must 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.
CASS 5.5.51
14/01/2005
FCA
In the case of a client bank account outside the United Kingdom, if the bank does not provide the acknowledgement referred to in CASS 5.5.49 R within 20 business days after the firm dispatched the notice, the firm must notify the client of this fact as set out in CASS 5.5.53 R.
CASS 5.5.52
14/01/2005
FCA
Firms are reminded of the provisions of CASS 5.5.41 R (4), which sets out the notification and consents required when using a bank that is not an approved bank.

Notification to clients: use of an approved bank outside the United Kingdom

CASS 5.5.53
06/01/2008
FCA
A firm must not hold, for a consumer, client money in a client bank account outside the United Kingdom, unless the firm has previously disclosed to the consumer (whether in its terms of business, client agreement or otherwise in writing):
(1) that his money may be deposited in a client bank account outside the United Kingdom but that the client may notify the firm that he does not wish his money to be held in a particular jurisdiction;
(2) that in such circumstances, the legal and regulatory regime applying to the approved bank will be different from that of the United Kingdom and, in the event of a failure of the bank, his money may be treated in a different manner from that which would apply if the client money were held by a bank in the United Kingdom; and
(3) if it is the case, that a particular bank has not accepted that it has no right of set-off or counterclaim against money held in a client bank account in respect of any sum owed on any other account of the firm, notwithstanding the firm's request to the bank as required by CASS 5.5.49 R.
CASS 5.5.54
14/01/2005
FCA
There is no need for a firm to make a separate disclosure under CASS 5.5.53 R (1) and CASS 5.5.53 R (2) in relation to each jurisdiction.
CASS 5.5.55
14/01/2005
FCA
Firms are reminded of the provisions of CASS 5.5.41 R (4), which sets out the notification and consents required when using a bank that is not an approved bank.
CASS 5.5.56
14/01/2005
FCA
If a client has notified a firm in writing before entering into a transaction that client money is not to be held in a particular jurisdiction, the firm must either:
(1) hold the client money in a client bank account in a jurisdiction to which the client has not objected; or
(2) return the client money to, or to the order of, the client.
CASS 5.5.57
14/01/2005
FCA
Firms are reminded of the provisions of CASS 5.5.41 R (4), which sets out the notification and consents required when using a bank that is not an approved bank.

Notification to consumers: use of broker or settlement agent outside the United Kingdom

CASS 5.5.58
06/01/2008
FCA
A firm must not undertake any transaction for a consumer that involves client money being passed to another broker or settlement agent located in a jurisdiction outside the United Kingdom, unless the firm has previously disclosed to the consumer (whether in its terms of business, client agreement or otherwise in writing):
(1) that his client money may be passed to a person outside the United Kingdom but the client may notify the firm that he does not wish his money to be passed to a money in a particular jurisdiction; and
(2) that, in such circumstances, the legal and regulatory regime applying to the broker or settlement agent will be different from that of the United Kingdom and, in the event of a failure of the broker or settlement agent, this money may be treated in a different manner from that which would apply if the money were held by a broker or settlement agent in the United Kingdom.
CASS 5.5.59
14/01/2005
FCA
There is no need for a firm to make a separate disclosure under CASS 5.5.58 R in relation to each jurisdiction.
CASS 5.5.60
14/01/2005
FCA
If a client has notified a firm before entering into a transaction that he does not wish his money to be passed to another broker or settlement agent located in a particular jurisdiction, the firm must either:
(1) hold the client money in a client bank account in the United Kingdom or a jurisdiction to which the money has not objected and pay its own money to the firm's own account with the broker, agent or counterparty; or
(2) return the money to, or to the order of, the client.

Notification to the FCA: failure of a bank, broker or settlement agent

CASS 5.5.61
01/04/2013
FCA
On the failure of a third party with which client money is held, a firm must notify the FCA:
(1) as soon as it becomes aware, of the failure of any bank, other broker or settlement agent or other entity with which it has placed, or to which it has passed, client money; and
(2) as soon as reasonably practical, whether it intends to make good any shortfall that has arisen or may arise and of the amounts involved.

Client money calculation and reconciliation

CASS 5.5.62
14/01/2005
FCA
(1)  In order that a firm may check that it has sufficient money segregated in its client bank account (and held by third parties) to meet its obligations to clients it is required periodically to calculate the amount which should be segregated (the client money requirement) and to compare this with the amount shown as its client money resource. This calculation is, in the first instance, based upon the firm's accounting records and is followed by a reconciliation with its banking records. A firm is required to make a payment into the client bank account if there is a shortfall or to remove any money which is not required to meet the firm's obligations.
(2)  For the purpose of calculating its client money requirement two alternative calculation methods are permitted, but a firm must use the same method in relation to CASS 5.3 and CASS 5.4. The first refers to individual client cash balances; the second to aggregate amounts of client money recorded on a firm business ledgers.
CASS 5.5.63
14/01/2005
FCA
(1) A firm must, as often as is necessary to ensure the accuracy of its records and at least at intervals of not more than 25 business days:
(a)  check whether its client money resource, as determined by CASS 5.5.65 R on the previous business day, was at least equal to the client money requirement, as determined by CASS 5.5.66 R or CASS 5.5.68 R, as at the close of business on that day; and
(b)  ensure that:
(i)  any shortfall is paid into a client bank account by the close of business on the day the calculation is performed; or
(ii)  any excess is withdrawn within the same time period unless CASS 5.5.9 R or CASS 5.5.10 R applies to the extent that the firm is satisfied on reasonable grounds that it is prudent to maintain a positive margin to ensure the calculation in (a) is satisfied having regard to any unreconciled items in its business ledgers as at the date on which the calculations are performed; and
(c)  include in any calculation of its client money requirement (whether calculated in accordance with CASS 5.5.66 R or CASS 5.5.68 R) any amounts attributable to client money received by its appointed representatives, field representatives or other agents and which, as at the date of calculation, it is required to segregate in accordance with CASS 5.5.19 R.
(2) A firm must within ten business days of the calculation in (a) reconcile the balance on each client bank account as recorded by the firm with the balance on that account as set out in the statement or other form of confirmation used by the bank with which that account is held.
(3) When any discrepancy arises as a result of the reconciliation carried out in (2), the firm must identify the reason for the discrepancy and correct it as soon as possible, unless the discrepancy arises solely as a result of timing differences between the accounting systems of the party providing the statement or confirmation and those of the firm.
(4)  While a firm is unable to resolve a difference arising from a reconciliation, and one record or a set of records examined by the firm during its reconciliation indicates that there is a need to have a greater amount of client money than is in fact the case, the firm must assume, until the matter is finally resolved, that the record or set of records is accurate and either pay its own money into a relevant account or make a withdrawal of any excess.
CASS 5.5.64
14/01/2005
FCA
A firm must keep a record of whether it calculates its client money requirement in accordance with CASS 5.5.66 R or CASS 5.5.68 R and may only use one method during each annual accounting period (which method must be the same in relation to both CASS 5.3 and CASS 5.4).

Client money resource

CASS 5.5.65
14/01/2005
FCA
The client money resource, for the purposes of CASS 5.5.63 R (1)(a), is:
(1) the aggregate of the balances on the firm's client money bank accounts, as at the close of business on the previous business day and, if held in accordance with CASS 5.4, designated investments (valued on a prudent and consistent basis) together with client money held by a third party in accordance with CASS 5.5.34 R; and
(2) (but only if the firm is comparing the client money resource with its client's money (accruals) requirement in accordance with CASS 5.5.68 R) to the extent that client money is held in accordance with CASS 5.3 (statutory trust), insurance debtors (which in this case cannot include pre-funded items); and
(3) (but only if the firm is comparing the client money resource with its client's money (accruals) requirement in accordance with CASS 5.5.68 R) to the extent that client money is held in accordance with CASS 5.4 (non-statutory trust):
(a) all insurance debtors (including pre-funded items whether in respect of advance premiums, claims, premium refunds or otherwise) shown in the firm's business ledgers as amounts due from clients, insurance undertakings and other persons, such debts valued on a prudent and consistent basis to the extent required to meet any shortfall of the client money resource compared with the firm's client money requirement; and
(b) the amount of any letter of credit or unconditional guarantee provided by an approved bank and held on the terms of the trust (or, in Scotland, agency), limited to:
(i) the maximum sum payable by the approved bank under the letter of credit or guarantee; or
(ii) if less, the amount which would, apart from the benefit of the letter of credit or guarantee, be the shortfall of the client money resource compared with the client money requirement under CASS 5.5.66 R or CASS 5.5.68 R.
But a firm may treat a transaction with an insurance undertaking which is not a UK domestic firm as complete, and accordingly may (but only for the purposes of the calculation in (1)) disregard any unreconciled items of client money transferred to an intermediate broker relating to such a transaction, if:
(4)  it has taken reasonable steps to ascertain whether the transaction is complete; and
(5)  it has no reason to consider the transaction has not been completed; and
(6)  a period of at least 12 months has elapsed since the money was transferred to the intermediate broker for the purpose of the transaction.

Client money (client balance) requirement

CASS 5.5.66
14/01/2005
FCA
A firm's client money (client balance) requirement is the sum of, for all clients, the individual client balances calculated in accordance with CASS 5.5.67 R but excluding any individual balances which are negative (that is, uncleared client funds).
CASS 5.5.67
14/01/2005
FCA
The individual client balance for each client must be calculated as follows:
(1) the amount paid by a client to the client (to include all premiums); plus
(2) the amount due to the client (to include all claims and premium refunds); plus
(3) the amount of any interest or investment returns due to the client;
(4) less the amount paid to insurance undertakings for the benefit of the client (to include all premiums and commission due to itself) (i.e. commissions that are due but have not yet been removed from the client account);
(5) less the amount paid by the firm to the client (to include all claims and premium refunds);
and where the individual client balance is found by the sum ((1) + (2) + (3)) - ((4) + (5)).

Client money (accruals) requirement

CASS 5.5.68
14/01/2005
FCA
A firm's client money (accruals) requirement is the sum of the following:
(1) all insurance creditors shown in the firm's business ledgers as amounts due to insurance undertakings, clients and other persons; plus
(2) unearned commission being the amount of commission shown as accrued (but not shown as due and payable) as at the date of the calculation (a prudent estimate must be used if the firm is unable to produce an exact figure at the date of the calculation).
CASS 5.5.69
14/01/2005
FCA
A firm which calculates its client money requirement on the preceding basis must in addition and within a reasonable period be able to match its client money resource to its requirement by reference to individual clients (with such matching being achieved for the majority of its clients and transactions).

[deleted]

CASS 5.5.70
14/01/2005
[deleted]
CASS 5.5.71
14/01/2005
[deleted]
CASS 5.5.72
14/01/2005
[deleted]

[deleted]

CASS 5.5.73
14/01/2005
[deleted]

[deleted]

CASS 5.5.74
14/01/2005
[deleted]
CASS 5.5.75
14/01/2005
[deleted]

Failure to perform calculations or reconciliation

CASS 5.5.76
01/04/2013
FCA
A firm must notify the FCA immediately if it is unable to, or does not, perform the calculation required by CASS 5.5.63 R (1).
CASS 5.5.77
01/04/2013
FCA
A firm must notify the FCA immediately it becomes aware that it may not be able to make good any shortfall identified by CASS 5.5.63 R (1) by the close of business on the day the calculation is performed and if applicable when the reconciliation is completed.
CASS 5.5.78
14/01/2005
[deleted]

Discharge of fiduciary duty

CASS 5.5.79
06/07/2006
FCA
The purpose of CASS 5.5.80 R to CASS 5.5.83 R is to set out those situations in which a firm will have fulfilled its contractual and fiduciary obligations in relation to any client money held for or on behalf of its client, or in relation to the firm's ability to require repayment of that money from a third party.
CASS 5.5.80
14/01/2005
FCA
Money ceases to be client money if it is paid:
(1) to the client, or a duly authorised representative of the client; or
(2) to a third party on the instruction of or with the specific consent of the client, but not if it is transferred to a third party in the course of effecting a transaction, in accordance with CASS 5.5.34 R; or
(3) into a bank account of the client (not being an account which is also in the name of the firm); or
(4) to the firm itself, when it is due and payable to the firm in accordance with CASS 5.1.5 R (1); or
(5) to the firm itself, when it is an excess in the client bank account as set out in CASS 5.5.63 R (1)(b)(ii).
CASS 5.5.81
14/01/2005
FCA
(1) A firm which pays professional fees (for example to a loss adjuster or valuer) on behalf of a client may do so in accordance with CASS 5.5.80 R (2) where this is done on the instruction of or with the consent of the client.
(2) When a firm wishes to transfer client money balances to a third party in the course of transferring its business to another firm, it should do so in compliance with CASS 5.5.80 R and a transferee firm will come under an obligation to treat any client money so transferred in accordance with these rules.
(3) Firms are reminded of their obligation, when transferring money to third parties in accordance with CASS 5.5.34 R, to use appropriate skill, care and judgment in their selection of third parties in order to ensure adequate protection of client money.
(4) Firms are reminded that, in order to calculate their client money resource in accordance with CASS 5.5.63 R to CASS 5.5.65 R, they will need to have systems in place to produce an accurate accounting record showing how much client money is being held by third parties at any point in time. For the purposes of CASS 5.5.63 R to CASS 5.5.65 R, however, a firm must assume that monies remain at an intermediate broker awaiting completion of the transaction unless it has received confirmation that the transaction has been completed.
CASS 5.5.82
14/01/2005
FCA
When a firm draws a cheque or other payable order to discharge its fiduciary duty under CASS 5.5.80 R, it must continue to treat the sum concerned as client money until the cheque or order is presented and paid by the bank.
CASS 5.5.83
14/01/2005
FCA
For the purposes of CASS 5.1.5 R, if a firm makes a payment to, or on the instructions of, a client, from an account other than a client bank account, until that payment has cleared, no equivalent sum will become due and payable to the firm or may be withdrawn from a client bank account by way of reimbursement.

Records

CASS 5.5.84
14/01/2005
FCA
A firm must ensure that proper records, sufficient to show and explain the firm's transactions and commitments in respect of its client money, are made and retained for a period of three years after they were made.

CASS 5.6 Client money distribution

Application

CASS 5.6.1
14/01/2005
FCA
(1) CASS 5.6 (the client money (insurance) distribution rules) applies to a firm that in holding client money is subject to CASS 5.3 (statutory trust) or CASS 5.4 (Non-statutory trust) when a primary pooling event or a secondary pooling event occurs.
(2) In the event of there being any discrepancy between the terms of the trust as required by CASS 5.4.7 R (1)(c) and the provisions of CASS 5.6, the latter shall apply.
CASS 5.6.2
14/01/2005
FCA
(1) The client money (insurance) distribution rules have force and effect on any firm that holds client money in accordance with CASS 5.3 or CASS 5.4. Therefore, they may apply to a UK branch of a non-EEA firm. In this case, the UK branch of the firm may be treated as if the branch itself is a free-standing entity subject to the client money (insurance) distribution rules.
(2) Firms that act in accordance with CASS 5.4 (Non-statutory trust) are reminded that the client money (insurance) distribution rules should be given effect in the terms of trust required by CASS 5.4.

Purpose

CASS 5.6.3
14/01/2005
FCA
The client money (insurance) distribution rules seek to facilitate the timely return of client money to a client in the event of the failure of a firm or third party at which the firm holds client money.

Failure of the authorised firm: primary pooling event

CASS 5.6.4
14/01/2005
FCA
A primary pooling event triggers a notional pooling of all the client money, in every type of client money account, and the obligation to distribute it.
CASS 5.6.5
01/04/2013
FCA
A primary pooling event occurs:
(1) on the failure of the firm; or
(2) on the vesting of assets in a trustee in accordance with an 'assets requirement' imposed under 55P(1)(b) or (c) (as the case may be) of the Act; or
(3) on the coming into force of a requirement for all client money held by the firm; or
(4) when the firm notifies, or is in breach of its duty to notify, the FCA, in accordance with CASS 5.5.77 R , that it is unable correctly to identify and allocate in its records all valid claims arising as a result of a secondary pooling event.
CASS 5.6.6
01/04/2013
FCA
CASS 5.6.5 R (4) does not apply so long as:
(1) the firm is taking steps, in consultation with the FCA, to establish those records; and
(2) there are reasonable grounds to conclude that the records will be capable of rectification within a reasonable period.

Pooling and distribution

CASS 5.6.7
14/01/2005
FCA
If a primary pooling event occurs:
(1) client money held in each client money account of the firm is treated as pooled;
(2) the firm must distribute that client money in accordance with CASS 5.3.2 R or, as appropriate, CASS 5.4.7 R, so that each client receives a sum which is rateable to the client money entitlement calculated in accordance with CASS 5.5.66 R; and
(3) the firm must, as trustee, call in and make demand in respect of any debt due to the firm as trustee, and must liquidate any designated investment, and any letter of credit or guarantee upon which it relies for meeting any shortfall in its client money resource and the proceeds shall be pooled together with other client money as in (1) and distributed in accordance with (2).
CASS 5.6.8
14/01/2005
FCA
A client's main claim is for the return of client money held in a client bank account. A client may claim for any shortfall against money held in a firm's own account. For that claim, the client will be an unsecured creditor of the firm.

Client money received after the failure of the firm

CASS 5.6.9
06/07/2006
FCA
Client money received by the firm (including in its capacity as trustee under CASS 5.4 (Non-statutory trust)) after a primary pooling event must not be pooled with client money held in any client money account operated by the firm at the time of the primary pooling event. It must be placed in a client bank account that has been opened after that event and must be handled in accordance with the client money rules, and returned to the relevant client without delay, except to the extent that:
(1) it is client money relating to a transaction that has not completed at the time of the primary pooling event; or
(2) it is money relating to a client, for whom the client money requirement , calculated in accordance with CASS 5.5.66 R or CASS 5.5.68 R , shows that money is due from the client to the firm including in its capacity as trustee under CASS 5.4 (Non-statutory trust) at the time of the primary pooling event.
CASS 5.6.10
14/01/2005
FCA
Client money received after the primary pooling event relating to an incomplete transaction should be used to complete that transaction.
CASS 5.6.11
14/01/2005
FCA
If a firm receives a mixed remittance after a primary pooling event, it must:
(1) pay the full sum into the separate client bank account opened in accordance with CASS 5.6.9 R; and
(2) pay the money that is not client money out of that client bank account into the firm's own bank account within one business day of the day on which the remittance is cleared.
CASS 5.6.12
14/01/2005
FCA
Whenever possible the firm should seek to split a mixed remittance before the relevant accounts are credited.

Failure of a bank, other broker or settlement agent: secondary pooling events

CASS 5.6.13
14/01/2005
FCA
If both a primary pooling event and a secondary pooling event occur, the provisions of this section relating to a primary pooling event apply.
CASS 5.6.14
14/01/2005
FCA
A secondary pooling event occurs on the failure of a third party to which client money held by the firm has been transferred under CASS 5.5.34 R.
CASS 5.6.15
14/01/2005
FCA
CASS 5.6.20 R to CASS 5.6.31 R do not apply if, on the failure of the third party, the firm repays to its clients or pays into a client bank account, at an unaffected bank, an amount equal to the amount of client money which would have been held if a shortfall had not occurred at that third party.
CASS 5.6.16
14/01/2005
FCA
When client money is transferred to a third party, a firm continues to owe a fiduciary duty to the client. However, consistent with a fiduciary's responsibility (whether as agent or trustee) for third parties under general law, a firm will not be held responsible for a shortfall in client money caused by a third party failure if it has complied with those duties.
CASS 5.6.17
14/01/2005
FCA
To comply with its duties, the firm should show proper care:
(1) in the selection of a third party; and
(2) when monitoring the performance of the third party.
In the case of client money transferred to a bank, by demonstrating compliance with CASS 5.5.43 R, a firm should be able to demonstrate that it has taken reasonable steps to comply with its duties.

Failure of a bank

CASS 5.6.18
14/01/2005
FCA
When a bank fails and the firm decides not to make good the shortfall in the amount of client money held at that bank, a secondary pooling event will occur in accordance with CASS 5.6.20 R. The firm would be expected to reflect the shortfall that arises at the firm's bank in the periodic client money calculation by reducing the client money resource and client money requirement accordingly.
CASS 5.6.19
14/01/2005
FCA
The client money (insurance) distribution rules seek to ensure that clients who have previously specified that they are not willing to accept the risk of the bank that has fails, and who therefore requested that their client money be placed in a designated client bank account as a different bank, should not suffer the loss of the bank that has failed.

Failure of a bank: pooling

CASS 5.6.20
14/01/2005
FCA
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, then:
(1) in relation to every general client bank account of the firm, the provisions of CASS 5.6.22 R and CASS 5.6.26 R to CASS 5.6.28 G will apply;
(2) in relation to every designated client bank account held by the firm with the failed bank, the provisions of CASS 5.6.24 R and CASS 5.6.26 R to CASS 5.6.28 G will apply; and
(3) any money held at a bank, other than the bank that has failed, in designated client bank accounts is not pooled with any other client money.
CASS 5.6.21
14/01/2005
FCA
If a secondary pooling event occurs as a result of the failure of a bank where one or more designated client bank accounts are held then in relation to every designated client bank account held by the firm with the failed bank, the provisions of CASS 5.6.24 R and CASS 5.6.26 R to CASS 5.6.28 G will apply.
CASS 5.6.22
14/01/2005
FCA
Money held in each general client bank account of the firm must be treated as pooled and:
(1) any shortfall in client money held, or which should have been held, in general client bank accounts, that has arisen as a result of the failure of the bank, must be borne by all the clients whose client money is held in a general client bank account of the firm, rateably in accordance with their entitlements;
(2) a new client money entitlement must be calculated for each client by the firm, to reflect the requirements in (1), and the firm's records must be amended to reflect the reduced client money entitlement;
(3) the firm must make and retain a record of each client's share of the client money shortfall at the failed bank until the client is repaid; and
(4) the firm must use the new client entitlements, calculated in accordance with (2), when performing the client money calculation in accordance with CASS 5.5.63 R to CASS 5.5.69 R.
CASS 5.6.23
14/01/2005
FCA
The term 'which should have been held' is a reference to the failed bank's failure (and elsewhere, as appropriate, is a reference to the other failed third party's failure) to hold the client money at the time of the pooling event.
CASS 5.6.24
14/01/2005
FCA
For each client with a designated client bank account held at the failed bank:
(1) any shortfall 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 whose client money is held in a designated client bank account of the firm at the failed bank, rateably in accordance with their entitlements;
(2) a new client money entitlement must be calculated for each of the relevant clients by the firm, and the firm's records must be amended to reflect the reduced client money entitlement;
(3) the firm must make and retain a record of each client's share of the client money shortfall at the failed bank until the client is repaid; and
(4) the firm must use the new client money entitlements, calculated in accordance with (2), when performing the periodic client money calculation, in accordance with CASS 5.5.63 R to CASS 5.5.69 R.
CASS 5.6.25
14/01/2005
FCA
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.

Client money received after the failure of a bank

CASS 5.6.26
14/01/2005
FCA
Client money received by the firm after the failure of a bank, that would otherwise have been paid into a client bank account at that bank:
(1) must not be transferred to the failed bank unless specifically instructed by the client in order to settle an obligation of that client to the failed bank; and
(2) must be, subject to (1), placed in a separate client bank account that has been opened after the secondary pooling event and either:
(a) on the written instruction of the client, transferred to a bank other than the one that has failed; or
(b) returned to the client as soon as possible.
CASS 5.6.27
14/01/2005
FCA
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) pay the full sum into a client bank account other than one operated at the bank that has failed; and
(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 remittance is cleared.
CASS 5.6.28
14/01/2005
FCA
Whenever possible the firm should seek to split a mixed remittance before the relevant accounts are credited.

Failure of an intermediate broker or settlement agent: pooling

CASS 5.6.29
14/01/2005
FCA
If a secondary pooling event occurs as a result of the failure of another broker or settlement agent to whom the firm has transferred client's money then, in relation to every general client bank account of the firm, the provisions of CASS 5.6.26 R to CASS 5.6.28 G and CASS 5.6.30 R will apply.
CASS 5.6.30
14/01/2005
FCA
Money held in each general client bank account of the firm must be treated as pooled and:
(1) any shortfall in client money held, or which should have been held, in general client bank accounts, that has arisen as a result of the failure, must be borne by all the clients whose client money is held in a general client bank account of the firm, rateably in accordance with their entitlements;
(2) a new client money entitlement must be calculated for each client by the firm, to reflect the requirements of (1), and the firm's records must be amended to reflect the reduced client money entitlement;
(3) the firm must make and retain a record of each client's share of the client money shortfall at the failed intermediate broker or settlement agent until the client is repaid; and
(4) the firm must use the new client money entitlements, calculated in accordance with (2), when performing the periodic client money calculation, in accordance with CASS 5.5.63 R to CASS 5.5.69 R.

Client money received after the failure of a broker or settlement agent

CASS 5.6.31
14/01/2005
FCA
Client money received by the firm after the failure of another broker or settlement agent, to whom the firm has transferred client money that would otherwise have been paid into a client bank account at that broker or settlement agent:
(1) must not be transferred to the failed thirty party unless specifically instructed by the client in order to settle an obligation of that client to the failed broker or settlement agent; and
(2) must be, subject to (1), placed in a separate client bank account that has been opened after the secondary pooling event and either:
(a) on the written instruction of the client, transferred to a third party other than the one that has failed; or
(b) returned to the client as soon as possible.

Notification on the failure of a bank, other broker or settlement agent

CASS 5.6.32
14/01/2005
FCA
The provisions of CASS 5.5.61 R apply.

CASS 5.7 Mandates

CASS 5.7.1
01/11/2007
[deleted]
CASS 5.7.2
01/11/2007
[deleted]
CASS 5.7.3
01/11/2007
[deleted]
CASS 5.7.4
01/11/2007
[deleted]
CASS 5.7.5
01/11/2007
[deleted]
CASS 5.7.6
01/11/2007
[deleted]

CASS 5.8 Safe keeping of client's documents and other assets

Application

CASS 5.8.1
06/04/2010
FCA
(1) CASS 5.8 applies to a firm (including in its capacity as trustee under CASS 5.4) which in the course of insurance mediation activity takes into its possession for safekeeping any client title documents (other than documents of no value) or other tangible assets belonging to clients.
(2) CASS 5.8 does not apply to a firm when:
(a) carrying on an insurance mediation activity which is in respect of a reinsurance contract; or
(b) acting in accordance with CASS 6 (Custody rules).

Purpose

CASS 5.8.2
14/01/2005
FCA
The rules in this section amplify the obligation in Principle 10 which requires a firm to arrange adequate protection for client's assets. Firms carrying on insurance mediation activities may hold, on a temporary or longer basis, client title documents such as policy documents (other than policy documents of no value) and also items of physical property if, for example, a firm arranges for a valuation. The rules are intended to ensure that firms make adequate arrangements for the safe keeping of such property.

Requirement

CASS 5.8.3
14/01/2005
FCA
(1) A firm which has in its possession or control documents evidencing a client's title to a contract of insurance or other similar documents (other than documents of no value) or which takes into its possession or control tangible assets belonging to a client, must take reasonable steps to ensure that any such documents or items of property:
(a) are kept safe until they are delivered to the client;
(b) are not delivered or given to any other person except in accordance with instructions given by the client; and that
a record is kept as to the identity of any such documents or items of property and the dates on which they were received by the firm and delivered to the client or other person.
(2) A firm must retain the record required in (1) for a period of three years after the document or property concerned is delivered to the client or other person.

CASS 5 Annex 1 Segregation of designated investments: permitted investments, general principles and conditions (This Annex belongs to CASS 5.5.14 R)

14/01/2005
FCA

1 The general principles which must be followed when client money segregation includes designated investments:
(a) there must be a suitable spread of investments;
(b) investments must be made in accordance with an appropriate liquidity strategy;
(c) the investments must be in accordance with an appropriate credit risk policy;
(d) any foreign exchange risks must be prudently managed.


2 Table of permitted designated investments for the purpose of CASS 5.5.14 R (1).
Investment type Qualification
1. Negotiable debt security (including a certificate of deposit) (a) Remaining term to maturity of 5 years or less; and
(b) The issuer or investment must have a short-term credit rating of A1 by Standard and Poor's, or P1 by Moody's Investor Services, or F1 by Fitch if the instrument has a remaining term to maturity of 366 days or less; or a minimum long term credit rating of AA- by Standards and Poor's, or Aa3 by Moody's Investor Services or AA- by Fitch if the instrument has a term to maturity of more than 366 days.
2. A repo in relation to negotiable debt security As for 1 above and where the credit rating of the counterparty also meets the criteria in 1.
3. Bond funds (a) An authorised fund or a recognised scheme or an investment company which is registered by the Securities and Exchange Commission of the United States of America under the Investment Company Act 1940;
(b) A minimum credit rating and risk rating of Aaf and S2 respectively by Standard and Poor's or Aa and MR2 respectively by Moody's Investor Services or AA and V2 respectively by Fitch.
4. Money market fund (a) An authorised fund or a recognised scheme;
(b) A minimum credit and risk rating of Aaa and MR1+ respectively by Moody's Investor Services or AAAm by Standard and Poor's or AAA and V1+ respectively by Fitch.
5. Derivatives Only for the purpose of prudently managing foreign currency risks.


3 The general conditions which must be satisfied in the segregation of designated investments are:
(a) any redemption of an investment must be by payment into the firm's client money bank account;
(b) where the credit or risk rating of a designated investment falls below the minimum set out in the Table, the firm must dispose of the investment as soon as possible and in any event not later than 20 business days following the downgrade;
(c) where any investment or issuer has more than one rating, the lowest shall apply.

CASS 6.1 Application

CASS 6.1.1
01/04/2015
FCA
This chapter (the custody rules) applies to a firm:
(1) [deleted]
(a) [deleted]
(b) [deleted]
(1A) when it holds financial instruments belonging to a client in the course of its MiFID business;
(1B) when it is safeguarding and administering investments, in the course of business that is not MiFID business;
(1C) when it is acting as trustee or depositary of an AIF;
(1D) when it is acting as trustee or depositary of a UCITS; and
(1E) in respect of any arrangement for a client to transfer full ownership of a safe custody asset to the firm which is:
(a) in the course of, or in connection with, the firm's designated investment business; and
(b) for the purpose of securing or otherwise covering present or future, actual or contingent or prospective obligations,
but the application of the custody rules to a firm under this paragraph is limited to the rules and guidance in CASS 6.1.6 R to CASS 6.1.9 G; and
(1F) when it is a small AIFM carrying on excluded custody activities.
(2) [deleted]
CASS 6.1.1-A
01/04/2015
FCA
In applying the custody rules to a small AIFM's excluded custody activities, any reference to a firm carrying on the regulated activities of safeguarding and administering investments, safeguarding and administering assets (without arranging) or arranging safeguarding and administration of assets includes those excluded custody activities that would, but for the exclusion in article 72AA of the RAO, amount to whichever of those regulated activities is referred to.
CASS 6.1.1A
06/04/2010
FCA
The regulated activity of safeguarding and administering investments covers both the safeguarding and administration of assets (without arranging) andarranging safeguarding and administration of assets, when those assets are either safe custody investments or custody assets. A safe custody investment is, in summary, a designated investment which a firm receives or holds on behalf of a client. Custody assets include designated investments, and any other assets that the firm holds or may hold in the same portfolio as a designated investment held for or on behalf of a client.
CASS 6.1.1B
01/04/2015
(1) Firms to which the custody rules apply by virtue of CASS 6.1.1R (1B), (1D) or CASS 6.1.1R (1E) must also apply the custody rules to those custody assets which are not safe custody investments in a manner appropriate to the nature and value of those custody assets.
(2) Firms to which the custody rules apply by virtue of CASS 6.1.1R (1C) must also apply the custody rules:
(a) to those custody assets which are not AIF custodial assets but are safe custody investments; and
(b) in a manner appropriate to the nature and value of those custody assets, to those custody assets which are neither AIF custodial assets nor safe custody investments.
CASS 6.1.1C
01/01/2009
FCA
In accordance with article 42 of the Regulated Activities Order, a firm ("I") will not be arranging safeguarding and administration of assets if it introduces a client to another firm whose permitted activities include the safeguarding and administration of investments, or to an exempt person acting as such, with a view to that other firm or exempt person:
(1) providing a safe custody service in the United Kingdom; or
(2) arranging for the provision of a safe custody service in the United Kingdom by another person;
and the other firm, exempt person or other person who is to provide the safe custody service is not in the same group as I, and does not remunerate I.
CASS 6.1.2
01/01/2009
FCA
Firms are reminded that dividends (actual or payments in lieu), stock lending fees and other payments received for the benefit of a client, and which are due to the clients, should be held in accordance with the client money chapter where appropriate.
CASS 6.1.3
01/01/2009
[deleted]

Business in the name of the firm

CASS 6.1.4
01/11/2007
FCA
The custody rules do not apply where a firm carries on business in its name but on behalf of the client where that is required by the very nature of the transaction and the client is in agreement.
[Note: recital 26 to MiFID]
CASS 6.1.5
01/01/2009
FCA
For example, this chapter does not apply where a firm borrows safe custody assets from a client as principal under a stock lending agreement.

Title transfer collateral arrangements

CASS 6.1.6
01/10/2011
FCA
(1) The custody rules do not apply where a client transfers full ownership of a safe custody asset to a firm for the purpose of securing or otherwise covering present or future, actual, contingent or prospective obligations.
[Note: recital 27 to MiFID]
(2) Excepted from (1) is a transfer of the full ownership of a safe custody asset:
(a) belonging to a retail client;
(b) whose purpose is to secure or otherwise cover that client's present or future, actual, contingent or prospective obligations under a contract for differences or a rolling spot forex contract that is a future, and in either case where that contract is entered into with a firm acting as market maker; and
(c) which is made to that firm or to any other person arranging on its behalf.
CASS 6.1.6A
01/10/2011
FCA
(1) Subject to (2), where a firm makes arrangements for the purpose of securing or otherwise covering present or future, actual, contingent or prospective obligations of a retail client those arrangements must not provide for the taking of a transfer of full ownership of any of that client's safe custody assets.
(2) The application of (1) is confined to the taking of a transfer of full ownership:
(a) whose purpose is to secure or otherwise cover that retail client's obligations under a contract for differences ora rolling spot forex contract that is a future, and in either case where that contract is entered into with a firm acting as market maker; and
(b) which is made to that firm or to any other person arranging on its behalf.
CASS 6.1.6B
01/12/2014
FCA
(1) A firm must ensure that any arrangement relating to the transfer of full ownership of a client's safe custody asset to the firm for the purposes set out in CASS 6.1.6R (1) and CASS 6.1.6AR (1) is the subject of a written agreement made on a durable medium between the firm and the client.
(2) Regardless of the form of the agreement in (1) (which may have additional commercial purposes), it must cover the client's agreement to:
(a) the terms for the arrangement relating to the transfer of the client's full ownership of the safe custody asset to the firm;
(b) any terms under which the ownership of the safe custody asset is to transfer from the firm back to the client; and
(c) (to the extent not covered by the terms under (b)), any terms for the termination of:
(i) the arrangement under (a); or
(ii) the overall agreement in (1).
(3) A firm must retain a copy of the agreement under (1) from the date the agreement is entered into and until five years after the agreement is terminated.
CASS 6.1.6C
01/12/2014
FCA
The terms referred to in CASS 6.1.6BR (2)(b) may include, for example, terms under which the arrangement relating to the transfer of full ownership of the safe custody asset to the firm is not in effect from time to time, or is contingent on some other condition.
CASS 6.1.7
01/11/2007
FCA
A title transfer financial collateral arrangement under the Financial Collateral Directive is a type of transfer of instruments to cover obligations where the financial instrument will not be regarded as belonging to the client.
CASS 6.1.8
01/11/2007
FCA
Firms are reminded of the client's best interests rule, which requires them to act honestly, fairly and professionally in accordance with the best interests of their clients when structuring their business particularly in respect of the effect of that structure on firms' obligations under this chapter.

Termination of title transfer collateral arrangements

CASS 6.1.8A
01/06/2015
FCA
(1) If a client communicates to a firm that it wishes (whether pursuant to a contractual right or otherwise) to terminate an arrangement relating to the transfer of full ownership of its safe custody asset to a firm for the purposes set out in CASS 6.1.6R (1) and CASS 6.1.6AR (1) and the client's communication is not in writing, the firm must make a written record of the client's communication which also records the date the communication was received.
(2) A firm must keep a client's written communication, or a written record of the client's communication in (1), for five years, starting from the date the communication was received by the firm.
(3) 
(a) If a firm agrees to the termination of an arrangement relating to the transfer of full ownership of a client's safe custody asset to the firm, it must notify the client of its agreement in writing. The notification must state when the termination is to take effect and whether or not the client's safe custody asset will be held under the custody rules by the firm thereafter.
(b) If a firm does not agree to terminate an arrangement relating to the transfer of full ownership of a client's safe custody asset to the firm, it must notify the client of its disagreement in writing.
(4) A firm must keep a written record of any notification it makes to a client under (3) for a period of five years, starting from the date the notification was made.
CASS 6.1.8B
01/06/2015
FCA
CASS 6.1.8AR (3)(a) refers only to a firm's agreement to terminate an existing arrangement relating to the transfer of full ownership of a client's safe custody asset to the firm. Such agreement by a firm does not necessarily need to amount to the termination of its entire agreement with the client.
CASS 6.1.8C
01/06/2015
FCA
When a firm notifies a client under CASS 6.1.8AR (3)(a) of when the termination of an arrangement relating to the transfer of full ownership of the safe custody asset to a firm is to take effect, it should take into account:
(1) any relevant terms relating to such a termination that have been agreed with the client; and
(2) the period of time it reasonably requires to return the safe custody asset to the client or to update the registration under (Holding of client assets) CASS 6.2and update its records under CASS 6.6 (Records, accounts and reconciliations).
CASS 6.1.8D
01/06/2015
FCA
If an arrangement relating to the transfer of full ownership of safe custody assets to a firm for the purposes set out in CASS 6.1.6R (1) and CASS 6.1.6AR (1) is terminated, then the exemption at CASS 6.1.6R (1) no longer applies.
CASS 6.1.8E
01/06/2015
FCA
(1) Following the termination of an arrangement relating to the transfer of full ownership of safe custody assets to a firm for the purposes set out in CASS 6.1.6R (1) and CASS 6.1.6AR (1), where a firm does not immediately return the safe custody assets to the client the firm should consider whether the custody rules apply in respect of the safe custody assets pursuant to CASS 6.1.1R (1A) to CASS 6.1.1R (1C).
(2) Where the custody rules apply to a firm for safe custody assets in these circumstances then the firm is required to comply with those rules and should, for example, update the registration under CASS 6.2(Holding of client assets), update its records under CASS 6.6 (Records, accounts and reconciliations) and treat any shortfall in accordance with CASS 6.6.54 R (in each case as appropriate).
CASS 6.1.9
01/11/2007
FCA
Firms are reminded that, in certain cases, the collateral rules apply where a firm receives collateral from a client in order to secure the obligations of the client.

Prime brokerage agreements

CASS 6.1.9A
01/03/2011
FCA
A prime brokerage firm is reminded of the additional obligations in CASS 9.3.1 R which apply to prime brokerage agreements.

Affiliated companies - MiFID business

CASS 6.1.10
01/01/2009
FCA
The fact that a client is an affiliated company in respect of MiFID business does not affect the operation of the custody rules in relation to that client.

Affiliated companies - non-MiFID business

CASS 6.1.10A
01/07/2014
[deleted]
CASS 6.1.10B
01/07/2014
FCA
In respect of a firm's business falling under CASS 6.1.1R (1B), the custody rules do not apply to the firm when it is safeguarding and administering investments on behalf of an affiliated company, unless:
(1) the firm has been notified that the designated investment belongs to a client of the affiliated company; or
(2) the affiliated company is a client dealt with at arm's length.
CASS 6.1.11
01/01/2009
[deleted]

Delivery versus payment transaction exemption

CASS 6.1.12
01/06/2015
FCA
(1) Subject to (2) and CASS 6.1.12B R and with the written agreement of the relevant client, a firm need not treat this chapter as applying in respect of a delivery versus payment transaction through a commercial settlement system if:
(a) in respect of a client's purchase, the firm intends for the asset in question to be due to the client within one business day following the client's fulfilment of its payment obligation to the firm; or
(b) in respect of a client's sale, the firm intends for the asset in question to be due to the firm within one business day following the firm's fulfilment of its payment obligation to the client.
(2) If the payment or delivery by the firm to the client has not occurred by the close of business on the third business day following the date on which a firm makes use of the exemption under (1), the firm must stop using that exemption for the transaction.
(3) If the period referred to in CASS 6.1.12R (2) has expired before such a delivery versus payment transaction through a commercial settlement system has settled, a firm may, until settlement and provided that doing so is consistent with the firm's permissions and it complies with (4), segregate the firm's own money as client money (in accordance with the client money rules) of an amount equivalent to the value at which that safe custody asset is reasonably expected to settle instead of holding the client's safe custody assets (in accordance with the custody rules).
(4) Where a firm intends to segregate money as client money instead of the client's safe custody asset under (3) it must, before doing so, ensure that this would result in money being held for the relevant client in respect of the shortfall under CASS 7.12.2 R (statutory trust).
(5) Where a firm segregates an amount of client money instead of the client's safe custody assets under (3) it must also:
(a) ensure the money is segregated under CASS 7.13 (Segregation of client money) and recorded as being held for the relevant client(s) under CASS 7.15 (Records, accounts and reconciliations);
(b) keep a record of the actions the firm has taken under this rule which includes a description of the safe custody asset in question, identifies the relevant affected client, and specifies the amount of money that the firm has appropriated as client money to cover the value of the safe custody asset; and
(c) update the record made under (5)(b) when the transaction in question has settled and the firm has re-appropriated the money.
CASS 6.1.12A
01/12/2014
FCA
(1) The amount of client money a firm segregates for the purposes of CASS 6.1.12R (3) may be determined by the previous day's closing mark to market valuation of the relevant safe custody asset or, if in relation to a particular safe custody asset none is available, the most recent available valuation.
(2) Where a firm is segregating money for the purposes of CASS 6.1.12R (3) it should, as regularly as necessary, and having regard to Principle 10:
(a) review the value of the safe custody asset in question in line with (1); and
(b) where the firm has found that the value of the safe custody asset has changed, adjust the amount of money it has appropriated to ensure that these monies are sufficient to cover the latest value of the safe custody asset.
CASS 6.1.12B
01/12/2014
FCA
A firm cannot, in respect of a particular delivery versus payment transaction, make use of the exemption under CASS 6.1.12 R in either or both of the following circumstances:
(1) it is not a direct member or participant of the relevant commercial settlement system, nor is it sponsored by such a member or participant, in accordance with the terms and conditions of that commercial settlement system;
(2) the transaction in question is being settled by another person on behalf of the firm through an account held at the relevant commercial settlement system by that other person.
CASS 6.1.12C
01/12/2014
FCA
Where a firm does not meet the requirements in CASS 6.1.12 R or CASS 6.1.12B R for use of the exemption in CASS 6.1.12 R, the firm is subject to the custody rules in respect of any safe custody asset it holds in connection with the delivery versus payment transaction in question.
CASS 6.1.12D
01/12/2014
FCA
(1) In line with CASS 6.1.12 R, where a firm receives a safe custody asset from a client in respect of a delivery versus payment transaction the firm is carrying out through a commercial settlement system in respect of a client's sale, and the firm has not fulfilled its payment obligation to the client by close of business on the third business day following the date of the client's fulfilment of its delivery obligation to the firm, the firm should consider whether the custody rules apply in respect of the safe custody asset pursuant to CASS 6.1.1R (1A) to CASS 6.1.1R (1D).
(2) Upon settlement of a delivery versus payment transaction a firm is carrying out through a commercial settlement system (including when it is settled within the three business day period referred to in CASS 6.1.12 R), in respect of:
(a) a client's purchase, the custody rules apply to the relevant safe custody asset the firm receives upon settlement; and
(b) a client's sale, the client money rules will apply to the relevant money received on settlement.
CASS 6.1.12E
01/12/2014
FCA
(1) If a firm makes use of the exemption under CASS 6.1.12 R, it must obtain the client's written agreement to the firm's use of this exemption.
(2) In respect of each client, the written agreement in (1) must be retained during the time that the firm makes use, or intends to make use, of the exemption under CASS 6.1.12 R in respect of that client's safe custody assets.
CASS 6.1.13
01/01/2009
[deleted]
CASS 6.1.14
01/01/2009
[deleted]

Temporary handling of safe custody assets

CASS 6.1.15
01/01/2009
FCA
The custody rules do not apply if a firm temporarily handles a safe custody asset belonging to a client. A firm should temporarily handle a safe custody asset for no longer than is reasonably necessary. In most transactions this would be no longer than one business day, but it may be longer or shorter depending upon the transaction in question. For example, when a firm executes an order to sell shares which have not been registered on a de-materialised exchange, handling documents for longer periods may be reasonably necessary. However, in the case of safe custody assets in bearer form, the firm is expected to handle them for less than one business day. When a firm temporarily handles safe custody assets, it is still obliged to comply with Principle 10 (Clients' assets).
CASS 6.1.16
01/01/2009
FCA
When a firm temporarily handles a safe custody asset, in order to comply with its obligation to act in accordance with Principle 10 (Clients' assets), the following are guides to good practice:
(1) a firm should keep the safe custody asset secure, record it as belonging to that client, and forward it to the client or in accordance with the client's instructions as soon as practicable after receiving it; and
(2) a firm should make and retain a record of the fact that the firm has handled that safe custody asset and of the details of the client concerned and of any action the firm has taken.

Exemptions which do not apply to MiFID business

CASS 6.1.16A
01/01/2009
FCA
The exemptions in CASS 6.1.16B R to CASS 6.1.16D G do not apply to a MiFID investment firm which holds financial instruments belonging to a client in the course of MiFID business.
CASS 6.1.16B
22/07/2014
FCA
[deleted]

Managers of AIFs and UCITS

CASS 6.1.16BA
01/04/2015
FCA
(1) The custody rules do not apply to a firm that is managing an AIF or managing a UCITS in relation to excluded custody activities, except where the firm is a small AIFM.
(2) The custody rules can apply to a firm that is managing an AIF or managing a UCITS in relation to activities that are not excluded custody activities. For example, where the firm:
(a) holds financial instruments belonging to a client in the course of its MiFID business (see CASS 6.1.1R (1A)); or
(b) is safeguarding and administering investments, in the course of business that is not MiFID business (see CASS 6.1.1R (1B)).

Personal investment firms

CASS 6.1.16C
01/01/2009
FCA
The custody rules do not apply to a personal investment firm when it temporarily holds a designated investment, other than in bearer form, belonging to a client, if the firm:
(1) keeps it secure, records it as belonging to that client, and forwards it to the client or in accordance with the client's instructions, as soon as practicable after receiving it;
(2) retains the designated investment for no longer than the firm has taken reasonable steps to determine is necessary to check for errors and to receive the final document in connection with any series of transactions to which the documents relate; and
(3) makes a record, which must then be retained for a period of 5 years after the record is made, of all the designated investments handled in accordance with (1) and (2) together with the details of the clients concerned and of any action the firm has taken.
CASS 6.1.16D
01/01/2009
FCA
Administrative convenience alone should not lead a personal investment firm to rely on CASS 6.1.16C R. Personal investment firms should consider what is in the client's interest and not rely on CASS 6.1.16C R as a matter of course.

Trustees and depositaries (except depositaries of AIFs)

CASS 6.1.16E
01/01/2009
FCA
The specialist regime in CASS 6.1.16F R to CASS 6.1.16I G does not apply to a MiFID investment firm which holds financial instruments belonging to a client in the course of MiFID business.
CASS 6.1.16F
01/06/2015
FCA
When a trustee firm or depositary acts as a custodian for a trust or collective investment scheme, (except for a firm acting as trustee or depositary of an AIF), and:
(1) the trust or scheme is established by written instrument; and
(2) the trustee firm or depositary has taken reasonable steps to determine that the relevant law and provisions of the trust instrument or scheme constitution will provide protections at least equivalent to the custody rules for the trust property or scheme property;
the trustee firm or depositary need comply only with the custody rules listed in the table below.
ReferenceRule
CASS 6.1.1 R to CASS 6.1.9 G and CASS 6.1.15 G to CASS 6.1.16C RApplication
CASS 6.1.16E R to CASS 6.1.16I GTrustees and depositaries
CASS 6.1.22 G to CASS 6.1.24 GGeneral purpose
CASS 6.2.1 R and CASS 6.2.2 RProtection of clients' safe custody assets
CASS 6.2.3 R and CASS 6.2.3B GRegistration and recording of legal title
CASS 6.2.7 RHolding
CASS 6.3.1 R to CASS 6.3.4B GDepositing safe custody assets with third parties
CASS 6.4.1 R and CASS 6.4.2 GUse of safe custody assets
CASS 6.6Records, accounts and reconciliations

CASS 6.1.16G
01/01/2009
FCA
The reasonable steps referred in CASS 6.1.16FR (2) could include obtaining an appropriate legal opinion to that effect.
CASS 6.1.16H
01/07/2014
[deleted]
CASS 6.1.16I
01/01/2009
FCA
A trustee firm or depositary that just arranges safeguarding and administration of assets may also take advantage of the exemption in CASS 6.1.16J R (Arrangers).

Depositaries of AIFs

CASS 6.1.16IA
01/06/2015
FCA
(1) Subject to (2), when a firm is acting as trustee or depositary of an AIF the firm need comply only with the custody rules in the table below:
ReferenceRule
CASS 6.1.1 R, CASS 6.1.9 G, CASS 6.1.9A G and CASS 6.1.16IB GApplication
CASS 6.1.22 G to CASS 6.1.24 GGeneral purpose
CASS 6.2.3 R and CASS 6.2.3B G to CASS 6.2.6 GRegistration and recording of legal title
CASS 6.2.7 RHolding
CASS 6.6.2 R, CASS 6.6.4 R, CASS 6.6.6 R, CASS 6.6.7 R, CASS 6.6.57R (2) and CASS 6.6.58 GRecords, accounts and reconciliations

(2) When a firm is acting as trustee or depositary of an AIF that is an authorised AIF the firm must, in addition to the custody rules in (1), also comply with the custody rules in the table below:
ReferenceRule
CASS 6.1.1BR (2)Application
CASS 6.6.8 R, CASS 6.6.11 R to CASS 6.6.32 G, CASS 6.6.41 G, CASS 6.6.43 G and CASS 6.6.47 G.Records, accounts and reconciliations

CASS 6.1.16IB
22/07/2013
FCA
Firms acting as trustee or depositary of an AIF are reminded of the obligations in FUND 3.11 (Depositaries) and Chapter IV (Depositary) of the AIFMD level 2 regulation which apply in addition to those in CASS 6.
CASS 6.1.16IC
01/07/2014
FCA
A firm (Firm A) to which another firm acting as trustee or depositary of an AIF (Firm B) has delegated safekeeping functions in accordance with FUND 3.11.28 R (Delegation: safekeeping) will not itself be acting as trustee or depositary of an AIF for that AIF. CASS 6.1.16IA R will not apply to Firm A in respect of that AIF. However, Firm A may be safeguarding and administering investments in respect of that AIF.

Arrangers

CASS 6.1.16J
01/06/2015
FCA
Only the custody rules in the table below apply to a firm when arranging safeguarding and administration of assets.
ReferenceRule
CASS 6.1.1 R to CASS 6.1.9 G and CASS 6.1.15 G to CASS 6.1.16B RApplication
CASS 6.1.16J RArrangers
CASS 6.1.16K RRecords
CASS 6.1.22 G to CASS 6.1.24 GGeneral purpose
CASS 6.3.4A R and CASS 6.3.4B GThird-party custody agreements

CASS 6.1.16K
01/07/2014
FCA
When a firm arranges safeguarding and administration of assets, it must ensure that proper records of the arrangements are made and retained for a period of 5 years after they are made.
CASS 6.1.17
01/01/2009
(1) [deleted]
(1A) [deleted]
(2) [deleted]
(3) [deleted]
CASS 6.1.18
01/01/2009
[deleted]
CASS 6.1.19
01/01/2009
[deleted]
CASS 6.1.20
01/01/2009
[deleted]
CASS 6.1.20A
01/01/2009
[deleted]
CASS 6.1.21
01/01/2009
[deleted]

General purpose

CASS 6.1.22
01/01/2009
FCA
Principle 10 (Clients' assets) requires a firm to arrange adequate protection for clients' assets when it is responsible for them. As part of these protections, the custody rules require a firm to take appropriate steps to protect safe custody assets for which it is responsible.
CASS 6.1.23
01/01/2009
FCA
The rules in this chapter are designed primarily to restrict the commingling of client and the firm's assets and minimise the risk of the client's safe custody assets being used by the firm without the client's agreement or contrary to the client's wishes, or being treated as the firm's assets in the event of its insolvency.
CASS 6.1.24
01/01/2009
FCA
The custody rules also, where relevant, implement the provisions of MiFID which regulate the obligations of a firm when it holds financial instruments belonging to a client in the course of its MiFID business.

CASS 6.2 Holding of client assets

Requirement to protect clients' safe custody assets

CASS 6.2.1
01/01/2009
FCA
A firm must, when holding safe custody assets belonging to clients, make adequate arrangements so as to safeguard clients' ownership rights, especially in the event of the firm's insolvency, and to prevent the use of safe custody assets belonging to a client on the firm's own account except with the client's express consent.

[Note: article 13(7) of MiFID]

Requirement to have adequate organisational arrangements

CASS 6.2.2
01/01/2009
FCA
A firm must introduce adequate organisational arrangements to minimise the risk of the loss or diminution of clients' safe custody assets, or the rights in connection with those safe custody assets, as a result of the misuse of the safe custody assets, fraud, poor administration, inadequate record-keeping or negligence.

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

Registration and recording of legal title

CASS 6.2.3
01/06/2015
FCA
Subject to CASS 6.2.3-A R, a firm must effect appropriate registration or recording of legal title to a safe custody asset belonging to a client in the name of:
(1) the client, unless the client is an authorised person acting on behalf of its client, in which case it may be registered in the name of the client of that authorised person;
(2) a nominee company which is controlled by:
(a) the firm;
(b) an affiliated company;
(c) a recognised investment exchange; or
(d) a third party with whom financial instruments are deposited under CASS 6.3 (Depositing assets and arranging for assets to be deposited with third parties);
(3) any other third party, if the firm is not a trustee firm but is prevented from registering or recording legal title in the way set out in (1) or (2) and provided that:
(a) the safe custody asset is subject to the law or market practice of a jurisdiction outside the United Kingdom and the firm has taken reasonable steps to determine that it is in the client's best interests to register or record it in that way, or that it is not feasible to do otherwise, because of the nature of the applicable law or market practice; and
(b) the firm has notified the client in writing;
(4) the firm ifeither:
(a) it is not a trustee firm but is prevented from registering or recording legal title in the way set out in (1), (2) or (3) and provided that:
(i) the safe custody asset is subject to the law or market practice of a jurisdiction outside the United Kingdom and the firm has taken reasonable steps to determine that it is in the client's best interests to register or record it in that way, or that it is not feasible to do otherwise, because of the nature of the applicable law or market practice; and
(ii) the firm has notified the client if a professional client, or obtained prior written consent if a retail client.
(b) it is a trustee firm and is prevented from registering or recording legal title in the way set out in (1) or (2).
CASS 6.2.3-A
01/06/2015
FCA
A firm need not comply with CASS 6.2.3 R for any safe custody asset:
(1) that it has deposited with a third party in accordance with CASS 6.3 (Depositing assets and arranging for assets to be deposited with third parties); and
(2) for which, because of the arrangements with that third party for depositing the safe custody asset, it is not practicable for the firm to effect appropriate registration or recording of legal title itself.
CASS 6.2.3A
27/07/2012
FCA
If:
(1) the safe custody asset is an emission auction product that is a financial instrument; and
(2) it is not practicable or possible for a firm to effect registration or recording of legal title in this asset in the manner set out in CASS 6.2.3 R,
the firm must register or record legal title in its name provided it has notified the client in writing.
CASS 6.2.3B
01/06/2015
FCA
A firm, when complying with CASS 6.2.3R (3) or CASS 6.2.3R (4)(a), will be expected to demonstrate that adequate investigations have been made of the jurisdiction concerned by reference to local sources, which may include an appropriate legal opinion.
CASS 6.2.4
01/06/2015
FCA
A firm must accept the same level of responsibility to its client for any nominee company controlled by the firm, or any nominee company controlled by an affiliated company of the firm, with respect of any requirements of the custody rules.
CASS 6.2.5
01/06/2015
FCA
A firm may only register or record legal title to its own applicable asset in the same name as that in which legal title to a client's safe custody asset is registered or recorded if the firm's applicable asset is separately identified from the client's safe custody asset in the firm's records, and either or both of the conditions in (1) and (2) are met.
(1) The firm's holding of its own applicable asset arises incidentally to:
(a) designated investment business it carries on for the account of any client; or
(b) steps taken by the firm to comply with an applicable custody rule;
and, in the case of either (a) or (b), the situation where registration or recording of legal title of the firm's applicable asset is in the same name as the client's safe custody asset under this rule remains in place only to the extent that it is reasonably necessary.
(2) The registration or recording of legal title of the firm's own applicable asset in the same name as the client's safe custody asset is only as a result of the law or market practice of a jurisdiction outside of the United Kingdom.
CASS 6.2.6
01/06/2015
FCA
(1) Consistent with a firm's requirements to protect clients' safe custody assets and have adequate organisation arrangements in place (CASS 6.2.1 R and CASS 6.2.2 R), before a firm registers or records legal title to its own applicable asset in the same name as that in which legal title to a client's safe custody asset is registered or recorded under CASS 6.2.5 R, it should consider whether there are any means to avoid doing so.
(2) Examples of where the conditions under CASS 6.2.5R (1) might be met include in the course of a firm:
(a) correcting a dealing error that relates to a transaction for the account of a client; or
(b) maintaining a small balance of the firm's own applicable assets for purely operational or compliance purposes (eg, as a float to cover potential custody shortfalls) in an amount that is proportionate to the total amount of safe custody assets held for clients; or
(c) allocating safe custody assets to clients following settlement of a bulk order; or
(d) facilitating a client transaction that involves fractional entitlements; or
(e) making good a shortfall.
CASS 6.2.7
01/01/2009
FCA
A firm must ensure that any documents of title to applicable assets in bearer form, belonging to the firm and which it holds in its physical possession, are kept separately from any document of title to a client's safe custody assets in bearer form.

Allocated but unclaimed safe custody assets

CASS 6.2.8
01/12/2014
FCA
The purpose of CASS 6.2.10 R is to set out the requirements a firm must comply with if it chooses to divest itself of a client's unclaimed safe custody assets.
CASS 6.2.9
01/12/2014
FCA
Before acting in accordance with CASS 6.2.10 R to CASS 6.2.16 G, a firm should consider whether its actions are permitted by law and consistent with the arrangements under which the safe custody assets are held. These provisions relate to a firm's obligations as an authorised person.
CASS 6.2.10
01/12/2014
FCA
A firm may either (i) liquidate an unclaimed safe custody asset it holds for a client, at market value, and pay away the proceeds or (ii) pay away an unclaimed safe custody asset it holds for a client, in either case, to a registered charity of its choice provided:
(1) this is permitted by law and consistent with the arrangements under which that safe custody asset is held;
(2) it has held that safe custody asset for at least 12 years;
(3) in the 12 years preceding the divestment of that safe custody asset, it has not received instructions relating to any safe custody assets from or on behalf of the client concerned;
(4) it can demonstrate that it has taken reasonable steps to trace the client concerned and return that safe custody asset; and
(5) the firm complies with CASS 6.2.14 R: the undertaking requirement.
CASS 6.2.11
01/12/2014
FCA
(1) Taking reasonable steps in CASS 6.2.10R (4) includes following this course of conduct:
(a) determining, as far as reasonably possible, the correct contact details for the relevant client;
(b) writing to the client at the last known address either by post or by electronic mail to inform it:
(i) of the name of the firm with which the client first deposited the safe custody asset in question;
(ii) of the firm's intention to pay the safe custody asset to charity under CASS 6.2.10 R if it does not receive instructions from the client within 28 days;
(c) where the client has not responded after the 28 days referred to in (b) attempting to communicate the information set out in (b) to the client on at least one further occasion by any means other than that used in (b) including by post, electronic mail, telephone or media advertisement;
(d) subject to (e) and (f), where the client has not responded within 28 days following the most recent communication, writing again to the client at the last known address either by post or by electronic mail to inform them that:
(i) as the firm received no instructions from the client, it will in 28 days pay the safe custody asset to charity under CASS 6.2.10 R; and
(ii) an undertaking will be provided by the firm or a member of its group to pay to the client concerned a sum equal to the value of the safe custody asset at the time it was liquidated or paid away in the event of the client seeking to claim the safe custody asset in future;
(e) if the firm has carried out the steps in (b) or (c) and in response has received positive confirmation in writing that the client is no longer at a particular address, the firm should not use that address for the purposes of (d);
(f) if, after carrying out the steps in (a), (b) and (c), the firm has obtained positive confirmation that none of the contact details it holds for the relevant client are accurate or, if utilised, the communication is unlikely to reach the client, the firm does not have to comply with (d); and
(g) waiting a further 28 days following the most recent communication under this rule before divesting itself of the safe custody asset under CASS 6.2.10 R.
(2) Compliance with (1) may be relied on as tending to establish compliance with CASS 6.2.10R (4).
(3) Contravention of (1) may be relied on as tending to establish contravention of CASS 6.2.10R (4).
CASS 6.2.12
01/12/2014
FCA
For the purpose of CASS 6.2.11E (1)(a), a firm may use any available means to determine the correct contact details for the relevant client, including telephoning the client, searching internal records, media advertising, searching public records, mortality screening, using credit reference agencies or tracing agents.
CASS 6.2.13
01/12/2014
FCA
Where a firm liquidates a safe custody asset under CASS 6.2.10 R, it must pay away the proceeds to charity as soon as practicable.
CASS 6.2.14
01/12/2014
FCA
Where a firm divests itself of a client's safe custody asset under CASS 6.2.10 R, it must comply with either (1)(a) or (1)(b) and, in either case, (2).
(1) 
(a) The firm must unconditionally undertake to pay to the client concerned a sum equal to the value of the safe custody asset at the time it was liquidated or paid away in the event of the client seeking to claim the safe custody asset in future.
(b) The firm must ensure that an unconditional undertaking in the terms set out in (1)(a) is made by a member of its group and there is suitable information available for relevant clients to identify the member of the group granting the undertaking.
(2) Any undertaking under this rule must be:
(a) authorised by the firm's governing body where (1)(a) applies or the governing body of the group member where (1)(b) applies;
(b) legally enforceable by any person that had a legally enforceable claim to the unclaimed safe custody asset in question at the time it was divested by the firm, or by an assign or successor in title to such claim; and
(c) retained by the firm, and, where (1)(b) applies, by the group member, indefinitely.
CASS 6.2.15
01/12/2014
FCA
(1) If a firm pays away a client's unclaimed safe custody assets to charity or liquidates a client's unclaimed safe custody assets and pays the proceeds to charity under CASS 6.2.10 R it must make and retain, or where the firm already has such records, retain:
(a) records of all safe custody assets divested under CASS 6.2.10 R (including details of the value of each asset at that time and the identity of the client to whom the asset was allocated);
(b) all relevant documentation (including charity receipts); and
(c) details of the communications the firm had or attempted to make with the client concerned pursuant to CASS 6.2.10R (4).
(2) Records in (1) must be retained indefinitely.
(3) If a member of the firm's group has provided an undertaking under CASS 6.2.14R (1)(b) then the records in (1) must be readily accessible to that group member.

Costs associated with divesting allocated but unclaimed client assets

CASS 6.2.16
01/12/2014
FCA
Any costs associated with the firm divesting itself of safe custody assets pursuant to CASS 6.2.10 R to CASS 6.2.15 R should be paid for from the firm's own funds, including:
(1) any costs associated with the firm carrying out the steps in CASS 6.2.10R (4) or CASS 6.2.11 E; and
(2) the cost of any insurance purchased by a firm or the relevant member of its group to cover any legally enforceable claim in respect of the assets divested under CASS 6.2.10 R.

CASS 6.3 Depositing assets and arranging for assets to be deposited with third parties

Depositing safe custody assets with third parties

CASS 6.3.1
01/06/2015
FCA
(1) A firm may deposit safe custody assets held by it on behalf of its clients into an account or accounts opened with a third party, but only if it exercises all due skill, care and diligence in the selection, appointment and periodic review of the third party and of the arrangements for the holding and safekeeping of those safe custody assets.
(1A) [deleted]
(2) [deleted]
(3) When a firm makes the selection, appointment and conducts the periodic review referred to under this rule, it must take into account:
(a) the expertise and market reputation of the third party; and
(b) any legal requirements or market practices related to the holding of those safe custody assets that could adversely affect clients' rights.
(4) [deleted]

[Note: article 17(1) of the MiFID implementing Directive]
CASS 6.3.2
01/06/2015
FCA
In discharging its obligations under CASS 6.3.1 R, a firm should also consider, as appropriate, together with any other relevant matters:
(1) the third party's performance of its services to the firm;
(2) the arrangements that the third party has in place for holding and safeguarding the safe custody asset;
(3) current industry standard reports, for example "Assurance reports on internal controls of services organisations made available to third parties" made in line with Technical Release AAF 01/06 of The Institute of Chartered Accountants in England and Wales or equivalent;
(4) the capital or financial resources of the third party;
(5) the credit-worthiness of the third party;
(6) any other activities undertaken by the third party and, if relevant, any affiliated company; and
(7) whether the third party has the appropriate regulatory permissions.
CASS 6.3.2A
01/06/2015
FCA
(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 third party under CASS 6.3.1 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 the third party to hold safe custody assets belonging to clients.
(2) A firm must make a record of each periodic review of its selection and appointment of a third party that it conducts under CASS 6.3.1 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 the third party to hold safe custody assets belonging to clients.
CASS 6.3.3
01/12/2014
[deleted]
CASS 6.3.4
01/06/2015
FCA
(1) Subject to (2), a firm must only deposit safe custody assets with a third party in a jurisdiction which specifically regulates and supervises the safekeeping of safe custody assets for the account of another person with a third party who is subject to such regulation.
(2) A firm must not deposit safe custody assets held on behalf of a client with a third party in a country that is not an EEA State (third country) and which does not regulate the holding and safekeeping of safe custody assets for the account of another person unless:
(a) the nature of the safe custody assets or of the investment services connected with those safe custody assets requires them to be deposited with a third party in that third country; or
(b) the safe custody assets are held on behalf of a professional client and the client requests the firm in writing to deposit them with a third party in that third country.
(3) [deleted]
(a) [deleted]
(b) [deleted]
(i) [deleted]
(ii) [deleted]
(iii) [deleted]

[Note: article 17(2) and (3) of the MiFID implementing Directive]
CASS 6.3.4A-1
01/06/2015
FCA
A firm must take the necessary steps to ensure that any client's safe custody assets deposited with a third party are identifiable separately from the applicable assets belonging to the firm and from the applicable assets belonging to that third party, by means of differently titled accounts on the books of the third party or other equivalent measures that achieve the same level of protection.
 
[Note: article 16(1)(d) of the MiFID implementing Directive]

Third-party custody agreements

CASS 6.3.4A
01/12/2014
FCA
A firm must have entered into a written agreement with any person with whom it deposits clients' safe custody assets under CASS 6.3.1 R, or with whom it arranges safeguarding and administration of assets which are clients' safe custody assets. This agreement must, at minimum:
(1) set out the binding terms of the arrangement between the firm and the third party;
(2) be in force for the duration of that arrangement; and
(3) clearly set out the custody service(s) that the third party is contracted to provide.
CASS 6.3.4B
01/12/2014
FCA
A firm should consider carefully the terms of any agreement entered into with a third party under CASS 6.3.4A R. The following terms are examples of the issues that should be addressed in these agreements (where relevant):
(1) that the title of the account in the third party's books and records indicates that any safe custody asset credited to it does not belong to the firm;
(2) that the third party will hold or record a safe custody asset belonging to the firm's client separately from any applicable asset belonging to the firm or to the third party;
(3) the arrangements for registration or recording of the safe custody asset, if this will not be registered in the firm's client's name;
(4) the restrictions over the circumstances in which the third party may withdraw assets from the account;
(5) the procedures and authorities for the passing of instructions to, or by, the firm;
(6) the procedures for the claiming and receiving of dividends, interest payments and other entitlements accruing to the firm's client; and
(7) the provisions detailing the extent of the third party's liability in the event of the loss of a safe custody asset caused by the fraud, wilful default or negligence of the third party or an agent appointed by him.
CASS 6.3.5
01/04/2012
FCA
Subject to CASS 6.3.6 R, in relation to a third party with which a firm deposits safe custody assets belonging to a client, a firm must ensure that any agreement with that third party relating to the custody of those assets does not include the grant to that party, or to any other person, of a lien or a right of retention or sale over the safe custody assets, or a right of set-off over any client money derived from those safe custody assets.
CASS 6.3.6
01/04/2012
FCA
A firm may conclude an agreement with a third party relating to the custody of safe custody assets which confers on that party, or on another person instructed by that party to provide custody services for those assets, a lien, right of retention or sale, or right of set-off in favour of that party or that other person only if that lien or right:
(1) is confined to those safe custody assets held in an account with that third party or that other person and extends only to properly incurred charges and liabilities arising from the provision of custody services in respect of safe custody assets held in that account; or
(2) arises under the operating terms of a securities depository, securities settlement system or central counterparty in whose account safe custody assets are recorded or held, and provided that it does so for the purpose only of facilitating the settlement of trades involving the assets held in that account; or
(3) arises in relation to those safe custody assets held in a jurisdiction outside the United Kingdom, provided that:
(a) it does so as a result of local applicable law in that jurisdiction or is necessary for that firm to gain access to the local market in that jurisdiction; and
(b) in respect of each client to which those assets belong, either:
(i) the firm has taken reasonable steps to determine that holding those assets subject to that lien or right is in the best interests of that client; or
(ii) where a client is a professional client, the firm is instructed by that client to hold those assets in that jurisdiction notwithstanding the existence of that lien or right.
CASS 6.3.7
01/04/2012
FCA
A firm will be considered to be acting on the instructions of its professional client under CASS 6.3.6R (3)(b)(ii) where:
(1) the firm has received an individual instruction or has a standing instruction in its terms of business which results in it holding safe custody assets in the relevant jurisdiction; and
(2) prior to acting on the instruction, the firm has expressly informed the client that holding that client's safe custody assets in the relevant jurisdiction will involve the granting of a lien or right over those assets. The firm may do this by discussing the lien or right individually with the client or by including reference to it in terms of business (which may themselves cross refer to a separate list of relevant jurisdictions to which CASS 6.3.6R (3)(a) applies maintained on the firm's website in a form accessible to clients) or by a similar method.
CASS 6.3.8
01/04/2012
FCA
For the purpose of CASS 6.3.6 R, references to a safe custody asset include any client money derived from that safe custody asset. Client money derived from a safe custody asset may be regarded as held in the same account as that safe custody asset even though that money and those assets may be recorded separately.
CASS 6.3.9
01/06/2015
FCA
CASS 6.3.6 R does not permit a firm to agree to a third party having any recourse or right against client money in a client bank account or standing to the credit of a client transaction account of the kind referred to in:
(1) paragraph (d) of CASS 7 Annex 2 R; or
(2) paragraph (e) of CASS 7 Annex 3 R; or
(3) paragraph (e) of CASS 7 Annex 4 R.

CASS 6.4 Use of safe custody assets

CASS 6.4.1
06/04/2010
FCA
(1) A firm must not enter into arrangements for securities financing transactions in respect of safe custody assets held by it on behalf of a client or otherwise use such safe custody assets for its own account or the account of another client of the firm, unless:
(a) the client has given express prior consent to the use of the safe custody assets on specified terms; and
(b) the use of that client's safe custody assets is restricted to the specified terms to which the client consents.
(2) A firm must not enter into arrangements for securities financing transactions in respect of safe custody assets held by it on behalf of a client in an omnibus account held by a third party, or otherwise use safe custody assets held in such an account for its own account or for the account of another client unless, in addition to the conditions set out in (1):
(a) each client whose safe custody assets are held together in an omnibus account has given express prior consent in accordance with (1)(a); or
(b) the firm has in place systems and controls which ensure that only safe custody assets belonging to clients who have given express prior consent in accordance with the requirements of (1)(a) are used.
(3) For the purposes of obtaining the express prior consent of a retail client under this rule the signature of the retail client or an equivalent alternative mechanism is required.
(4) [deleted]

[Note: article 19 of the MiFID implementing Directive]
CASS 6.4.1A
01/07/2014
FCA
The FCA expects firms which enter into arrangements under CASS 6.4.1 R with retail clients to only enter into securities financing transactions and not otherwise use retail client's safe custody assets.
CASS 6.4.2
01/07/2014
FCA
Firms are reminded of the client's best interests rule, which requires the firm to act honestly, fairly and professionally in accordance with the best interests of their clients. For any transactions involving retail clients carried out under this section the FCA expects that:
(1) the firm ensures that relevant collateral is provided by the borrower in favour of the client;
(2) the current realisable value of the safe custody asset and of the relevant collateral is monitored daily; and
(3) the firm provides relevant collateral to make up the difference where the current realisable value of the collateral falls below that of the safe custody asset, unless otherwise agreed in writing by the client.
CASS 6.4.3
01/01/2009
FCA
Where a firm uses safe custody assets as permitted in this section, the records of the firm must include details of the client on whose instructions the use of the safe custody assets has been effected, as well as the number of safe custody assets used belonging to each client who has given consent, so as to enable the correct allocation of any loss.

[Note: article 19(2) of the MiFID implementing Directive]
31/05/2015 is the last day this material was in force

CASS 6.6 Records, accounts and reconciliations

Records and accounts

CASS 6.6.1
01/06/2015
FCA
This section sets out the requirements a firm must meet when keeping records and accounts of the safe custody assets it holds for clients.
CASS 6.6.2
01/06/2015
FCA
A firm must keep such records and accounts as necessary to enable it at any time and without delay to distinguish safe custody assets held for one client from safe custody assets held for any other client, and from the firm's own applicable assets.
 
[Note: article 16(1)(a) of the MiFID implementing Directive]
CASS 6.6.3
01/06/2015
FCA
A firm must maintain its records and accounts in a way that ensures their accuracy, and in particular their correspondence to the safe custody assets held for clients.
 
[Note: article 16(1)(b) of the MiFID implementing Directive]
CASS 6.6.4
01/06/2015
FCA
A firm must maintain a client-specific safe custody asset record.
CASS 6.6.5
01/06/2015
FCA
The requirements in CASS 6.6.2 R to CASS 6.6.4 R are for a firm to keep internal records and accounts of clients' safe custody assets. Therefore any records falling under those requirements should be maintained by the firm, and should be separate to any records the firm may have obtained from any third parties, such as those with whom it may have deposited, or through whom it may have registered legal title to, clients' safe custody assets.

Right to use agreements

CASS 6.6.6
01/06/2015
FCA
A firm must keep a copy of every executed client agreement that includes that firm's right to use safe custody assets for its own account (see CASS 6.4.1 R), including in the case of a prime brokerage agreement the disclosure annex referred to in CASS 9.3.1 R.

General record-keeping

CASS 6.6.7
01/06/2015
FCA
Unless otherwise stated, a firm must ensure that any record made under the custody rules is retained for a period of five years starting from the later of:
(1) the date it was created; and
(2) (if it has been modified since the date it was created), the date it was most recently modified.
CASS 6.6.8
01/06/2015
FCA
For each internal custody record check, each physical asset reconciliation and each external custody reconciliation carried out by a firm, it must make a record including:
(1) the date it carried out the relevant process;
(2) the actions the firm took in carrying out the relevant process; and
(3) a list of any discrepancies the firm identified and the actions the firm took to resolve those discrepancies.

Policies and procedures

CASS 6.6.9
01/06/2015
FCA
Firms are reminded that they must, under SYSC 6.1.1 R, establish, implement and maintain adequate policies and procedures sufficient to ensure compliance of the firm with the rules in this chapter. This should include, for example, establishing and maintaining policies and procedures concerning:
(1) the frequency and method of the checks and reconciliations the firm is required to carry out under this section;
(2) the frequency with which the firm is required to review its arrangements in compliance with this chapter; and
(3) the resolution of discrepancies and the treatment of shortfalls under this section.

Internal custody record checks

CASS 6.6.10
01/06/2015
FCA
(1) An internal custody record check is one of the steps a firm takes to satisfy its obligations under:
(a) Principle 10 (Clients' assets);
(b) CASS 6.2.2 R (Requirement to have adequate organisational arrangements);
(c) CASS 6.6.2 R to CASS 6.6.4 R (Records and accounts); and
(d) where relevant, SYSC 4.1.1 R (General requirements) and SYSC 6.1.1 R (Compliance).
(2) An internal custody record check is a check as to whether the firm's records and accounts of the safe custody assets held by the firm (including, for example, those deposited with third parties under CASS 6.3 (Depositing safe custody assets with third parties)) correspond with the firm's obligations to its clients to hold those safe custody assets.
CASS 6.6.11
01/06/2015
FCA
(1) A firm must perform an internal custody record check:
(a) subject to (2), as regularly as is necessary but without allowing more than one month to pass between each internal custody record check; and
(b) as soon as reasonably practicable after the date to which the internal custody record check relates.
(2) A firm that holds no safe custody assets other than physical safe custody assets must perform an internal custody record check as regularly as necessary but, in any case, no less often than its physical asset reconciliations under CASS 6.6.22 R.
CASS 6.6.12
01/06/2015
FCA
CASS 6.6.44 R sets out the matters which a firm must have regard to when determining the frequency at which to undertake an internal custody record check.
CASS 6.6.13
01/06/2015
FCA
A firm must perform an internal custody record check using either the internal custody reconciliation method or the internal system evaluation method. It must not use a combination of these methods.
CASS 6.6.14
01/06/2015
FCA
A firm must only use its internal records (for example its depot and client-specific ledgers for safe custody assets or other internal accounting records) in order to perform an internal custody record check.
CASS 6.6.15
01/06/2015
FCA
CASS 6.6.14 R means that a firm must not base its internal custody record checks on any records that the firm may have obtained from any third parties, such as those with whom it may have deposited, or through whom it may have registered legal title to, clients' safe custody assets.

The internal custody reconciliation method for internal custody record checks

CASS 6.6.16
01/06/2015
FCA
A firm may only use the internal custody reconciliation method if:
(1) it separately maintains an aggregate safe custody asset record and a client-specific safe custody asset record; and
(2) its aggregate safe custody asset record and its client-specific safe custody asset record are capable of being compared.
CASS 6.6.17
01/06/2015
FCA
The internal custody reconciliation method requires a firm to perform a comparison between its aggregate safe custody asset record and its client-specific safe custody asset record, as at the date of the internal custody record check.

The internal system evaluation method for internal custody record checks

CASS 6.6.18
01/06/2015
FCA
(1) The internal system evaluation method is available to any firm, including one that is not able to use the internal custody reconciliation method because it does not meet the requirements at CASS 6.6.16R (1) and CASS 6.6.16R (2).
(2) The purpose of the internal system evaluation method is to detect weaknesses in a firm's systems and controls and any recordkeeping discrepancies. However, this method is not designed to substitute a firm's other measures for ensuring compliance with the custody rules, such as monitoring the accuracy of its records (see also CASS 6.2.2 R and CASS 6.6.3 R).
CASS 6.6.19
01/06/2015
FCA
The internal system evaluation method requires a firm to:
(1) establish a process that evaluates:
(a) the completeness and accuracy of the firm's internal records and accounts of safe custody assets held by the firm for clients, in particular whether sufficient information is being completely and accurately recorded by the firm to enable it to:
(i) comply with CASS 6.6.4 R; and
(ii) readily determine the total of all the safe custody assets that the firm holds for its clients; and
(b) whether the firm's systems and controls correctly identify and resolve all discrepancies in its internal records and accounts of safe custody assets held by the firm for clients;
(2) run the evaluation process established under (1) on the date of each internal custody record check; and
(3) promptly investigate and, without undue delay, resolve any causes of discrepancies that the evaluation process reveals.
CASS 6.6.20
01/06/2015
FCA
The evaluation process under CASS 6.6.19R (1) should verify that the firm's systems and controls correctly identify and resolve at least the following types or causes of discrepancies:
(1) items in the firm's records and accounts that might be erroneously overstating or understating the safe custody assets held by a firm (for example, 'test' entries and 'balancing' entries);
(2) negative balances;
(3) processing errors;
(4) journal entry errors (eg, omissions and unauthorised system entries); and
(5) IT errors (eg, software issues that could lead to inaccurate records).

Physical asset reconciliations

CASS 6.6.21
01/06/2015
FCA
(1) A physical asset reconciliation is a separate process to the internal custody record check. Firms that hold physical safe custody assets for clients are required to perform both processes.
(2) The purpose of a physical asset reconciliation is to check that a firm's internal records and accounts of the physical safe custody assets kept by the firm for clients are accurate and complete, and to ensure any discrepancies are investigated and resolved.
CASS 6.6.22
01/06/2015
FCA
A firm that holds physical safe custody assets must perform a physical asset reconciliation for all the physical safe custody assets it holds for clients:
(1) as regularly as is necessary but without allowing more than six months to pass between each physical asset reconciliation; and
(2) as soon as reasonably practicable after the date to which the physical asset reconciliation relates.
CASS 6.6.23
01/06/2015
FCA
CASS 6.6.44 R sets out the matters which a firm must have regard to when determining the frequency at which to undertake a physical asset reconciliation.
CASS 6.6.24
01/06/2015
FCA
When performing a physical asset reconciliation a firm must:
(1) count all the physical safe custody assets held by the firm for clients as at the date to which the physical asset reconciliation relates; and
(2) compare the count in (1) against what the firm's internal records and accounts state as being in the firm's possession as at the same date.
CASS 6.6.25
01/06/2015
FCA
A firm must perform each physical asset reconciliation under CASS 6.6.24 R using the total count method or the rolling stock method.
CASS 6.6.26
01/06/2015
FCA
Regardless of the method used, a firm should ensure that all safe custody assets held by the firm as physical safe custody assets for clients are subject to a physical asset reconciliation at the frequency required under CASS 6.6.22 R.
CASS 6.6.27
01/06/2015
FCA
If a firm completes a physical asset reconciliation in a single stage, such that the firm:
(1) performs a single count under CASS 6.6.24R (1) which encompasses all the physical safe custody assets held by the firm for clients as at the date to which the physical asset reconciliation relates; and
(2) compares that count against the firm's internal records and accounts in accordance with CASS 6.6.24R (2);
then the firm will have used the total count method for that physical asset reconciliation.
CASS 6.6.28
01/06/2015
FCA
If a firm completes a physical asset reconciliation in two or more stages, such that the firm:
(1) performs two or more counts under CASS 6.6.24R (1) (each on a separate occasion and relating to a different stock line or group of stock lines forming part of the firm's overall holdings of physical safe custody assets) which, once all of the counts are complete, encompass all the physical safe custody assets held by the firm for clients; and
(2) compares each of those counts against the firm's internal records and accounts in accordance with CASS 6.6.24R (2);
then the firm will have used the rolling stock method for that physical asset reconciliation.
CASS 6.6.29
01/06/2015
FCA
(1) The rolling stock method allows a firm to perform its physical asset reconciliation in several stages, with each stage referring to a line of stock or group of stock lines in a designated investment selected by a firm (for example, all the shares with an issuer whose name begins with the letter 'A' or all the stock lines held in connection with a particular business line).
(2) Where a firm uses the rolling stock method to perform a physical asset reconciliation, all the stages in that physical asset reconciliation must be completed in time to ensure the firm complies with CASS 6.6.22 R.
CASS 6.6.30
01/06/2015
FCA
(1) If a firm wishes to use the rolling stock method to perform a physical asset reconciliation it must first establish and document in writing its reasons for concluding that the way in which it will carry out its physical asset reconciliations is adequately designed to mitigate the risk of the firm's records being manipulated or falsified.
(2) A firm must retain any documents created under (1) for a period of at least five years after the date it ceases to use the rolling stock method to perform its physical asset reconciliation.
CASS 6.6.31
01/06/2015
FCA
The documents under CASS 6.6.30R (1) should, for example, cover the systems and controls the firm will have in place to mitigate the risk of 'teeming and lading' in respect of all the physical safe custody assets held by the firm for clients and across all the firm's business lines.
CASS 6.6.32
01/06/2015
FCA
To meet the requirement to have adequate organisational arrangements under CASS 6.2.2 R, a firm should consider performing 'spot checks' as to whether title to an appropriate sample of physical safe custody assets that it holds is registered correctly under CASS 6.2.3 R (Registration and recording of legal title).

External custody reconciliations

CASS 6.6.33
01/06/2015
FCA
The purpose of an external custody reconciliation is to ensure the completeness and accuracy of a firm's internal records and accounts of safe custody assets held by the firm for clients against those of relevant third parties.
CASS 6.6.34
01/06/2015
FCA
A firm must conduct, on a regular basis, reconciliations between its internal records and accounts of safe custody assets held by the firm for clients and those of any third parties by whom those safe custody assets are held.
 
[Note: article 16(1)(c) of the MiFID implementing Directive]
CASS 6.6.35
01/06/2015
FCA
In CASS 6.6.34 R, the third parties whose records and accounts a firm is required to reconcile its own internal records and accounts with must include:
(1) the third parties with which the firm has deposited clients' safe custody assets;
(2) where the firm has not deposited a client's safe custody asset with a third party:
(a) the third parties responsible for the registration of legal title to that safe custody asset; or
(b) a person acting as an operator for the purposes of any of the relevant overseas USRs if:
(i) the safe custody asset is an uncertificated unit of a security governed by any of the relevant overseas USRs; and
(ii) the firm has reasonable grounds to be satisfied that the records of that person take into account all instructions issued by that person which require an issuer to register on a register of securities a transfer of title to any uncertificated units.
CASS 6.6.36
01/06/2015
FCA
Examples of the sorts of third parties referred to at CASS 6.6.35R (2)(a) include central securities depositaries, operators of collective investment schemes, and administrators of offshore funds.
CASS 6.6.37
01/06/2015
FCA
A firm must conduct external custody reconciliations:
(1) as regularly as necessary but allowing no more than one month to pass between each external custody reconciliation; and
(2) as soon as reasonably practicable after the date to which the external custody reconciliation relates.
CASS 6.6.38
01/06/2015
FCA
CASS 6.6.44 R sets out the matters which a firm must consider when determining the frequency at which to undertake an external custody reconciliation.
CASS 6.6.39
01/06/2015
FCA
Where a firm holds clients' safe custody assets electronically with a central securities depositary which is able to provide adequate information to the firm on its holdings on a daily basis, it is best practice under CASS 6.6.37R (1) for the firm to conduct an external custody reconciliation each business day in respect of those assets.
CASS 6.6.40
01/06/2015
FCA
Where a firm deposits safe custody assets belonging to a client with a third party or where a third party is responsible for the registration of legal title to that asset, in complying with the requirements of CASS 6.6.34 R, the firm should seek to ensure that the third party provides the firm with adequate information (for example in the form of a statement) as at a date specified by the firm which details the description and amounts of all the safe custody assets credited to the relevant account(s) and that this information is provided in sufficient time to allow the firm to carry out its external custody reconciliations under CASS 6.6.37 R.
CASS 6.6.41
01/06/2015
FCA
If a firm acting as trustee or depositary of an AIF that is an authorised AIF deposits safe custody assets belonging to a client with a third party, under article 89(1)(c) (Safekeeping duties with regard to assets held in custody) of the AIFMD level 2 regulation, the firm should seek to ensure that the third party provides the firm with adequate information (for example in the form of a statement) as at a date or dates specified by the firm which details the description and amounts of all the safe custody assets credited to the account(s) and that this information is provided in adequate time to allow the firm to carry out the periodic reconciliations required under article 89(1)(c) (Safekeeping duties with regard to assets held in custody) of the AIFMD level 2 regulation.
CASS 6.6.42
01/06/2015
FCA
External custody reconciliations must be performed for each safe custody asset held by the firm for its clients, except for physical safe custody assets. A reconciliation of transactions involving safe custody assets, rather than of the safe custody assets themselves, will not satisfy the requirement under CASS 6.6.34 R.
CASS 6.6.43
01/06/2015
FCA
A firm acting as trustee or depositary of an AIF that is an authorised AIF should perform the reconciliation under article 89(1)(c) (Safekeeping duties with regard to assets held in custody) of the AIFMD level 2 regulation:
(1) as regularly as is necessary having regard to the frequency, number and value of transactions which the firm undertakes in respect of safe custody assets, but with no more than one month between each reconciliation; and
(2) as soon as reasonably practicable after the date to which the reconciliation relates;
to ensure the accuracy of its internal records and accounts against those of third parties by whom client's safe custody assets are held.

Frequency of checks and reconciliations under this section

CASS 6.6.44
01/06/2015
FCA
When determining the frequency at which it will undertake its internal custody record checks under CASS 6.6.11 R, physical asset reconciliations under CASS 6.6.22 R, and external custody reconciliations under CASS 6.6.37 R, a firm must have regard to:
(1) the frequency, number and value of transactions which the firm undertakes in respect of clients' safe custody assets; and
(2) the risks to which clients' safe custody assets are exposed, such as the nature, volume and complexity of the firm's business and where and with whom safe custody assets are held.
CASS 6.6.45
01/06/2015
FCA
(1) A firm must make and retain records sufficient to show and explain any decision it has taken under CASS 6.6.44 R when determining the frequency of its internal custody record checks, physical asset reconciliations and external custody reconciliations. Subject to (2), such records must be retained indefinitely.
(2) If any decision under CASS 6.6.44 R is superseded by a subsequent decision under that rule then the record of that earlier decision retained in accordance with (1) need only be retained for a further period of five years from the subsequent decision.
CASS 6.6.46
01/06/2015
FCA
(1) Subject to (3), a firm must review the frequency at which it conducts internal custody record checks, physical asset reconciliations and external custody reconciliations at least annually to ensure that it continues to comply with CASS 6.6.11 R, CASS 6.6.22 R and CASS 6.6.37 R, respectively, and has given due consideration to the matters in CASS 6.6.44 R.
(2) For each review a firm undertakes under (1), it must record the date and the actions it tookin reviewing the frequency of its internal custody record checks, physical asset reconciliations and external custody reconciliations.
(3) A firm need not carry out a review under (1) in respect of its internal custody record checks, physical asset reconciliations and external custody reconciliations, if it already conducts the particular process in respect of all relevant safe custody assets each business day.

Independence of person performing checks and reconciliations

CASS 6.6.47
01/06/2015
FCA
Whenever possible, a firm should ensure that checks and reconciliations are carried out by a person (for example an employee of the firm) who is independent of the production or maintenance of the records to be checked and/or reconciled.

Resolution of discrepancies

CASS 6.6.48
01/06/2015
FCA
In this section, a discrepancy should not be considered to be resolved until it is fully investigated and corrected, and any associated shortfall is made good by way of the firm ensuring that:
(1) it is holding (under the custody rules) each of the safe custody assets that the firm ought to be holding for each of its clients; and
(2) its own records, and the records of any relevant other person (such as a third party with whom the firm deposited the safe custody assets) accurately correspond to the position under (1).
CASS 6.6.49
01/06/2015
FCA
When a firm identifies a discrepancy as a result of carrying out an internal custody record check, physical asset reconciliation or external custody reconciliation, the firm must:
(1) promptly investigate the reason for the discrepancy and resolve it without undue delay; and
(2) take appropriate steps under CASS 6.6.54 R for the treatment of any shortfalls until that discrepancy is resolved.
CASS 6.6.50
01/06/2015
FCA
When a firm identifies a discrepancy outside of its processes for an internal custody record check, physical asset reconciliation or external custody reconciliation, the firm must:
(1) take all reasonable steps both to investigate the reason for the discrepancy and to resolve it; and
(2) take appropriate steps under CASS 6.6.54 R for the treatment of shortfalls until that discrepancy is resolved.
CASS 6.6.51
01/06/2015
FCA
Where the discrepancy identified under CASS 6.6.49 R or CASS 6.6.50 R has arisen as a result of a breach of thecustody rules, the firm should ensure it takes sufficient steps to avoid a reoccurrence of that breach (see Principle 10 (Clients' assets), CASS 6.6.3 R and, as applicable, SYSC 4.1.1R (1) and SYSC 6.1.1 R).
CASS 6.6.52
01/06/2015
FCA
Items recorded or held within a suspense or error account fall within the scope of discrepancies in this section.
CASS 6.6.53
01/06/2015
FCA
Items recorded in a firm's records and accounts that are no longer recorded by relevant third parties (such as 'liquidated stocks') also fall within the scope of discrepancies in this section.

Treatment of shortfalls

CASS 6.6.54
01/06/2015
FCA
(1) This rule applies where a firm identifies a discrepancy as a result of, or that reveals, a shortfall, which the firm has not yet resolved.
(2) Subject to (3), until the discrepancy is resolved a firm must do one of the following:
(a) appropriate a sufficient number of its own applicable assets to cover the value of the shortfall and hold them for the relevant clients under the custody rules in such a way that the applicable assets, or the proceeds of their liquidation, will be available for distribution for the benefit of the relevant clients in the event of the firm's failure and, in doing so:
(i) ensure that the applicable assets are clearly identifiable as separate from the firm's own property and are recorded by the firm in its client-specific safe custody asset record as being held for the relevant client;
(ii) keep a record of the actions the firm has taken under this rule which includes a description of the shortfall, identifies the relevant affected clients, and lists the applicable assets that the firm has appropriated to cover the shortfall; and
(iii) update the record made under (ii) whenever the discrepancy is resolved and the firm has re-appropriated the applicable assets; or
(b) (provided that doing so is consistent with the firm's permissions and would result in money being held for the relevant client) in respect of the shortfall under CASS 7.17.2 R (statutory trust) appropriate a sufficient amount of its own money to cover the value of the shortfall, hold it for the relevant client as client money under the client money rules and, in doing so:
(i) ensure the money is segregated under CASS 7.13 (Segregation of client money) and recorded as being held for the relevant client under CASS 7.15 (Records, accounts and reconciliations);
(ii) keep a record of the actions the firm has taken under this rule which includes a description of the shortfall, identifies the relevant affected clients, and specifies the amount of money that the firm has appropriated to cover the shortfall; and
(iii) update the record made under (ii) whenever the discrepancy is resolved and the firm has re-appropriated the money; or
(c) appropriate a number of applicable assets in accordance with (a) and an amount of money in accordance with (b) which, in aggregate, are sufficient to cover the value of the shortfall.
(3) If the firm, where justified, concludes that another person is responsible for the discrepancy, regardless of any dispute with that other person, or that the discrepancy is due to a timing difference between the accounting systems of that other person and that of the firm, the firm must take all reasonable steps to resolve the situation without undue delay with the other person. Until the discrepancy is resolved the firm must consider whether it would be appropriate to notify the affected client of the situation, and may take steps under (2) for the treatment of shortfalls until that discrepancy is resolved.
CASS 6.6.55
01/06/2015
FCA
In considering whether it should notify affected clients under CASS 6.6.54R (3), a firm should have regard to its obligations under the client's best interests rule to act honestly, fairly and professionally in accordance with the best interests of its clients, and to Principle 7 (communications with clients).
CASS 6.6.56
01/06/2015
FCA
(1) The value of a shortfall for the purposes of CASS 6.6.54 R may be determined by the previous day's closing mark to market valuation, or if in relation to a particular safe custody asset none is available, the most recently available valuation.
(2) Where a firm is taking the measures under CASS 6.6.54R (2) in respect of a particular shortfall it should, as regularly as necessary, and having regard to Principle 10:
(a) review the value of the shortfall in line with (1); and
(b) where the firm has found that the value of the shortfall has changed, adjust either or both the number of own applicable assets or the amount of money it has appropriated to ensure that in aggregate the assets and monies set aside are sufficient to cover the changed value of the shortfall.

Notification requirements

CASS 6.6.57
01/06/2015
FCA
A firm must inform the FCA in writing without delay if:
(1) its internal records and accounts of the safe custody assets held by the firm for clients are materially out of date, or materially inaccurate or invalid, so that the firm is no longer able to comply with the requirements in CASS 6.6.2 R to CASS 6.6.4 R; or
(2) if it is a firm acting as trustee or depositary of an AIF and has not complied with, or is materially unable to comply with, the requirements in CASS 6.6.2 R or in article 89(1)(b) or 89(1)(c) (Safekeeping duties with regard to assets held in custody) of the AIFMD level 2 regulation; or
(3) it will be unable, or materially fails, to take the steps required under CASS 6.6.54 R for the treatment of shortfalls; or
(4) it will be unable, or materially fails, to conduct an internal custody record check in compliance with CASS 6.6.11 R to CASS 6.6.19 R; or
(5) it will be unable, or materially fails, to conduct a physical asset reconciliation in compliance with CASS 6.6.2 R to CASS 6.6.30 R; or
(6) it will be unable, or materially fails, to conduct an external custody reconciliation in compliance with CASS 6.6.34 R to CASS 6.6.37 R.

Annual audit of compliance with the custody rules

CASS 6.6.58
01/06/2015
FCA
Firms are reminded that the auditor of the firm has to confirm in the report submitted to the FCA under SUP 3.10 (Duties of auditors: notification and report on client assets) that the firm has maintained systems adequate to enable it to comply with the custody rules.
31/05/2015 is the last day this material was in force 31/05/2015 is the last day this material was in force 31/05/2015 is the last day this material was in force 31/05/2015 is the last day this material was in force 31/05/2015 is the last day this material was in force 31/05/2015 is the last day this material was in force 31/05/2015 is the last day this material was in force 31/05/2015 is the last day this material was in force 31/12/2008 is the last day this material was in force

CASS 7.10 Application and purpose

CASS 7.10.1
01/06/2015
FCA
This chapter applies to a firm that receives money from or holds money for, or on behalf of, a client in the course of, or in connection with, its:
(1) MiFID business; and/or
(2) designated investment business; and/or
(3) stocks and shares ISA business;
unless otherwise specified in this section.
CASS 7.10.2
01/06/2015
FCA
A firm is reminded that when CASS 7.10.1 R applies it should treat client money in an appropriate manner so that, for example:
(1) if it holds client money in a client bank account that account is held in the firm's name in accordance with CASS 7.13.13 R;
(2) if it allows another person to hold client money this is effected under CASS 7.14; and
(3) its internal client money reconciliation takes into account any client equity balance relating to its margined transaction requirements.

Opt-in to the client money rules

CASS 7.10.3
01/06/2015
FCA
(1) A firm that receives or holds money to which this chapter applies in relation to:
(a) its MiFID business; or
(b) its MiFID business and its designated investment business which is not MiFID business;
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) 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.
(2A) 
(a) A firm may elect to comply with all the provisions of this chapter for money that it receives or holds in respect of an ISA that only contains a cash deposit ISA.
(b) Where a firm makes an election under (a), this chapter applies to it in the same way that it applies to a firm who receives and holds money in the course of or in connection with its MIFID business.
(3) 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.
(4) This rule is subject to CASS 1.2.11 R.
CASS 7.10.3A
01/06/2015
FCA
Where a firm opts into this chapter under CASS 7.10.3R (2A) it must notify clients for whom it holds the opted-in money that it is holding their money in accordance with the client money rules.
CASS 7.10.4
01/06/2015
FCA
Firms are reminded that, under CASS 1.2.11 R, they must not keep money in respect of which the client money chapter applies in the same client bank account or client transaction account as money for which the insurance client money chapter applies.
CASS 7.10.5
01/06/2015
FCA
The opt-in to the client money rules in this chapter does not apply in respect of money that a firm holds outside of either the:
(1) scope of the insurance client money chapter; or
(2) relevant cash deposit ISA wrapper;
as the case may be.
CASS 7.10.6
01/06/2015
FCA
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.
CASS 7.10.7
01/06/2015
FCA
(1) A firm that is only subject to the insurance client money chapter may not opt to comply with this chapter under either or both CASS 7.10.3R (1) and CASS 7.10.3R (2).
(2) Under CASS 7.10.3R (2A), a firm may opt to comply with this chapter regardless of whether it is otherwise subject to the client money rules.

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

CASS 7.10.8
01/06/2015
FCA
CASS 7.10.9 G to CASS 7.10.15 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 7.10.3R (1).

Professional client opt-out

CASS 7.10.9
01/06/2015
FCA
The '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 7.10.10
01/06/2015
FCA
Subject to CASS 7.10.12 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) money will not be subject to the protections conferred by the client money rules;
(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) the professional client will rank only as a general creditor of the firm.

'Opt-outs' for non-IMD business

CASS 7.10.11
01/06/2015
FCA
For 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 7.10.12
01/06/2015
FCA
Money 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) holds it on behalf of or receives it from a professional client who is not an authorised person; and
(2) has sent a separate written notice to the professional client stating the matters set out in CASS 7.10.10R (1) to CASS 7.10.10R (3).
CASS 7.10.13
01/06/2015
FCA
When 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 7.10.10 R or CASS 7.10.12 R, elect to segregate client money in connection with securities transactions and not segregate (by complying with CASS 7.10.10 R or CASS 7.10.12 R) money in connection with contingent liability investments for the same client.
CASS 7.10.14
01/06/2015
FCA
When a firm transfers client money to another person, the firm must not enter into an agreement under CASS 7.10.10 R or CASS 7.10.12 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 7.10.15
01/06/2015
FCA
CASS 7.10.14 R prevents a firm, when passing client money to another person under CASS 7.14.2 R (Transfer of client money to a third party), from making use of the 'opt out' provisions under CASS 7.10.10 R or CASS 7.10.12 R.

Credit institutions and approved banks

CASS 7.10.16
01/06/2015
FCA
In relation to the application of the client money rules (and any other rule in so far as it relates to matters covered by the client money rules) to the firms referred to in (1) and (2), the following is not client money:
(1) any deposits within the meaning of the CRD held by a CRD credit institution; and

[Note: article 13(8) of MiFID and article 18(1) of the MiFID Implementing Directive]
(2) any money held by an approved bank that is not a CRD credit institution in an account with itself in relation to designated investment business carried on for its clients.
CASS 7.10.17
01/06/2015
FCA
A firm referred to in CASS 7.10.16 R must comply, as relevant, with CASS 7.10.18 G to CASS 7.10.24 R.
CASS 7.10.18
01/06/2015
FCA
The effect of CASS 7.10.16 R is that, unless notified otherwise in accordance with CASS 7.10.20 R or CASS 7.10.22 R, clients of CRD credit institutions or approved banks that are not CRD credit institutions should expect that where they pass money to such firms in connection with designated investment business these sums will not be held as client money.
CASS 7.10.19
01/06/2015
FCA
A firm holding money in either of the ways described in CASS 7.10.16 R must, before providing designated investment business services to the client in respect of those sums, notify the client that:
(1) the money held for that client is held by the firm as banker and not as a trustee under the client money rules; and
(2) if the firm fails, the client money distribution rules will not apply to these sums and so the client will not be entitled to share in any distribution under the client money distribution rules.
CASS 7.10.20
01/06/2015
FCA
A firm holding money in either of the ways described in CASS 7.10.16 R in respect of a client and providing the services to it referred to in CASS 7.10.19 R must:
(1) explain to its clients the circumstances, if any, under which it will cease to hold any money in respect of those services as banker and will hold the money as trustee in accordance with the client money rules; and
(2) set out the circumstances in (1), if any, in its terms of business so that they form part of its agreement with the client.
CASS 7.10.21
01/06/2015
FCA
Where a firm receives money that would otherwise be held as client money but for CASS 7.10.16 R:
(1) it should be able to account to all of its clients for sums held for them at all times; and
(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 7.10.22
01/06/2015
FCA
If a CRD credit institution or an approved bank that is not a CRD credit institution wishes to hold client money for a client (rather than hold the money in either of the ways described in CASS 7.10.16 R) it must, before providing designated investment business services to the client, disclose the following information to the client:
(1) that the money held for that client in the course of or in connection with the business described under (2) is being held by the firm as client money under the client money rules;
(2) a description of the relevant business carried on with the client in respect of which the client money rules apply to the firm; and
(3) that, if the firm fails, the client money distribution rules will apply to money held in relation to the business in question.
CASS 7.10.23
01/06/2015
FCA
Firms carrying on MiFID business are reminded of their obligation to supply investor compensation scheme information to clients under COBS 6.1.16 R (Compensation Information).
CASS 7.10.24
01/06/2015
FCA
A CRD credit institution or an approved bank that is not a CRD credit institution must, in respect of any client money held in relation to its designated investment business that is not MiFID business, comply with the obligations referred to in COBS 6.1.16 R (Compensation information).

Affiliated companies: MiFID business

CASS 7.10.25
01/06/2015
FCA
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 business

CASS 7.10.26
01/06/2015
FCA
A 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) the firm has been notified by the affiliated company that the money belongs to a client of the affiliated company; or
(2) the affiliated company is a client dealt with at arm's length; or
(3) the affiliated company is a manager of an occupational pension scheme or is an overseas company; and
(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
(b) the firm has been notified by the affiliated company that the money is to be treated as client money.

Coins

CASS 7.10.27
01/06/2015
FCA
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 7.10.28
01/06/2015
FCA
(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 that, with respect to its regulated activities, is subject to the following rules of its designated professional body, must comply with those rules and, where relevant paragraph (3), and if it does so, it will be deemed to comply with the client money rules.
(2) The relevant rules are:
(a) if the firm is regulated by the Law Society (of England and Wales), the SRA Accounts Rules 2011;
(b) if the firm is regulated by the Law Society of Scotland, the Law Society of Scotland Practice Rules 2011; and
(c) if the firm is regulated by the Law Society of Northern Ireland, the Solicitors' Accounts Regulations 1998.
(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.

Long term insurers and friendly societies

CASS 7.10.29
01/06/2015
FCA
This 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.

Contracts of insurance

CASS 7.10.30
01/06/2015
FCA
(1) Provided it complies with CASS 1.2.11 R, a firm that receives or holds client money in relation to contracts of insurance may elect to comply with the provisions of the insurance client money chapter, instead of this chapter, in respect of all such money.
(2) This rule is subject to CASS 1.2.11 R.
CASS 7.10.31
01/06/2015
FCA
A firm must make and retain a written record of any election which it makes under CASS 7.10.30 R.

Life assurance business

CASS 7.10.32
01/06/2015
FCA
(1) A 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:
(a) under CASS 7.10.3R (2) 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
(b) under CASS 7.10.30 R, elect to comply with the insurance client money chapter in respect of such client money.
(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.

Trustee firms

CASS 7.10.33
01/06/2015
FCA
A 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 7.10.34
01/06/2015
Subject to CASS 7.10.35 R 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.
ReferenceRule
CASS 7.10.1 R to CASS 7.10.6 G, and CASS 7.10.16 R to CASS 7.10.27 RApplication
CASS 7.10.33 R to CASS 7.10.40 GTrustee firms
CASS 7.10.41 GGeneral purpose
CASS 7.13.3 R to CASS 7.13.4 GDepositing client money
CASS 7.13.8 R to CASS 7.13.11 GSelection, appointment and review of third parties
CASS 7.13.12 R to CASS 7.13.19 GClient bank accounts
CASS 7.13.20 R to CASS 7.13.25 RDiversification of client money
CASS 7.13.26 R to CASS 7.13.29 GQualifying money market funds
CASS 7.15.5R (3), CASS 7.15.7 R and CASS 7.15.12 R to CASS 7.15.34 GReconciliation of client money balances
CASS 7.16The standard methods of internal client money reconciliation
CASS 7.17.2 R to CASS 7.17.4 GRequirement

CASS 7.10.35
01/06/2015
FCA
(1) A trustee firm to which CASS 7.10.34 R applies may, in addition to the client money rules set out at CASS 7.10.34 R, also elect to comply with:
(a) all the client money rules in CASS 7.13 (Segregation of client money);
(b) CASS 7.14 (Client money held by a third party);
(c) all the client money rules in CASS 7.15 (Records, accounts and reconciliations); or
(d) CASS 7.18 (Acknowledgement letters).
(2) A trustee firm must make 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.
(3) Where a trustee firm has made an election under (1) which it subsequently decides to cease to use, it must make a written record of this decision, including the date from which the decision is to be effective, and keep that record from the date the decision is made for a period of five years after the date it is to be effective.
CASS 7.10.36
01/06/2015
FCA
A trustee firm to which CASS 7.10.34 R applies and which is otherwise subject to the client money rules must ensure that any client money it holds other than in its capacity as trustee firm is segregated from client money it holds as a trustee firm.
CASS 7.10.37
01/06/2015
FCA
A trustee firm to which CASS 7.10.34 R applies and which is otherwise subject to the client money rules should ensure that in designing its systems and controls it:
(1) takes into account that the client money distribution rules will only apply in relation to any client money that the firm holds other than in its capacity as trustee firm; and
(2) has regard to other legislation that may be applicable.
CASS 7.10.38
01/06/2015
FCA
(1) A trustee firm to which CASS 7.10.34 R applies may elect that:
(a) the applicable provisions of CASS 7.13 (Segregation of client money) and CASS 7.15 (Records, accounts and reconciliations) under CASS 7.10.34 R; and
(b) any further provisions it elects to comply with under CASS 7.10.35R (1);
will apply separately and concurrently for each distinct trust that the trustee firm acts for.
(2) A trustee firm must make 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.
(3) Where a trustee firm has made an election under (1) which it subsequently decides to cease to use, it must make a written record of this decision, including the date from which the decision is to be effective, and must keep that record from the date the decision is made for a period of five years after the date it is to be effective.
CASS 7.10.39
01/06/2015
FCA
A trustee firm may wish to make an election under CASS 7.10.38 R if, for example, it acts for a number of distinct trusts which it wishes, or is required, to keep operationally separate. If a firm makes such an election then it should:
(1) establish and maintain adequate internal systems and controls to effectively segregate client money held for one trust from client money held for another trust; and
(2) conduct internal client money reconciliations as set out in CASS 7.16 and external client money reconciliations under CASS 7.15.20 R for each trust.
CASS 7.10.40
01/06/2015
FCA
The provisions in CASS 7.10.34 R to CASS 7.10.39 G do not affect the general application of the client money rules regarding money that is held by a firm other than in its capacity as a trustee firm.

General purpose

CASS 7.10.41
01/06/2015
FCA
(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) The client money rules also, where relevant, implement the provisions of MiFID which regulate the obligations of a firm when it holds client money in the course of its MiFID business.

CASS 7.11 Treatment of client money

Title transfer collateral arrangements

CASS 7.11.1
01/06/2015
FCA
(1) Where a client transfers full ownership of money to a firm for the purpose of securing or otherwise covering present or future, actual or contingent or prospective obligations, such money should no longer be regarded as client money.

[Note: recital 27 to MiFID]
(2) Excepted from (1) is a transfer of the full ownership of money:
(a) belonging to a retail client;
(b) whose purpose is to secure or otherwise cover that client's present or future, actual, contingent or prospective obligations under a contract for differences or a rolling spot forex contract that is a future, and in either case where that contract is entered into with a firm acting as market maker; and
(c) which is made to that firm or to any other person arranging on its behalf.
CASS 7.11.2
01/06/2015
FCA
(1) Subject to (2), where a firm makes arrangements for the purpose of securing or otherwise covering present or future, actual, contingent or prospective obligations of a retail client those arrangements must not provide for the taking of a transfer of full ownership of any of that client's money.
(2) The application of (1) is confined to the taking of a transfer of full ownership:
(a) whose purpose is to secure or otherwise cover that retail client's obligations under a contract for differences or a rolling spot forex contract that is a future, and in either case where that contract is entered into with a firm acting as market maker; and
(b) which is made to that firm or to any other person arranging on its behalf.
CASS 7.11.3
01/06/2015
FCA
(1) A firm must ensure that any arrangement relating to the transfer of full ownership of a client's money to the firm for the purposes set out in CASS 7.11.1R (1) and CASS 7.11.2R (1) is the subject of a written agreement made on a durable medium between the firm and the client.
(2) Regardless of the form of the written agreement in (1) (which may have additional commercial purposes), it must cover the client's agreement to:
(a) the terms for the arrangement relating to the transfer of the client's full ownership of money to the firm;
(b) any terms under which the ownership of money is to transfer from the firm back to the client; and
(c) (to the extent not covered by the terms under (b)), any terms for the termination of:
(i) the arrangement under (a); or
(ii) the overall agreement in (1).
(3) A firm must retain a copy of the agreement under (1) from the date the agreement is entered into and until five years after the agreement is terminated.
CASS 7.11.4
01/06/2015
FCA
The terms referred to in CASS 7.11.3R (2)(b) may include, for example, terms under which the arrangement relating to the transfer of full ownership of money to the firm is not in effect from time to time, or is contingent on some other condition.
CASS 7.11.5
01/06/2015
FCA
A title transfer financial collateral arrangement under the Financial Collateral Directive is an example of a type of transfer of money to cover obligations where that money will not be regarded as client money.
CASS 7.11.6
01/06/2015
Where a firm has received full title or full ownership to money under a collateral arrangement, the fact that it has also granted a security interest to its client to secure its obligation to repay that money to the client would not result in the money being client money. This can be compared to a situation in which a firm takes a charge or other security interest over money held in a client bank account, where that money would still be client money as there would be no absolute transfer of title to the firm. However, where a firm has received client money under a security interest and the security interest includes a "right to use arrangement", under which the client agrees to transfer all of its rights to money in that account to the firm upon the exercise of the right to use, the money may cease to be client money, but only once the right to use is exercised and the money is transferred out of the client bank account to the firm.
CASS 7.11.7
01/06/2015
FCA
Firms are reminded of the client's best interest rule, which requires a firm to act honestly, fairly and professionally in accordance with the best interests of its clients when structuring its business particularly in respect of the effect of that structure on firms' obligations under the client money rules.
CASS 7.11.8
01/06/2015
FCA
Pursuant to the client's best interests rule, a firm should ensure that where a retail client transfers full ownership of money to a firm:
(1) the client is notified that full ownership of the money has been transferred to the firm and, as such, the client no longer has a proprietary claim over this money and the firm can deal with it on its own right;
(2) the transfer is for the purposes of securing or covering the client's obligations;
(3) an equivalent transfer is made back to the client if the provision of collateral by the client is no longer necessary; and
(4) there is a reasonable link between the timing and the amount of the collateral transfer and the obligation that the client owes, or is likely to owe, to the firm.

Termination of title transfer collateral arrangements

CASS 7.11.9
01/06/2015
FCA
(1) If a client communicates to a firm that it wishes (whether pursuant to a contractual right or otherwise) to terminate an arrangement relating to the transfer of full ownership of its money to the firm for the purposes set out in CASS 7.11.1R (1) and CASS 7.11.2R (1), and the client's communication is not in writing, the firm must make a written record of the client's communication, which also records the date the communication was received.
(2) A firm must keep a client's written communication, or a written record of the client's communication in (1), for five years starting from the date the communication was received by the firm.
(3) 
(a) If a firm agrees to the termination of an arrangement relating to the transfer of full ownership of a client's money to the firm, it must notify the client of its agreement in writing. The notification must state when the termination is to take effect and whether or not the client's money will be treated as client money by the firm thereafter.
(b) If a firm does not agree to terminate an arrangement relating to the transfer of full ownership of a client's money to the firm, it must notify the client of its disagreement in writing.
(4) A firm must keep a written record of any notification it makes to a client under (3) for a period of five years, starting from the date the notification was made.
CASS 7.11.10
01/06/2015
FCA
CASS 7.11.9R (3)(a) refers only to a firm's agreement to terminate an existing arrangement relating to the transfer of full ownership of a client's money to the firm. Such agreement by a firm does not necessarily need to amount to the termination of its entire agreement with the client.
CASS 7.11.11
01/06/2015
FCA
When a firm notifies a client under CASS 7.11.9R (3)(a) of when the termination of an arrangement relating to the transfer of full ownership of the client's money to the firm is to take effect, it should take into account:
(1) any relevant terms relating to such a termination that have been agreed with the client; and
(2) the period of time it reasonably requires to return the money to the client, or to update its records under CASS 7.15 (Records, accounts and reconciliations) and to segregate the money as client money under CASS 7.13 (Segregation of client money).
CASS 7.11.12
01/06/2015
FCA
If an arrangement relating to the transfer of full ownership of a client's money to a firm for the purposes set out in CASS 7.11.1R (1) and CASS 7.11.2R (1) is terminated then, unless otherwise permitted under the client money rules and notified to the client under CASS 7.11.9R (3)(a), the firm must treat that money as client money from the start of the next business day following the date of termination as set out in the firm's notification under CASS 7.11.9R (3)(a). Where the firm's notification under CASS 7.11.9R (3)(a) does not state when the termination of the arrangement will take effect, the firm must treat that money as client money from the start of the next business day following the date on which the firm's notification is made.
CASS 7.11.13
01/06/2015
FCA
A firm to which CASS 7.11.12 R applies should, for example, update its records under CASS 7.15 (Records, accounts and reconciliations) and segregate the money as client money under CASS 7.13 (Segregation of client money), from the relevant time at which the firm is required to treat the money as client money.

Delivery versus payment transaction exemption

CASS 7.11.14
01/06/2015
FCA
(1) Subject to (2) and CASS 7.11.16 R and with the agreement of the relevant client, money need not be treated as client money in respect of a delivery versus payment transaction through a commercial settlement system if:
(a) in respect of a client's purchase the firm intends for the money from the client to be due to it within one business day following the firm's fulfilment of its delivery obligation to the client; or
(b) in respect of a client's sale, the firm intends for the money in question to be due to the client within one business day following the client's fulfilment of its delivery obligation to the firm.
(2) If the payment or delivery by the firm to the client has not occurred by the close of business on the third business day following the date on which the firm makes use of the exemption under (1), the firm must stop using that exemption for the transaction.
CASS 7.11.15
01/06/2015
FCA
The exclusion from the client money rules for delivery versus payment transactions under CASS 7.11.14 R is an example of an exclusion from the client money rules which is permissible by virtue of recital 26 of MiFID.
CASS 7.11.16
01/06/2015
FCA
A firm cannot, in respect of a particular delivery versus payment transaction, make use of the exemption under CASS 7.11.14 R in either or both of the following circumstances:
(1) it is not a direct member or participant of the relevant commercial settlement system, nor is it sponsored by such a member or participant, in accordance with the terms and conditions of that commercial settlement system;
(2) the transaction in question is being settled by another person on behalf of the firm through an account held at the relevant commercial settlement system by that other person.
CASS 7.11.17
01/06/2015
FCA
Where a firm does not meet the requirements in CASS 7.11.14 R or CASS 7.11.16 R for the use of the exemption in CASS 7.11.14 R , the firm is subject to the client money rules in respect of any money it holds in connection with the delivery versus payment transaction in question.
CASS 7.11.18
01/06/2015
FCA
(1) In line with CASS 7.11.14 R, where a firm receives money from the client in fulfilment of the client's payment obligation in respect of a delivery versus payment transaction the firm is carrying out through a commercial settlement system in respect of a client's purchase, and the firm has not fulfilled its delivery obligation to the client by close of business on the third business day following the date of the client's fulfilment of its payment obligation to the firm, the firm must treat the client money in accordance with the client money rules until delivery by the firm to the client occurs.
(2) Upon settlement of a delivery versus payment transaction a firm is carrying out through a commercial settlement system (including when it is settled within the three business day period referred to in CASS 7.11.14R (2)) then, in respect of:
(a) a client's purchase, the custody rules apply to the relevant safe custody asset the firm receives upon settlement; and
(b) a client's sale, the client money rules will apply to the relevant money received on settlement.
CASS 7.11.19
01/06/2015
FCA
A firm will not be in breach of the requirement under CASS 7.13.6 R to receive client money directly into a client bank account if it:
(1) receives the money in question:
(a) in accordance with CASS 7.11.14R (1)(a) but it is subsequently required under CASS 7.11.14R (2) to hold that money in accordance with the client money rules; or
(b) in the circumstances referred to in CASS 7.11.18G (2)(b); and
(2) pays the money in question into a client bank account promptly, and in any event by close of business on the business day following:
(a) the expiration of the relevant period referred to in CASS 7.11.14R (2); or
(b) receipt of the money in the circumstances referred to in CASS 7.11.18G (2)(b).
CASS 7.11.20
01/06/2015
FCA
(1) If a firm makes use of the exemption under CASS 7.11.14 R, it must obtain the client's written agreement to the firm's use of the exemption.
(2) In respect of each client, the record created in (1) must be retained during the time that the firm makes use, or intends to make use, of the exemption under CASS 7.11.14 R in respect of that client's monies.
CASS 7.11.21
01/06/2015
FCA
(1) Subject to (2)(a), money need not be treated as client money:
(a) in respect of a delivery versus payment transaction for the purpose of settling a transaction in relation to units in a regulated collective investment scheme in either of the following circumstances:
(i) the authorised fund manager receives the money from a client in relation to the authorised fund manage'rs obligation to issue units, in an AUT or ACS, or to arrange for the issue of units in an ICVC, in accordance with COLL; or
(ii) the money is held in the course of redeeming units where the proceeds of that redemption are paid to a client within the time specified in COLL.
(2) 
(a) Where, in respect of money received in any of the circumstances set out in (1), the authorised fund manager has not, by close of business on the business day following the date of receipt of the money, paid this money to the depositary of an AUT or ACS, the ICVC or to the client as the case may be, the authorised fund manager must stop using the exemption under (1) for that transaction.
(b) Paragraph (2)(a) does not prevent a firm transferring client money segregated under (2)(a) into the firm's own account, provided this is done only for the purpose of making a payment on the same day from that account in accordance with CASS 7.11.34R (1) to CASS 7.11.34R (3) (Discharge of fiduciary duty).
CASS 7.11.22
01/06/2015
FCA
An authorised fund manager will not be in breach of the requirement under CASS 7.13.6R to receive client money directly into a client bank account if it received the money in accordance with CASS 7.11.21R (1) and is subsequently required under CASS 7.11.21R (2) to hold that money in accordance with the client money rules.
CASS 7.11.23
01/06/2015
FCA
Where proceeds of redemption paid to the client in accordance with CASS 7.11.21R (1)(a)(ii) are paid by cheque, the cheque should be issued from the relevant client bank account.
CASS 7.11.24
01/06/2015
FCA
(1) If a firm makes use of the exemption under CASS 7.11.21 R, it must obtain the client's written agreement to the firm's use of the exemption.
(2) In respect of each client, the record created in (1) must be retained for the duration of the time that the firm makes use of the exemption under CASS 7.11.21 R in respect of that client's money.

Money due and payable to the firm

CASS 7.11.25
01/06/2015
FCA
(1) Money is not client money when it becomes properly due and payable to the firm for its own account.
(2) For these purposes, if a firm makes a payment to, or on the instructions of, a client, from an account other than a client bank account, until that payment has cleared, no equivalent sum from a client bank account for reimbursement will become due and payable to the firm.
CASS 7.11.26
01/06/2015
FCA
Money will not become properly due and payable to the firm merely through the firm holding that money for a specified period of time. If a firm wishes to cease to hold client money for a client it must comply with CASS 7.11.34 R (Discharge of fiduciary duty) or, if the balance is allocated but unclaimed client money, CASS 7.11.50 R (Allocated but unclaimed client money) or CASS 7.13.57 R (De minimis amounts of unclaimed client money).
CASS 7.11.27
01/06/2015
FCA
Money held as client money becomes due and payable to the firm or for the firm's own account, for example, because the firm acted as principal in the contract or the firm, acting as agent, has itself paid for securities in advance of receiving the purchase money from its client. The circumstances in which it is due and payable will depend on the contractual arrangement between the firm and the client.
CASS 7.11.28
01/06/2015
FCA
Firms are reminded that, notwithstanding that money may be due and payable to them, they have a continuing obligation to segregate client money in accordance with the client money rules. In particular, in accordance with CASS 7.15.2 R, firms must ensure the accuracy of their records and accounts and are reminded of the requirement to carry out internal client money reconciliations either in accordance with the standard methods of internal client money reconciliation or the requirements for a non-standard method of internal client money reconciliation.
CASS 7.11.29
01/06/2015
FCA
When a client's obligation or liability, which is secured by that client's asset, crystallises, and the firm realises the asset in accordance with an agreement entered into between the client and the firm, the part of the proceeds of the asset to cover such liability that is due and payable to the firm is not client money. However, any proceeds of sale in excess of the amount owed by the client to the firm should be paid over to the client immediately or be held in accordance with the client money rules.

Commission rebate

CASS 7.11.30
01/06/2015
FCA
When a firm has entered into an arrangement under which commission is rebated to a client, those rebates need not be treated as client money until they become due and payable to the client in accordance with the terms of the contractual arrangements between the parties.
CASS 7.11.31
01/06/2015
FCA
When commission rebate becomes due and payable to the client, the firm should:
(1) treat it as client money; or
(2) pay it out in accordance with the rule regarding the discharge of a firm's fiduciary duty to the client (see CASS 7.11.34 R);
unless the firm and the client have entered into an arrangement under which the client has agreed to transfer full ownership of this money to the firm as collateral against payment of future professional fees (see CASS 7.11 (Title transfer collateral arrangements)).

Interest

CASS 7.11.32
01/06/2015
FCA
A firm must pay a retail client any interest earned on client money held for that client unless it has otherwise notified him in writing.
CASS 7.11.33
01/06/2015
FCA
(1) The firm may, under the terms of its agreement with the client, pay some, none, or all interest earned to the relevant client.
(2) Where interest is payable on client money by a firm to clients:
(a) such sums are client money and so, if not paid to, or to the order of the clients, are required to be segregated in accordance with CASS 7.13 (Segregation of client money);
(b) the interest should be paid to clients in accordance with the firm's agreement with each client; and
(c) if the firm's agreement with the client is silent as to when interest should be paid to the client the firm should follow CASS 7.13.36 R (Allocation of client money receipts);
irrespective of whether the client is a retail client or otherwise.

Discharge of fiduciary duty

CASS 7.11.34
01/06/2015
FCA
Money ceases to be client money (having regard to CASS 7.11.40 R where applicable) if:
(1) it is paid to the client, or a duly authorised representative of the client; or
(2) it is:
(a) paid to a third party on the instruction of, or with the specific consent of, the client unless it is transferred to a third party in the course of effecting a transaction under CASS 7.14.2 R (Transfer of client money to a third party); or
(b) paid to a third party pursuant to an obligation on the firm where:
(i) that obligation arises under an enactment; and
(ii) the obligation under that enactment is applicable to the firm as a result of the nature of the business being undertaken by the firm for its client; or
(c) transferred in accordance with CASS 7.11.42 R; or
(d) transferred in accordance with CASS 7.11.44 R; or
(3) subject to CASS 7.11.38 R, it is paid into a bank account of the client (not being an account which is also in the name of the firm); or
(4) it is due and payable to the firm in accordance with CASS 7.11.25 R (Money due and payable to the firm); or
(5) it is paid to the firm as an excess in the client bank account (see CASS 7.15.29R (2) (Reconciliation discrepancies)); or
(6) it is paid by an authorised central counterparty to a clearing member other than the firm in connection with a porting arrangement in accordance with CASS 7.11.35 R; or
(7) it is paid by an authorised central counterparty directly to the client in accordance with CASS 7.11.36 R; or
(8) it is transferred by the firm to a clearing member in connection with a regulated clearing arrangement and the clearing member remits payment to another firm or to another clearing member in accordance with CASS 7.11.37R (1); or
(9) it is transferred by the firm to a clearing member in connection with a regulated clearing arrangement and the clearing member remits payment directly to the indirect clients of the firm in accordance with CASS 7.11.37R (2); or
(10) it is paid to charity under CASS 7.11.50 R or CASS 7.11.57 R.
CASS 7.11.35
01/06/2015
FCA
Client money which the firm places at an authorised central counterparty in connection with a regulated clearing arrangement ceases to be client money for that firm if, as part of the default management process of that authorised central counterparty in respect of a default by the firm, it is ported by the authorised central counterparty in accordance with article 48 of EMIR.
CASS 7.11.36
01/06/2015
FCA
Client money which the firm places at an authorised central counterparty in connection with a regulated clearing arrangement ceases to be client money if, as part of the default management process of that authorised central counterparty in respect of a default by the firm, it is paid directly to the client by the authorised central counterparty in accordance with the procedure described in article 48(7) of EMIR.
CASS 7.11.37
01/06/2015
FCA
Client money received or held by the firm and transferred to a clearing member who facilitates indirect clearing through a regulated clearing arrangement ceases to be client money for that firm and, if applicable, the clearing member, if the clearing member:
(1) remits payment to another firm or to another clearing member in accordance with default management procedures adopted by the clearing member which comply with the requirements of article 4(4) of the EMIR L2 Regulation; or
(2) remits payment to the indirect clients of the firm in accordance with default management procedures adopted by the clearing member which comply with the requirements of articles 4(4) and 4(5) of the EMIR L2 Regulation.
CASS 7.11.38
01/06/2015
FCA
Client money received or held by the firm for a sub-pool ceases to be client money for that firm to the extent that such client money is transferred by the firm to an authorised central counterparty or a clearing member as a result of porting.
CASS 7.11.39
01/06/2015
FCA
A firm must not pay client money into a bank account of the client that has been opened without the consent of that client.
CASS 7.11.40
01/06/2015
FCA
When a firm draws a cheque or other payable order to discharge its fiduciary duty to the client, it must continue to treat the sum concerned as client money until the cheque or order is presented and paid by the bank.

Transfer of business

CASS 7.11.41
01/06/2015
FCA
A firm may transfer client money to a third party as part of transferring all or part of its business if, in respect of each client with an interest in the client money that is sought to be transferred, it:
(1) obtains the consent or instruction of that client at the time of the transfer of business (see CASS 7.11.34R (2)(a); or
(2) complies with CASS 7.11.42 R (see CASS 7.11.34R (2)(c); or
(3) complies withCASS 7.11.44 R (see CASS 7.11.34R (2)(d)).
CASS 7.11.42
01/06/2015
FCA
Subject to CASS 7.11.44 R, money ceases to be client money for a firm if:
(1) it is transferred by the firm to another person as part of a transfer of business to that person where the client money relates to the business being transferred;
(2) it is transferred on terms which require the other person to return a client's transferred sums to the client as soon as practicable at the client's request;
(3) a written agreement between the firm and the relevant client provides that:
(a) the firm may transfer the client's client money to another person; and
(b) 
(i) the sums transferred will be held by the person to whom they are transferred in accordance with the client money rules for the clients; or
(ii) if not held in accordance with (i), the firm will exercise all due skill, care and diligence in assessing whether the person to whom the client money is transferred will apply adequate measures to protect these sums; and
(4) the firm complies with the requirements in (3)(b)(ii) (if applicable).
CASS 7.11.43
01/06/2015
FCA
In considering how and whether to introduce the written agreement referred to in CASS 7.11.42R (3), firms should have regard to any relevant obligations to clients, including requirements underthe Unfair Terms Regulations.

Transfer of business: de minimis sums

CASS 7.11.44
01/06/2015
FCA
(1) Client money belonging to those categories of clients set out in (2) and in respect of those amounts set out in (2) ceases to be client money of the firm if it is transferred by the firm to another person:
(a) as part of a transfer of business to that other person where these sums relate to the business being transferred; and
(b) on terms which require the other person to return a client's transferred sums as soon as practicable at the client's request.
(2) 
(a) For retail clients the amount is £25.
(b) For all other clients the amount is £100.
CASS 7.11.45
01/06/2015
FCA
For the avoidance of doubt, sums transferred under CASS 7.11.44 R do not, for the purposes of that rule, require the instruction or specific consent of each client at the time of the transfer or a written agreement as set out in CASS 7.11.42R (3).

Transfer of business: client notifications

CASS 7.11.46
01/06/2015
FCA
Where a firm transfers client money belonging to its clients under either or both of CASS 7.11.42 R and CASS 7.11.44 R it must ensure that those clients are notified no later than seven days after the transfer taking place:
(1) whether or not the sums will be held by the person to whom they have been transferred in accordance with the client money rules and if not how the sums being transferred will be held by that person;
(2) the extent to which the sums transferred will be protected under a compensation scheme; and
(3) that the client may opt to have the client's transferred sum returned to it as soon as practicable at the client's request.
CASS 7.11.47
01/06/2015
FCA
The firm must notify the FCA of its intention to effect any transfer of client money under either or both of CASS 7.11.42 R and CASS 7.11.44 R at least seven days before it transfers the client money in question.

Allocated but unclaimed client money

CASS 7.11.48
01/06/2015
FCA
The purpose of CASS 7.11.50 R is to set out the requirements firms must comply with in order to cease to treat as client money any unclaimed balance which is allocated to an individual client.
CASS 7.11.49
01/06/2015
FCA
Before acting in accordance with CASS 7.11.50 R to CASS 7.11.58 G, a firm should consider whether its actions are permitted by law and consistent with the arrangements under which the client money is held. For the avoidance of doubt, these provisions relate to a firm's obligations as an authorised person and to the treatment of client money under the client money rules.
CASS 7.11.50
01/06/2015
FCA
A firm may pay away to a registered charity of its choice a client money balance which is allocated to a client and if it does so the released balance will cease to be client money under CASS 7.11.34R (10), provided:
(1) this is permitted by law and consistent with the arrangements under which the client money is held;
(2) the firm held the balance concerned for at least six years following the last movement on the client's account (disregarding any payment or receipt of interest, charges or similar items);
(3) it can demonstrate that it has taken reasonable steps to trace the client concerned and to return the balance; and
(4) the firm complies with CASS 7.11.54 R.
CASS 7.11.51
01/06/2015
FCA
Where the client money balance held by a firm is, in aggregate, £100 or less for a client other than a retail client or, for a retail client, £25 or less, the firm may comply with CASS 7.11.57 R instead of CASS 7.11.50 R.
CASS 7.11.52
01/06/2015
FCA
(1) Taking reasonable steps in CASS 7.11.50R (3) includes following this course of conduct:
(a) determining, as far as reasonably possible, the correct contact details for the relevant client;
(b) writing to the client at the last known address either by post or by electronic mail to inform it of the firm's intention to no longer treat the client money balance as client money and to pay the sums concerned to charity if the firm does not receive instructions from the client within 28 days;
(c) where the client has not responded after the 28 days referred to in (b), attempting to communicate the information set out in (b) to the client on at least one further occasion by any means other than that used in (b) including by post, electronic mail, telephone or media advertisement;
(d) subject to (e) and (f), where the client has not responded within 28 days following the most recent communication, writing again to the client at the last known address either by post or by electronic mail to inform them that:
(i) as the firm did not receive a claim for the relevant client money balance, it will in 28 days pay the balance to a registered charity; and
(ii) an undertaking will be provided by the firm or a member of its group to pay to the client concerned a sum equal to the balance paid away to charity in the event of the client seeking to claim the balance in future;
(e) if the firm has carried out the steps in (b) or (c) and in response has received positive confirmation in writing that the client is no longer at a particular address, the firm should not use that address for the purposes of (d);
(f) if, after carrying out the steps in (a), (b) and (c), the firm has obtained positive confirmation that none of the contact details it holds for the relevant client are accurate or, if utilised, the communication is unlikely to reach the client, the firm does not have to comply with (d); and
(g) waiting a further 28 days following the most recent communication under this rule before paying the balance to a registered charity.
(2) Compliance with (1) may be relied on as tending to establish compliance with CASS 7.11.50 R.
(3) Contravention of (1) may be relied on as tending to establish contravention of CASS 7.11.50 R.
CASS 7.11.53
01/06/2015
FCA
For the purpose of CASS 7.11.52E (1)(a), a firm may use any available means to determine the correct contact details for the relevant client, including telephoning the client, searching internal records, media advertising, searching public records, mortality screening, using credit reference agencies or tracing agents.
CASS 7.11.54
01/06/2015
FCA
(1) Where a firm wishes to release a balance allocated to an individual client under CASS 7.11.50 R it must comply with either (a) or (b) and, in either case, (2):
(a) the firm must unconditionally undertake to pay to the client concerned a sum equal to the balance paid away to charity in the event of the client seeking to claim the balance in future;
or
(b) the firm must ensure that an unconditional undertaking in the terms set out in (a) is made by a member of its group and there is suitable information available for relevant clients to identify the member of the group granting the undertaking.
(2) The undertakings in this rule must be:
(a) authorised by the firm's governing body where (1)(a) applies or by the governing body of the group member where (1)(b) applies;
(b) legally enforceable by any person who had a legally enforceable claim to the balance in question at the time it was released by the firm, or by an assign or successor in title to such claim; and
(c) retained by the firm, and where (1)(b) applies, by the group member indefinitely.
CASS 7.11.55
01/06/2015
FCA
(1) If a firm pays away client money under CASS 7.11.50R (4) it must make and retain, or where the firm already has such records, retain:
(a) records of all balances released from client bank accounts under CASS 7.11.50 R (including details of the amounts and the identity of the client to whom the money was allocated);
(b) all relevant documentation (including charity receipts); and
(c) details of the communications the firm had or attempted to make with the client concerned pursuant to CASS 7.11.50R (3).
(2) The records in (1) must be retained indefinitely.
(3) If a member of the firm's group has provided an undertaking under CASS 7.11.54R (2) then the records in (1) must be readily accessible to that group member.

De minimis amounts of unclaimed client money

CASS 7.11.56
01/06/2015
FCA
The purpose of CASS 7.11.57 R is to allow a firm to pay away to charity client money balances of (i) £25 or less for retail clients or (ii) £100 or less for other clients when those balances remain unclaimed. If a firm follows this process, the money will cease to be client money (see CASS 7.11.34R (10).
CASS 7.11.57
01/06/2015
FCA
A firm may pay away to a registered charity of its choice a client money balance which is allocated to a client and if it does so the released balance will cease to be client money under CASS 7.11.34R (10):
(1) the balance in question is (i) for a retail client, in aggregate, £25 or less, or (ii) for a professional client, in aggregate, £100 or less;
(2) the firm held the balance concerned for at least six years following the last movement on the client's account (disregarding any payment or receipt of interest, charges or similar items);
(3) the firm has made at least one attempt to contact the client to return the balance using the most up-to-date contact details the firm has for the client, and the client has not responded to such communication within 28 days of the communication having been made; and
(4) the firm makes and/or retains records of all balances released from client bank accounts in according with this rule. Such records must include the information in CASS 7.11.55R (1)(a) and CASS 7.11.55R (1)(b).

Costs associated with paying away allocated but unclaimed client money

CASS 7.11.58
01/06/2015
FCA
Any costs associated with the firm ceasing to treat unclaimed client money balances as client money pursuant to CASS 7.11.50 R to CASS 7.11.57 R should be paid for from the firm's own funds, including:
(1) any costs associated with the firm carrying out the steps in CASS 7.11.50R (3), CASS 7.11.51 G or CASS 7.11.57R (3); and
(2) the cost of any insurance purchased by a firm or the relevant member of its group to cover any legally enforceable claim in respect of the client money paid away.

CASS 7.12 Organisational requirements: client money

Requirement to protect client money

CASS 7.12.1
01/06/2015
FCA
A firm must, when holding client money, make adequate arrangements to safeguard the client's rights and prevent the use of client money for its own account.

[Note: article 13(8) of MiFID]

Requirement to have adequate organisational arrangements

CASS 7.12.2
01/06/2015
FCA
A firm must introduce adequate organisational arrangements to minimise the risk of the loss or diminution of client money, or of rights in connection with client money, as a result of misuse of client money, fraud, poor administration, inadequate record-keeping or negligence.

[Note: article 16(1)(f) of the MiFID implementing Directive]
CASS 7.12.3
01/06/2015
FCA
The risk of loss or diminution of rights in connection with client money can arise where a firm's organisational arrangements give rise to the possibility that client money held by the firm may be paid for the account of a client whose money is yet to be received by the firm. Consistent with the requirement to hold client money as trustee (see CASS 7.17.5 G), a firm should ensure its organisational arrangements are adequate to minimise such a risk. This may include, for example, allowing for sufficient periods of time for payments of client money to the firm to become available for use (including automated payments, credit card payments and payments by cheque), and setting up safeguards to ensure that payments out of client bank accounts do not take effect before the relevant amount of client money has become available for use by the firm.

CASS 7.13 Segregation of client money

Application and purpose

CASS 7.13.1
01/06/2015
FCA
The segregation of client money from a firm's own money is an important safeguard for its protection.
CASS 7.13.2
01/06/2015
FCA
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 7.13.3
01/06/2015
FCA
A firm, on receiving any client money, must promptly place this money into one or more accounts opened with any of the following:
(1) a central bank;
(2) a CRD credit institution;
(3) a bank authorised in a third country;
(4) a qualifying money market fund.


[Note: article 18(1) of the MiFID implementing Directive]
CASS 7.13.4
01/06/2015
FCA
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 7.13.5
01/06/2015
FCA
The two approaches that a firm can adopt in discharging its obligations under this section are:
(1) the 'normal approach'; or
(2) the 'alternative approach' (see CASS 7.13.54 G to CASS 7.13.69 G).

The normal approach

CASS 7.13.6
01/06/2015
FCA
Unless otherwise permitted by any other rule in this chapter, 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 7.13.3R (1) to CASS 7.13.3R (3), rather than being first received into the firm's own account and then segregated.
CASS 7.13.7
01/06/2015
FCA
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 7.13.8
01/06/2015
FCA
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 7.13.9
01/06/2015
FCA
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 7.13.10
01/06/2015
FCA
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) the expertise and market reputation of the third party; and
(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 7.13.11
01/06/2015
FCA
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) the capital of the CRD credit institution or bank;
(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) 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) the credit-worthiness of the CRD credit institution or bank; and
(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 7.13.12
01/06/2015
FCA
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 7.13.13
01/06/2015
FCA
(1) An account which the firm uses to deposit client money under CASS 7.13.3R (1) to CASS 7.13.3R (3) must be a client bank account.
(2) Each client bank account used by a firm must be held on terms under which:
(a) the relevant bank's contractual counterparty is the firm that is subject to the requirement under CASS 7.13.3 R; and
(b) unless the firm has agreed terms that comply with CASS 7.13.3R (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) 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) 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 7.13.14
01/06/2015
FCA
CASS 7.13.13R (2)(b) and CASS 7.13.13R (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 7.13.15
01/06/2015
FCA
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 7.13.16
01/06/2015
FCA
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 7.13.17
01/06/2015
FCA
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 7.13.13R (2) and CASS 7.13.13R (3) apply for each type of client bank account.
CASS 7.13.18
01/06/2015
FCA
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 7.13.19
01/06/2015
FCA
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 7.13.20
01/06/2015
FCA
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 7.13.21
01/06/2015
FCA
For the purpose of CASS 7.13.20 R an entity is a relevant group entity if it is:
(1) a CRD credit institution or a bank authorised in a third country; and
(2) a member of the same group as that firm.
CASS 7.13.22
01/06/2015
FCA
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) 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) 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 7.13.23
01/06/2015
FCA
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) whether it would be appropriate to deposit client money in client bank accounts opened at a number of different third parties;
(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) whether risks arising from the firm's business models create any need for diversification (or further diversification);
(4) the market conditions at the time of the assessment; and
(5) the outcome of any due diligence carried out in accordance with CASS 7.13.8 R and CASS 7.13.10 R.
CASS 7.13.24
01/06/2015
FCA
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 7.13.25
01/06/2015
FCA
(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) 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) 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 7.13.26
01/06/2015
FCA
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 7.13.27
01/06/2015
FCA
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 7.13.28
01/06/2015
FCA
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 7.13.29
01/06/2015
FCA
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) money held for that client will be held in a qualifying money market fund; and
(2) as a result, the money will not be held in accordance with the client money rules; and
(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 7.13.30
01/06/2015
FCA
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 7.13.31
01/06/2015
FCA
Except in the circumstances described in CASS 7.13.72R (1)(a), where a firm using the normal approach receives a mixed remittance it should:
(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) 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 7.13.32
01/06/2015
FCA
Where a firm receives client money in the form of cash, a cheque or other payable order, it must:
(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:
(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
(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) 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) 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 7.13.33
01/06/2015
FCA
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) 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) in the meantime, hold it in a secure location in accordance with Principle 10; and
(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 7.13.34
01/06/2015
FCA
A firm must ensure that client money received by its appointed representatives, tied agents, field representatives or other agents is:
(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) if it is received in the form of a cheque or other payable order:
(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
(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 7.13.35
01/06/2015
FCA
Under CASS 7.13.34R (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 7.13.34R (2)(b).

Allocation of client money receipts

CASS 7.13.36
01/06/2015
FCA
(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) 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 7.13.37
01/06/2015
FCA
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) take all necessary steps to identify the money as either client money or its own money;
(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 7.13.38
01/06/2015
FCA
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 (for example, the banking institution).

Money due to a client from a firm

CASS 7.13.39
01/06/2015
FCA
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) to, or to the order of, the client; or
(2) into a client bank account.
CASS 7.13.40
01/06/2015
FCA
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 7.13.41
01/06/2015
FCA
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 7.13.42
01/06/2015
FCA
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 7.13.43
01/06/2015
FCA
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) 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) 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) the method that the firm will use to calculate the amount required to address each risk set out in the policy.
CASS 7.13.44
01/06/2015
FCA
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 7.13.45
01/06/2015
FCA
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 7.13.46
01/06/2015
FCA
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 7.13.47
01/06/2015
FCA
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 7.13.48
01/06/2015
FCA
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 7.13.49
01/06/2015
FCA
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 7.13.50
01/06/2015
FCA
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 7.13.51
01/06/2015
FCA
The prudent segregation record must record:
(1) the outcome of the firm's calculation of its prudent segregation;
(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) why each payment or withdrawal is made;
(4) in respect of the firm's written policy required by CASS 7.13.43 R the firm must record, as applicable, either:
(a) that the payment or withdrawal is made in accordance with that policy; or
(b) that the policy will be created or amended to include the reasons for this payment or withdrawal;
(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) the up-to-date total amount of client money held pursuant to CASS 7.13.41 R.
CASS 7.13.52
01/06/2015
FCA
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 7.13.53
01/06/2015
FCA
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 7.13.54
01/06/2015
FCA
(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) 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 7.15.16R (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) The alternative approach mandatory prudent segregation required under CASS 7.13.65 R is designed to address the risks that:
(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
(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 7.13.55
01/06/2015
FCA
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) adopting the normal approach would lead to greater operational risks to client money protection compared to the alternative approach;
(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) 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 7.13.56
01/06/2015
FCA
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 7.13.57
01/06/2015
FCA
At least three months before adopting the alternative approach for a particular business line, a firm must:
(1) inform the FCA in writing that it intends to adopt the alternative approach for that particular business line; and
(2) if requested by the FCA, make any documents it created under CASS 7.13.55 R available to the FCA for inspection.
CASS 7.13.58
01/06/2015
FCA
(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) The written report in (1) must state whether, in the auditor's opinion:
(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
(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 7.13.59
01/06/2015
FCA
(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) 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 7.13.60
01/06/2015
FCA
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) an auditor of the firm has prepared a report that complies with the requirements in CASS 7.13.58R (2)(b) in respect of the firm's proposed changes; and
(2) the firm provides a copy of the report prepared by the auditor under (a) to the FCA before implementing the change.
CASS 7.13.61
01/06/2015
FCA
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 7.13.62
01/06/2015
FCA
A firm that uses the alternative approach for a particular business line must, on each business day ('T0'):
(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) perform the necessary reconciliations of records and accounts required under CASS 7.15 (Records, accounts and reconciliations);
(3) adjust the balances held inits 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) 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 7.13.63
01/06/2015
FCA
During the period between the adjustment in CASS 7.13.62R (3) and the completion of the next reconciliations in CASS 7.13.62R (2), a firm that uses the alternative approach for a particular business line may:
(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 7.13.62R (2) (that is expected sometime later on T0) only if:
(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
(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) 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 7.13.62R (2) (that is expected sometime later on T0) only if:
(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
(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 7.13.64
01/06/2015
FCA
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 7.13.65
01/06/2015
FCA
(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) 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:
(a) client money that is received and held by the firm in its own bank account during the period between:
(i) the firm's adjustment of client bank account balances under CASS 7.13.62R (3) on a particular business day; and
(ii) the firm's subsequent adjustments under CASS 7.13.62R (3) on the following business day; and
(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) 
(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:
(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);
(ii) the daily adjustment payments that the firm made into its client bank account under CASS 7.13.62R (3) during that prior period; and
(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.
(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:
(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;
(ii) the daily adjustment payments that the firm is likely to make into its client bank account under CASS 7.13.62R (3) in that same period; and
(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.
(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) 
(a) A firm must, at regular intervals that are at least quarterly, repeat and complete the combined process of:
(i) determining the amount that it is required to segregate for the purposes of alternative approach mandatory prudent segregation under (2) and (3);
(ii) making necessary adjustments to its records to reflect any changes to its client money requirement (in accordance with CASS 7.16.16R (3) and CASS 7.16.17R (2)); and
(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).
(b) The combined process of (a)(i) to (iii) must take no longer than ten business days.
(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) 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 7.13.66
01/06/2015
FCA
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) paid into a client bank account and retained as client money; or
(2) withdrawn from a client bank account;
can be easily ascertained (the alternative approach mandatory prudent segregation record).
CASS 7.13.67
01/06/2015
FCA
The alternative approach mandatory prudent segregation record under CASS 7.13.66 R must record:
(1) the date of the first determination under CASS 7.13.65R (2) and each subsequent review undertaken under CASS 7.13.65R (4), and the total amount that the firm determined was required to be segregated under CASS 7.13.65R (2) as at that date;
(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:
(a) the amount of the payment or withdrawal;
(b) the fact that the money was paid or withdrawn by the firm in accordance with CASS 7.13.65 R; and
(c) as at that date, the total amount actually segregated by the firm under CASS 7.13.65 R.
CASS 7.13.68
01/06/2015
FCA
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 7.13.69
01/06/2015
FCA
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 7.13.70
01/06/2015
FCA
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) client money into its own bank account.
CASS 7.13.71
01/06/2015
FCA
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 7.13.72
01/06/2015
FCA
(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:
(a) receive mixed remittances from the authorised central counterparty into a single bank account and pay mixed remittances to the authorised central counterparty from that bank account; or
(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, as applicable, with (2) and CASS 7.13.73 R.
(2) 
(a) In either or both of the circumstances described in (1):
(i) the firm must pay any mixed remittances to the authorised central counterparty from its own bank account; and
(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.
(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).
(b) Where, in the circumstances described in (1)(a) a mixed remittance or a remittance that consists only of client money from an authorised central counterparty is received into a firm's own account, the firm must transfer any client money element of the remittance to its client bank account promptly and, in any event, no later than the next business day after receipt.
CASS 7.13.73
01/06/2015
FCA
(1) Where the circumstances described in CASS 7.13.72R (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) 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 7.13.72R (1)(a) and until their transfer in accordance with CASS 7.13.72R (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) 
(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:
(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
(ii) the payments that the firm made into its client bank account under CASS 7.13.72R (2)(b) during that prior period;
as shown in its internal records.
(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:
(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
(ii) the payments that the firm is likely to make into its client bank account under CASS 7.13.72R (2)(b).
(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) 
(a) A firm must, at regular intervals that are at least quarterly, repeat and complete the combined process of:
(i) determining the amount that it is required to segregate for the purposes of clearing arrangement mandatory prudent segregation under (2) and (3);
(ii) making necessary adjustments to its records to reflect any changes to its client money requirement in accordance with CASS 7.16.16R (3) and CASS 7.16.17R (1); and
(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).
(b) The combined process of (a)(i) to (iii) must take no longer than ten business days.
(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) 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 7.13.74
01/06/2015
FCA
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) paid into a client bank account and retained as client money; or
(2) withdrawn from a client bank account;
can be easily ascertained (the clearing arrangement mandatory prudent segregation record).
CASS 7.13.75
01/06/2015
FCA
The clearing arrangement mandatory prudent segregation record under CASS 7.13.74 R must record:
(1) the date of the first determination under CASS 7.13.73R (2) and each subsequent review undertaken under CASS 7.13.73R (4), and the total amount that the firm determined was required to be segregated under CASS 7.13.73R (2) as at that date;
(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 7.13.73R (4)(a)(iii), and for each such occasion:
(a) the amount of the payment or withdrawal;
(b) the fact that the money was paid or withdrawn by the firm in accordance with CASS 7.13.73 R; and
(c) as at that date, the total amount actually segregated by the firm under CASS 7.13.73 R.
CASS 7.13.76
01/06/2015
FCA
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 7.13.77
01/06/2015
FCA
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 7.13.78
01/06/2015
FCA
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 7.13.79
01/06/2015
FCA
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.

CASS 7.14 Client money held by a third party

CASS 7.14.1
01/06/2015
FCA
This section sets out the requirements a firm must comply with when it allows another person to hold client money, other than under CASS 7.13.3 R, without discharging its fiduciary duty to that client. Such circumstances arise when, for example, a firm passes client money to a clearing house in the form of margin for the firm's obligations to the clearing house that are referable to transactions undertaken by the firm for the relevant clients. They may also arise when a firm passes client money to an intermediate broker for contingent liability investments in the form of initial or variation margin on behalf of a client. In these circumstances, the firm remains responsible for that client equity balance held at the intermediate broker until the contract is terminated and all of that client's positions at that broker closed. Similarly, this section applies where a firm allows a broker to hold client money in respect of the firm's client's non-margined transactions, again without the firm discharging its fiduciary duty to that client. In all cases, if a firm wishes to discharge itself from its fiduciary duty, it should do so in accordance with the rule regarding the discharge of a firm's fiduciary duty to the client (CASS 7.11.34 R).
CASS 7.14.2
01/06/2015
FCA
A firm may allow another person, such as an exchange, a clearing house or an intermediate broker, to hold client money, but only if:
(1) the firm allows that person to hold the client money:
(a) for the purpose of one or more transactions for a client through or with that person; or
(b) to meet a client's obligation to provide collateral for a transaction (for example, an initial margin requirement for a contingent liability investment); and
(2) in the case of a retail client, that client has been notified that the firm may allow the other person to hold its client money.
CASS 7.14.3
01/06/2015
FCA
Client money that a firm allows another person to hold under CASS 7.14.2 R:
(1) should only be held for transactions which are likely to occur (and for which the other person needs to receive client money) or have recently settled (and such that the other person has received client money); and
(2) should be recorded in client transaction accounts by that other person.
CASS 7.14.4
01/06/2015
FCA
Apart from client money held by a firm in an individual client account or an omnibus client account at an authorised central counterparty, a firm should not hold excess client money in its client transaction accounts.

Client money arising from, or in connection with, safe custody assets

CASS 7.14.5
01/06/2015
FCA
(1) Money arising from, or in connection with, the holding of a safe custody assets by a firm which is due to clients should, unless treated otherwise under the client money rules, be treated as client money by the firm.
(2) Firms are reminded of the guidance in CASS 6.1.2 G.
CASS 7.14.6
01/06/2015
FCA
If a firm has deposited safe custody assets with a third party under CASS 6.3 and client money arises from, or in connection with, those safe custody assets then the firm must ensure that the third party either deposits the money in a client bank account of the firm or records it in a client transaction account for the benefit of the firm clients as appropriate.
CASS 7.14.7
01/06/2015
FCA
Firms are reminded of the guidance in CASS 7.14.4 G which is applicable to client transaction accounts.
CASS 7.14.8
01/06/2015
FCA
If the third party holding the safe custody assets under CASS 7.14.6 R is a bank with which the firm is permitted to deposit client money under CASS 7.13.3 R, then the client bank account referred to in CASS 7.14.6 R may be an account with that bank.
CASS 7.14.9
01/06/2015
FCA
Firms are reminded of the requirements under CASS 7.18 for acknowledgement letters, which must be complied with before using client bank accounts and client transaction accounts.

CASS 7.15 Records, accounts and reconciliations

CASS 7.15.1
01/06/2015
FCA
(1) This section sets out the requirements a firm must meet when keeping records and accounts of the client money it holds.
(2) Where a firm establishes one or more sub-pools, the provisions of CASS 7.15 (Records, accounts and reconciliations) 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 7.19.4 R.
CASS 7.15.2
01/06/2015
FCA
A firm must keep such records and accounts as are necessary to enable it, at any time and without delay, to distinguish client money held for one client from client money held for any other client, and from its own money.
 
[Note: article 16(1)(a) of the MiFID implementing Directive]
CASS 7.15.3
01/06/2015
FCA
A firm must maintain its records and accounts in a way that ensures their accuracy, and in particular their correspondence to the client money held for clients.
 
[Note: article 16(1)(b) of the MiFID implementing Directive]
CASS 7.15.4
01/06/2015
FCA
The requirements in CASS 7.15.2 R to CASS 7.15.3 R are for a firm to keep internal records and accounts of client money. Therefore, any records falling under those requirements should be maintained by the firm and should be separate to any records the firm may have obtained from any third parties, such as those with or through whom it may have deposited, or otherwise allowed to hold, client money.

Record keeping

CASS 7.15.5
01/06/2015
FCA
(1) A firm must maintain records so that it is able to promptly determine the total amount of client money it should be holding for each of its clients.
(2) A firm must ensure that its records are sufficient to show and explain its transactions and commitments for its client money.
(3) Unless otherwise stated, a firm must ensure that any record made under the this chapter is retained for a period of five years starting from the later of:
(a) the date it was created; and
(b) (if it has been modified since the date it was created), the date it was most recently modified.
CASS 7.15.6
01/06/2015
FCA
Unless required sooner under another rule in this chapter, in complying with CASS 7.15.5R (1) a firm should ensure it is able to determine the total amount of client money it should be holding for each client within two business days of having taken a decision to do so or at the request of the FCA.
CASS 7.15.7
01/06/2015
FCA
For each internal client money reconciliation and external client money reconciliation the firm conducts, it must ensure that it records:
(1) the date it carried out the relevant process;
(2) the actions the firm took in carrying out the relevant process; and
(3) the outcome of its calculation of its client money requirement and client money resource.

Policies and procedures

CASS 7.15.8
01/06/2015
FCA
Firms are reminded that they must, under SYSC 6.1.1 R, establish, implement and maintain adequate policies and procedures sufficient to ensure compliance of the firm with the rules under this chapter. This should include, for example, establishing and maintaining policies and procedures concerning:
(1) the frequency and method of the reconciliations the firm is required to carry out under this section;
(2) the resolution of reconciliation discrepancies under this section; and
(3) the frequency at which the firm is required to review its arrangements in compliance with this chapter.

Receipts of client money

CASS 7.15.9
01/06/2015
FCA
A firm must maintain appropriate records that account for all receipts of client money in the form of cash, cheque or other payable order that are not yet deposited in a client bank account (see CASS 7.13.32 R and CASS 7.13.33 R).
CASS 7.15.10
01/06/2015
FCA
Firms following one of the standard methods of internal client money reconciliation in CASS 7.16 are also reminded that they must, as part of their internal client money reconciliation, take into account all receipts of client money in the form of cash, cheque or other payable order that are not yet deposited in a client bank account (see CASS 7.13.32 R and CASS 7.13.33 R).

Payments made to discharge fiduciary duty

CASS 7.15.11
01/06/2015
FCA
If a firm draws a cheque, or other payable order, to discharge its fiduciary duty to its clients (see CASS 7.11.40 R), it must continue to record its obligation to its clients until the cheque, or other payable order, is presented and paid by the bank.

Internal client money reconciliations

CASS 7.15.12
01/06/2015
FCA
An internal client money reconciliation requires a firm to carry out a reconciliation of its internal records and accounts of the amount of client money that the firm holds for each client with its internal records and accounts of the client money the firm should hold in client bank accounts or has placed in client transaction accounts.
CASS 7.15.13
01/06/2015
FCA
In carrying out an internal client money reconciliation, a firm must use the values contained in its internal records and ledgers (for example, its cash book or other internal accounting records) rather than the values contained in the records it has obtained from banks and other third parties with whom it has placed client money (for example, bank statements).
CASS 7.15.14
01/06/2015
FCA
An internal client money reconciliation should:
(1) be one of the steps a firm takes to arrange adequate protection for clients' assets when the firm is responsible for them (see Principle 10 (Clients' assets), as it relates to client money);
(2) be one of the steps a firm takes to satisfy its obligations under CASS 7.12.2 R and CASS 7.15.3 R and, where relevant, SYSC 4.1.1R (1) and SYSC 6.1.1 R, to ensure the accuracy of the firm's records and accounts;
(3) for the normal approach to segregating client money (CASS 7.13.6 R), check whether the amount of client money recorded in the firm's records as being segregated in client bank accounts meets the firm's obligations to its clients under the client money rules on a daily basis; and
(4) for the alternative approach to segregating client money (CASS 7.13.62 R), calculate the amount of client money to be segregated in client bank accounts which meets the firm's obligations to its clients under the client money rules on a daily basis.
CASS 7.15.15
01/06/2015
FCA
(1) A firm must perform an internal client money reconciliation:
(a) each business day; and
(b) based on the records of the firm as at the close of business on the previous business day.
(2) When performing an internal client money reconciliation, a firm must, subject to (3), follow one of the standard methods of internal client money reconciliation in CASS 7.16.
(3) A firm proposing to follow a non-standard method of internal client money reconciliation must comply with the requirements in CASS 7.15.17 R to CASS 7.15.19 G.
CASS 7.15.16
01/06/2015
FCA
(1) A firm which has adopted the normal approach to segregating client money (see CASS 7.13.6 R) must use the internal client money reconciliation to check whether its client money resource, as at the close of business on the previous business day, was equal to its client money requirement at the close of business on that previous day.
(2) A firm that adopts the alternative approach to segregating client money (see CASS 7.13.54 G) must use the internal client money reconciliation to ensure that its client money resource as at the close of business on any day it carries out an internal client money reconciliation is equal to its client money requirement at the close of business on the previous day.

Non-standard method of internal client money reconciliation

CASS 7.15.17
01/06/2015
FCA
A non-standard method of internal client money reconciliation is a method of internal client money reconciliation which does not meet the requirements in CASS 7.16 (The standard methods of internal client money reconciliation).
CASS 7.15.18
01/06/2015
FCA
(1) Before using a non-standard method of internal client money reconciliation, a firm must:
(a) establish and document in writing its reasons for concluding that the method of internal client money reconciliation it proposes to use will:
(i) (for the normal approach to segregating client money) check whether the amount of client money recorded in the firm's records as being segregated in client bank accounts meets the firm's obligation to its clients under the client money rules on a daily basis; or
(ii) (for the alternative approach to segregating client money) calculate the amount of client money to be segregated in client bank accounts which meets the firm's obligations to its clients under the client money rules on a daily basis;
(b) notify the FCA of its intentions to use a non-standard method of internal client money reconciliation; and
(c) send a written report to the FCA prepared by an independent auditor of the firm in line with a reasonable assurance engagement and stating the matters set out in (2).
(2) The written report in (1)(c) must state whether in the auditor's opinion:
(a) the method of internal client money reconciliation which the firm will use is suitably designed to enable it to (as applicable):
(i) (for the normal approach to segregating client money) check whether the amount of client money recorded in the firm's records as being segregated in client bank accounts meets the firm's obligation to its clients under the client money rules on a daily basis; or
(ii) (for the alternative approach to segregating client money) calculate the amount of client money to be segregated in client bank accounts which meets the firm's obligations to its clients under the client money rules on a daily basis; and
(b) the firm's systems and controls are suitably designed to enable it to carry out the method of internal client money reconciliation the firm will use.
(3) A firm using a non-standard method of internal client money reconciliation must not materially change its method of undertaking internal client money reconciliations unless:
(a) the firm has established and documented in writing it reasons for concluding that the changed methodology will meet the requirements in (1)(a)(i) and (ii), as applicable;
(b) an auditor of the firm has prepared a report that complies with the requirements in (1)(c) and (2) in respect of the firm's proposed changes; and
(c) the firm provides a copy of the report prepared by the auditor under (2) to the FCA before implementing the change .
CASS 7.15.19
01/06/2015
FCA
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.

External client money reconciliations

CASS 7.15.20
01/06/2015
FCA
A firm must conduct, on a regular basis, reconciliations between its internal records and accounts and those of any third parties which hold client money.

[Note: article 16(1)(c) of the MiFID implementing Directive]
CASS 7.15.21
01/06/2015
FCA
The purpose of an external client money reconciliation is to ensure the accuracy of a firm's internal records and accounts against those of any third parties by whom client money is held.

Frequency of external client money reconciliations

CASS 7.15.22
01/06/2015
FCA
A firm must perform an external client money reconciliation:
(1) as regularly as is necessary but without allowing more than one month to pass between each external client money reconciliation; and
(2) as soon as reasonably practicable after the date to which the external client money reconciliation relates.
CASS 7.15.23
01/06/2015
FCA
When determining the frequency at which it will undertake external client money reconciliations, a firm must have regard to:
(1) the frequency, number and value of transactions which the firm undertakes in respect of client money; and
(2) the risks to which the client money is exposed, such as the nature, volume and complexity of the firm's business and where and with whom client money is held.
CASS 7.15.24
01/06/2015
FCA
(1) A firm must make and retain records sufficient to show and explain any decision it has taken under CASS 7.15.23 R when determining the frequency of its external client money reconciliation. Subject to (2), any such records must be retained indefinitely.
(2) If any decision under CASS 7.15.23 R is superseded by a subsequent decision under that rule then the record of that earlier decision retained in accordance with (1) need only be retained for a further period of five years from the subsequent decision.
CASS 7.15.25
01/06/2015
FCA
In most circumstances, firms which undertake transactions on a daily basis should conduct an external client money reconciliation each business day.
CASS 7.15.26
01/06/2015
FCA
(1) Subject to (3), a firm must review the frequency it conducts its external client money reconciliations at least annually to ensure that it continues to comply with CASS 7.15.22 R and has given due consideration to the matters in CASS 7.15.23 R.
(2) For each review a firm undertakes under (1), it must record the date and the actions it took in reviewing the frequency of its external client money reconciliations.
(3) A firm need not carry out a review under (1) if it is conducting external client money reconciliations each business day.

Method of external client money reconciliations

CASS 7.15.27
01/06/2015
FCA
An external client money reconciliation requires a firm to:
(1) compare:
(a) the balance, currency by currency, on each client bank account recorded by the firm, as set out in the most recent statement or other form of confirmation issued by the bank with which those accounts are held; and
(b) the balance, currency by currency, on each client transaction account as recorded by the firm, as set out in the most recent statement or other form of confirmation issued by the person with whom the account is held; and
(2) promptly identify and resolve any discrepancies between those balances under CASS 7.15.31 R and CASS 7.15.32 R.
CASS 7.15.28
01/06/2015
FCA
A firm must ensure it includes the following items within its external client money reconciliation:
(1) any client's approved collateral a firm holds which secures an individual negative client equity balance (see CASS 7.16.32 R); and
(2) any of its own approved collateral a firm holds which is used to meet the total margin transaction requirement in CASS 7.16.33 R.

Reconciliation discrepancies

CASS 7.15.29
01/06/2015
FCA
When a discrepancy arises between a firm's client money resource and its client money requirement identified by a firm's internal client money reconciliations, the firm must determine the reason for the discrepancy and ensure that:
(1) any shortfall is paid into a client bank account by the close of business on the day that the reconciliation is performed; or
(2) any excess is withdrawn from a client bank account within the same time period.
CASS 7.15.30
01/06/2015
FCA
Where the discrepancy identified under CASS 7.15.29 R has arisen as a result of a breach of the client money segregation requirements, the firm should ensure it takes sufficient steps to avoid a reoccurrence of that breach (see Principle 10 (Clients' assets), as it relates to client money, CASS 7.15.3 R and, where relevant, SYSC 4.1.1R (1) and SYSC 6.1.1 R).
CASS 7.15.31
01/06/2015
FCA
If any discrepancy is identified by an external client money reconciliation, the firm must investigate the reason for the discrepancy and take all reasonable steps to resolve it without undue delay, unless the discrepancy arises solely as a result of timing differences between the accounting systems of the party providing the statement or confirmation and that of the firm.
CASS 7.15.32
01/06/2015
FCA
While a firm is unable to immediately resolve a discrepancy identified by an external client money reconciliation, and one record or set of records examined by the firm during its external client money reconciliation indicates that there is a need to have a greater amount of client money or, if appropriate, approved collateral than is the case, the firm must assume, until the matter is finally resolved, that that record or set of records is accurate and pay its own money into a relevant account.

Notification requirements

CASS 7.15.33
01/06/2015
FCA
A firm must inform the FCA in writing without delay if:
(1) its internal records and accounts of client money are materially out of date, inaccurate or invalid so that the firm is no longer able to comply with the requirements in CASS 7.15.2 R, CASS 7.15.3 R or CASS 7.15.5R (1);
(2) it will be unable to, or materially fails to, pay any shortfall into a client bank account or withdraw any excess from a client bank account so that the firm is unable to comply with CASS 7.15.29 R after having carried out an internal client money reconciliation;
(3) it will be unable to, or materially fails to, identify and resolve any discrepancies under CASS 7.15.31 R to CASS 7.15.32 R after having carried out an external client money reconciliation;
(4) it will be unable to, or materially fails to, conduct an internal client money reconciliation in compliance with CASS 7.15.12 R and CASS 7.15.15 R;
(5) it will be unable to, or materially fails to, conduct an external client money reconciliation in compliance with CASS 7.15.20 R to CASS 7.15.28 R; and
(6) it becomes aware that, at any time in the preceding 12 months, the amount of client money segregated in its client bank accounts materially differed from the total aggregate amount of client money the firm was required to segregate in client bank accounts under the client money segregation requirements.

Annual audit of compliance with the client money rules

CASS 7.15.34
01/06/2015
FCA
Firms are reminded that the auditor of the firm has to confirm in the report submitted to the FCA under SUP 3.10 (Duties of auditors: notification and report on client assets) that the firm has maintained systems adequate to enable it to comply with the client money rules.

CASS 7.16 The standard methods of internal client money reconciliation

CASS 7.16.1
01/06/2015
FCA
(1) Firms are required to carry out an internal client money reconciliation each business day (CASS 7.15.12 R and CASS 7.15.15 R). This section sets out methods of reconciliation that are appropriate for these purposes (the standard methods of internal client money reconciliation).
(2) Where a firm establishes one or more sub-pools, the provisions of CASS 7.16 (The standard methods of internal client money reconciliation) shall be read as applying to the firm's general pool and each sub-pool individually, in line with CASS 7.19.3 R and CASS 7.19.4 R.
CASS 7.16.2
01/06/2015
FCA
(1) A non-standard method of internal client money reconciliation is a method of internal client money reconciliation which does not meet the requirements of this section.
(2) Where a firm uses a non-standard method of internal client money reconciliation it is reminded that it must comply with the requirements in CASS 7.15.18 R.
CASS 7.16.3
01/06/2015
FCA
Regardless of whether a firm is following one of the standard methods of internal client money reconciliation or a non-standard method of internal client money reconciliation, it is reminded that it must maintain its records so that it is able to promptly calculate the total amount of client money it should be holding for each client (see CASS 7.15.15R (1)).
CASS 7.16.4
01/06/2015
FCA
Firms are reminded that the internal client money reconciliation should achieve the purposes set out in CASS 7.15.14 G.
CASS 7.16.5
01/06/2015
FCA
(1) A firm that adopts the normal approach to segregating client money (CASS 7.13.6 R) will be using the methods in this section to check whether it has correctly segregated client money in its client bank accounts.
(2) A firm that adopts the alternative approach to segregating client money (CASS 7.13.54 G) will be using the methods in this section to calculate how much money it needs to withdraw from, or place in, client bank accounts as a result of any discrepancy arising between its client money requirement and its client money resource at the close of business on the previous business day.
CASS 7.16.6
01/06/2015
FCA
Unless otherwise stated, firms are reminded that they are required to receive all client money receipts directly into a client bank account (see CASS 7.13.6 R).
CASS 7.16.7
01/06/2015
FCA
A firm that receives client money in the form of cash, a cheque or other payable order is reminded that it must pay that money (eg, into a client bank account) no later than on the business day after it receives the money (see CASS 7.13.32 R). Once deposited into a client bank account, that receipt of client money should form part of the firm's client money resource (see CASS 7.16.8 R). In calculating its client money requirement, a firm will need to take into account any client money received as cash, cheques or payment orders but not yet deposited into a client bank account (see CASS 7.16.25R (3) and CASS 7.16.26 G).

Client money resource

CASS 7.16.8
01/06/2015
FCA
The client money resource is the aggregate balance on the firm's client bank accounts.
CASS 7.16.9
01/06/2015
FCA
(1) A firm should ensure that the amount it reflects in its internal client money reconciliation as its client money resource is equal to the aggregate balance on its client bank accounts. For example, if:
(a) a firm holds client money received as cash, cheques or payment orders but not yet deposited in a client bank account (in accordance with CASS 7.13.32 R); and
(b) that firm records all receipts from clients, whether or not yet deposited with a bank, in its cashbook (see CASS 7.16.26G (1)(a));
its client money resource should not include the cash, cheques or payment orders received but not yet deposited in a client bank account.
(2) The guidance in (1) is consistent with a firm's obligations to maintain its internal records in an accurate way, particularly their correspondence to the client money held for clients.

Client money requirement

CASS 7.16.10
01/06/2015
FCA
Subject to CASS 7.16.12 R, the client money requirement must be calculated by one, but not both, of the following of two methods:
(1) the individual client balance method (CASS 7.16.16 R); or
(2) the net negative add-back method (CASS 7.16.17 R).
CASS 7.16.11
01/06/2015
FCA
The net negative add-back method may only be used, under this section, by a CASS 7 asset management firm or a CASS 7 loan-based crowdfunding firm and only if such firms do not undertake any margined transactions for, or on behalf of, their clients.
CASS 7.16.12
01/06/2015
FCA
A CASS 7 loan-based crowdfunding firm must not use the individual client balance method under this section.
CASS 7.16.13
01/06/2015
FCA
(1) The client money requirement should represent the total amount of client money a firm is required to have segregated in client bank accounts under the client money rules.
(2) CASS 7.16.11 R does not prevent a firm from adopting a net negative add-back method as part of a non-standard method of internal client money reconciliation.
(3) CASS 7.16.12 R does not prevent a CASS loan-based crowdfunding firm from adopting the individual client balance method as part of a non-standard method of internal client money reconciliation.
(4) If a firm uses the individual client balance method in respect of some of its business lines and the net negative add-back method in respect of others it will be conducting a non-standard method of internal client money reconciliation.
CASS 7.16.14
01/06/2015
FCA
(1) The individual client balance method (CASS 7.16.16 R) may be applied by any firm except a CASS 7 loan-based crowdfunding firm. This method requires a firm to calculate the total amount of client money it should be segregating in client bank accounts by reference to how much the firm should be holding in total (ie, across all its client bank accounts and businesses) for each of its individual clients for:
(a) non-margined transactions (CASS 7.16.16R (1) and CASS 7.16.21 R);
(b) margined transactions (CASS 7.16.16R (2) and CASS 7.16.32 R); and
(c) certain other matters (CASS 7.16.16R (3) and CASS 7.16.25 R).
(2) 
(a) CASS 7.16.22 E is an evidential provision which sets out a method firms should use for calculating how much they should be holding in total for each individual client for non-margined transactions.
(b) The calculation in CASS 7.16.22 E permits a firm to calculate either one individual client balance across all its products and business lines for each client or a number of individual client balances for each client equal to the number of products or business lines operated by the firm in connection with that client (see CASS 7.16.22E (1)).
(c) The calculation referred to in (2)(b) may also be applied by different types of firms and, as a result, each firm will need to apply the calculation in way which recognises the business model under which that firm operates.
CASS 7.16.15
01/06/2015
FCA
The net negative add-back method (CASS 7.16.17 R) is available to CASS 7 asset management firms and CASS 7 loan-based crowdfunding firms, many of whom may operate internal ledger systems on a bank account by bank account, not client-by-client, basis. This method allows a firm to calculate the total amount of client money it is required to have segregated in client bank accounts by reference to:
(1) the balances in each client bank account (see CASS 7.16.17R (1) and CASS 7.16.18G (2));
(2) whether any individual client's net position in a specific client bank account is negative (see CASS 7.16.17R (2) and CASS 7.16.18G (2)); and
(3) certain other matters (see CASS 7.16.17R (2) and CASS 7.16.25 R).

Client money requirement calculation: individual client balance method

CASS 7.16.16
01/06/2015
FCA
Subject to CASS 7.16.25 R and CASS 7.16.37 R, under this method the client money requirement must be calculated by taking the sum of, for all clients and across all products and accounts:
(1) the individual client balances calculated under CASS 7.16.21 R, excluding:
(a) individual client balances which are negative (ie, debtors); and
(b) clients' equity balances;
(2) the total margined transaction requirement (calculated under CASS 7.16.32 R); and
(3) any amounts that have been segregated as client money according to the firm's records under any of the following: CASS 7.13.51R (1) (prudent segregation record), CASS 7.13.66 R (alternative approach mandatory prudent segregation record) and/or CASS 7.13.74 R (clearing arrangement mandatory prudent segregation record).

Client money requirement calculation: net negative add-back method

CASS 7.16.17
01/06/2015
FCA
Subject to CASS 7.16.25 R, under this method the client money requirement must be calculated by taking the sum of, for each client bank account:
(1) the amount which the firm's internal records show as held on that account; and
(2) an amount that offsets each negative net amount which the firm's internal records show attributed to that account for an individual client.
CASS 7.16.18
01/06/2015
FCA
(1) A firm which utilises the net negative add-back method is reminded that it must do so in a way which allows it to maintain its records so that, at any time, the firm is able to promptly determine the total amount of client money it should be holding for each client (see CASS 7.15.5R (1)).
(2) For the purposes of CASS 7.16.17 R, a firm should be able to readily use the figures previously recorded in its internal records and ledgers (for example, its cashbook or other internal accounting records) as at the close of business on the previous business day without undertaking any additional steps to determine the balances in the firm's client bank accounts.
CASS 7.16.19
01/06/2015
FCA
(1) A firm which utilises the net negative add-back method may calculate its client money requirement and client money resource on a bank account by bank account basis;
(2) For the purposes of CASS 7.16.17 R, a firm should take into account any amounts that have been segregated as client money according to the firm's records under either or both CASS 7.13.50 R (prudent segregation record) and CASS 7.13.66 R (alternative approach mandatory prudent segregation record).

Non-margined transactions (eg, securities): individual client balance

CASS 7.16.20
01/06/2015
FCA
The sum of positive individual client balances for each client should represent the total amount of all money the firm holds, has received or is obligated to have received or be holding as client money in a client bank account for that client for non-margined transactions.
CASS 7.16.21
01/06/2015
FCA
A firm must calculate a client's individual client balances in a way which captures the total amount of all money the firm should be holding as client money in a client bank account for that client for non-margined transactions under the client money rules.
CASS 7.16.22
01/06/2015
FCA
(1) A firm may calculate either:
(a) one individual client balance for each client, based on the total of the firm's holdings for that client; or
(b) a number of individual client balances for each client, equal to the number of products or business lines the firm operates for that client and each balance based on the total of the firm's holdings for that client in respect of the particular product or business line.
(2) Each individual client balance for a client should be calculated in accordance with this table:
Individual client balance calculation 
 Free money (sums held for a client free of sale or purchase (eg, see (3)(a)) andA
 sale proceeds due to the client: 
 (a)for principal deals when the client has delivered the designated investments; andB
 (b)for agency deals, when: 
  (i)the sale proceeds have been received by the firm and the client has delivered the designated investments; orC1
  (ii)the firm holds the designated investments for the client; andC2
 the cost of purchases: 
 (c)for principal deals, paid for by the client when the firm has not delivered the designated investments to the client; andD
 (d)for agency deals, paid for by the client when: 
  (i)the firm has not remitted the money to, or to the order of, the counterparty; orE1
  (ii)the designated investments have been received by the firm but have not been delivered to the client; E2
Less 
 money owed by the client for unpaid purchases by, or for, the client if delivery of those designated investments has been made to the client; and F
 proceeds remitted to the client for sales transactions by, or for, the client if the client has not delivered the designated investments.G
Individual client balance 'X' = (A+B+C1+C2+D+E1+E2)-F-GX

(3) When calculating an individual client balance for each client, a firm should also:
(a) ensure it includes:
(i) client money consisting of dividends received and interest earned and allocated (see CASS 7.11.32 R);
(ii) client money consisting of dividends (actual or payments in lieu), stock lending fees and other payments received and allocated (see CASS 6.1.2 G);
(iii) money the firm appropriates and segregates as client money to cover an unresolved shortfall in safe custody assets it identifies in its internal records which is attributable to an individual client (see CASS 6.6.54R (2)); and
(iv) money the firm segregates as client money instead of an individual client's safe custody asset until such time as the relevant delivery versus payment transaction settles under CASS 6.1.12R (2); and
(b) deduct any amounts due and payable by the client to the firm (see CASS 7.11.25 R).
(4) Compliance with (1), (2) and (3) may be relied on as tending to establish compliance with CASS 7.16.21 R.
CASS 7.16.23
01/06/2015
FCA
A firm must calculate an individual client balance using the contract value of any client purchases or sales, being the value to which the client would be contractual entitled to receive or contractually obligated to pay.
CASS 7.16.24
01/06/2015
FCA
If a firm calculates each individual client balance on a product-by-product or business line-by-business line basis under CASS 7.16.22E (1)(b), the result should be that the firm does not net client positions across all products and accounts.

Other requirements for calculating the client money requirement

CASS 7.16.25
01/06/2015
FCA
When calculating the client money requirement under either of the methods in CASS 7.16.10 R, a firm must:
(1) include any unallocated client money (see CASS 7.13.36 R) and unidentified receipts of money it considers prudent to segregate as client money (see CASS 7.13.37 R);
(2) include any money the firm appropriates and holds as client money to cover an unresolved shortfall in safe custody assets identified in its internal records which is not attributable, or cannot be attributed to, an individual client (see CASS 6.6.49 R, CASS 6.6.50 R and CASS 6.6.54 R);
(3) take into account any client money received as cash, cheques or payment orders but not yet deposited into a client bank account under CASS 7.13.32 R (see also CASS 7.15.9 R);
(4) if it has drawn any cheques or other payable orders, to discharge its fiduciary duty to its clients and continue to treat the sum concerned as forming part of its client money requirement until the cheque or order is presented and paid by the bank (see CASS 7.11.40 R); and
(5) ensure it has taken into account all client money the firm should be holding in connection with clients' non-margined transactions.
CASS 7.16.26
01/06/2015
FCA
(1) Under CASS 7.16.25R (3), where a firm holds client money received as cash, cheques or payment orders but not yet deposited in a client bank account under CASS 7.13.32 R, it may:
(a) include these balances when calculating its client money requirement (eg, where the firm records all receipts from clients, whether or not yet deposited with a bank, in its cashbook); or
(b) exclude these balances when calculating its client money requirement (eg, where the firm only records client receipts to its cashbook once deposited with a bank).
(2) In line with (1)(a), the firm will need to ensure that, before finalising the calculation of its client money requirement within this section, it deducts these balances, to ensure that they do not give rise to a discrepancy between the firm's client money requirement and client money resource (see CASS 7.15.29 R).
(3) In line with (1)(b), although the balances concerned do not form part of the firm's client money requirement, the firm must continue to account for all receipts of client money as cash, cheques or payment orders but not yet deposited in a client bank account in its records and accounts (see CASS 7.13.32 R and CASS 7.15.9 R).
CASS 7.16.27
01/06/2015
FCA
(1) In accordance with CASS 7.16.25R (5), where a firm has allowed another person to hold client money in connection with a client's non-margined transaction (eg, in a client transaction account under CASS 7.14 (Client money held by a third party)), the firm should include these balances when calculating its client money requirement.
(2) If a firm is utilising the individual client balance method (CASS 7.16.16 R) to calculate its client money requirement, CASS 7.16.21 R requires the firm to include the sums its holds for each client that are placed with another person in connection with a client's non-margined transaction when calculating a client's individual client balance (eg, see CASS 7.16.22 E and items C1 and E2).
(3) Under (1) and (2), the firm will need to ensure that, before finalising the calculation of its client money requirement within this section, it deducts positive balances held for clients adding back negative balances attributable to clients' non-margined transactions in client transaction accounts, to ensure that they do not give rise to a discrepancy between the firm's client money requirement and client money resource (see CASS 7.15.29 R).
(4) Under (1), (2) and (3), in determining the balances of client money a firm has allowed another person to hold in connection with a client's non-margined transaction or the balances held for clients' non-margined transactions in client transaction accounts, a firm should use the values contained in its internal records and ledgers (see CASS 7.15.13 R).

Margined transactions (eg, derivatives): equity balances

CASS 7.16.28
01/06/2015
FCA
Subject to CASS 7.16.30 R, a client's equity balance is the amount which the firm would be liable to pay to the client (or the client to the firm) under the client money rules for margined transactions if each of the open positions were liquidated at the closing or settlement prices published by the relevant exchange or other appropriate pricing source and the account with the firm were closed. This notional balance should include any unrealised losses or profits associated with that client's open positions, and any margin the firm has received from the client in connection with those positions.
CASS 7.16.29
01/06/2015
FCA
Subject to CASS 7.16.30 R, a firm's equity balance is the amount which the firm would be liable to pay to the exchange, clearing house, intermediate broker or OTC counterparty (or vice-versa) for the firm's margined transactions if each of the open positions of those of the firm's clients that are entitled to protection under the client money rules were liquidated at the closing or settlement prices published by the relevant exchange or other appropriate pricing source and the firm's client transaction accounts with that exchange, clearing house, intermediate broker or OTC counterparty were closed. This notional balance should include any unrealised losses or profits associated with the open positions the firm holds for clients and any margin the firm holds for clients in the relevant client transaction accounts.
CASS 7.16.30
01/06/2015
FCA
The terms 'client's equity balance' and 'firm's equity balance' refer to cash values and do not include non-cash collateral or other designated investments (including approved collateral) the firm holds for a margined transaction.

Margined transactions (eg, derivatives): margined transaction requirement

CASS 7.16.31
01/06/2015
FCA
The margined transaction requirement should represent the total amount of client money a firm is required under the client money rules to segregate in client bank accounts for margined transactions. The calculation in CASS 7.16.33 R is designed to ensure that an amount of client money is held in client bank accounts which equals at least the difference between the equity the firm holds at exchanges, clearing houses, intermediate brokers and OTC counterparties for margined transactions for clients entitled to protection under the client money rules, and the amount due to clients under the client money rules for those same margined transactions. With this calculation, a firm's margined transaction requirement should represent, if positions were unwound, the firm's gross liabilities to clients entitled to protection under the client money rules for margined transactions.
CASS 7.16.32
01/06/2015
FCA
The total margined transaction requirement is:
(1) the sum of each of the client's equity balances which are positive; less
(2) the proportion of any individual negative client equity balance which is secured by client approved collateral; and
(3) the net aggregate of the firm's equity balance (negative balances being deducted from positive balances) on client transaction accounts for customers with exchanges, clearing houses, intermediate brokers and OTC counterparties.
CASS 7.16.33
01/06/2015
FCA
(1) To meet the total margin transaction requirement, a firm may appropriate and use its own approved collateral, provided it meets the requirements in (2).
(2) The firm must hold the approved collateral in a way which ensures that, in accordance with CASS 7A.2.3A R, the approved collateral will be liquidated on the occurrence of a primary pooling event and the proceeds paid into a client bank account, and in so doing:
(a) ensure the approved collateral is clearly identifiable as separate from the firm's own property and is recorded by the firm in its records as being held for its clients;
(b) keep a record of the actions the firm has taken under this rule which includes a description of the terms on which the firm holds the approved collateral, identifies that the approved collateral is held for the benefit of its clients and specifies the approved collateral that the firm has appropriated for the purposes of this rule; and
(c) update the record made under (b) whenever the firm ceases to appropriate and use approved collateral under this rule.
CASS 7.16.34
01/06/2015
FCA
Where CASS 7.16.33 R applies, the firm will be reducing the requirement arising from CASS 7.16.16R (2) and, as such, simultaneously reducing its overall client money requirement (ie, the amount of money the firm is required to segregate in client bank accounts).
CASS 7.16.35
01/06/2015
FCA
If a firm's total margined transaction requirement is negative, the firm must treat it as zero for the purposes of calculating its client money requirement.

LME bond arrangements

CASS 7.16.36
01/06/2015
FCA
A firm with a Part 30 exemption order which also operates an LME bond arrangement for the benefit of US-resident investors must exclude the client equity balances for transactions undertaken on the LME on behalf of those US-resident investors from the calculation of the margined transaction requirement, to the extent those transactions are provided for by an LME bond arrangement (see CASS 12.2.3 G).

Reduced client money requirement option

CASS 7.16.37
01/06/2015
FCA
Where appropriate, a firm may:
(1) when, in respect of a client, there is a positive individual client balance and a negative client equity balance, offset the credit against the debit and, therefore, have a reduced individual client balance in CASS 7.16.21 R for that client; and
(2) when, in respect of a client, there is a negative individual client balance and a positive client equity balance, offset the credit against the debit and, therefore, have a reduced client equity balance (CASS 7.16.28 R) for that client.
CASS 7.16.38
01/06/2015
FCA
The effect of CASS 7.16.37 R is to allow a firm to offset, on a client-by-client basis, a negative amount with a positive amount arising out of the calculations in CASS 7.16.21 R and CASS 7.16.28 R and, therefore, reduce its overall client money requirement.

CASS 7.17 Statutory trust

CASS 7.17.1
01/06/2015
FCA
Section 137B(1) of the Act (Miscellaneous ancillary matters) provides that rules may make provision which result in client money being held by a firm on trust (England and Wales and Northern Ireland) or as agent (Scotland only). This section creates a fiduciary relationship between the firm and its client under which client money is in the legal ownership of the firm but remains in the beneficial ownership of the client. In the event of failure of the firm, costs relating to the distribution of client money may have to be borne by the trust.

Requirement

CASS 7.17.2
01/06/2015
FCA
Subject to CASS 7.17.3 R in respect of a trustee firm, a firm receives and holds client money as trustee on the following terms:
(1) for the purposes of, and on the terms of, the client money rules and the client money distribution rules;
(2) 
(a) where a firm maintains only a general pool of client money, subject to (4), for the clients (other than clients which are insurance undertakings when acting as such with respect to client money received in the course of insurance mediation activity and that was opted in to this chapter) for whom that money is held, according to their respective interests in it;
(b) where a firm has established one or more pools of client money, subject to (4):
(i) the general pool is held for all the clients of the firm for whom the firm receives or holds client money (other than clients which are insurance undertakings when acting in regard to client money received during insurance mediation activity and that was opted in to this chapter) according to their respective interests; and
(ii) each sub-pool is for the clients of the firm who are identified as beneficiaries of the sub-pool in question, in accordance with CASS 7.19.6R (2), according to their respective interests in it;
(3) after all valid claims in (2) have been met, for clients which are insurance undertakings with respect of client money received in the course of insurance mediation activity according to their respective interests in it;
(4) for the payment of the costs properly attributable to the distribution of the client money in (2) if such distribution takes place following the failure of the firm; and
(5) after all valid claims and costs under (2) to (4) have been met, for the firm itself.
CASS 7.17.3
01/06/2015
FCA
A trustee firm which is subject to the client money rules by virtue of CASS 7.10.1R (2) receives and holds client money as trustee on the terms in CASS 7.17.2 R, subject to its obligations to hold client money as trustee under the relevant instrument of trust.
CASS 7.17.4
01/06/2015
FCA
If a trustee firm holds client money, the firm should follow the provisions in CASS 7.10.33 R to CASS 7.10.40 G.
CASS 7.17.5
01/06/2015
FCA
The statutory trust under CASS 7.17.2 R does not permit a firm, in its capacity as trustee, to use client money to advance credit to the firm's clients, itself, or any other person. For example, if a firm wishes to undertake a transaction for a client in advance of receiving client money from that client to fund that transaction, it should not advance credit to that client or itself using other clients' client money (ie, it should not 'pre-fund' the transaction using other clients' client money).

CASS 7.18 Acknowledgment letters

Purpose

CASS 7.18.1
01/06/2015
FCA
The main purposes of an acknowledgement letter are:
(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) 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) 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 7.18.2
01/06/2015
FCA
(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) 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 7.18.3
01/06/2015
FCA
(1) This rule does not apply to a firm to which CASS 7.18.4R (1) applies.
(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) 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 7.18.4
01/06/2015
FCA
(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) A firm which has complied with CASS 7.18.4R (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 7.18.5
01/06/2015
FCA
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 7.18.6
01/06/2015
FCA
When completing an acknowledgment letter under CASS 7.18.2R (1), CASS 7.18.3R (1) or CASS 7.18.4R (1), a firm:
(1) must not amend any of the acknowledgement letter fixed text;
(2) subject to (3), must ensure the acknowledgement letter variable text is removed, included or amended as appropriate; and
(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 7.18.7
01/06/2015
FCA
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 7.18.8
01/06/2015
FCA
(1) If, on countersigning and returning the acknowledgement letter to a firm, the relevant person has also:
(a) made amendments to any of the acknowledgement letter fixed text; or
(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 7.18.2R (2) or CASS 7.18.3R (3) (as applicable).
(2) For the purposes of CASS 7.18.2R (2) or CASS 7.18.3R (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 7.18.9
01/06/2015
FCA
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 7.18.10
01/06/2015
FCA
(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) A firm must retain a copy of each authorised central counterparty acknowledgment letter it sends to an authorised central counterparty under CASS 7.18.4R (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 7.18.11
01/06/2015
FCA
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 7.18.12
01/06/2015
FCA
(1) This rule applies to:
(a) any countersigned client bank account acknowledgement letter or client transaction account acknowledgement letter received by a firm under CASS 7.18.2R (2) or CASS 7.18.3R (3) respectively; and
(b) any authorised central counterparty acknowledgement letter sent by a firm under CASS 7.18.4R (1), whether or not it has been countersigned by the relevant authorised central counterparty and received by the firm.
(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) 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 7.18.13
01/06/2015
FCA
Under CASS 7.18.12 R, a firm should draw up and send out a replacement acknowledgement letter whenever:
(1) there has been a change in any of the parties' names or addresses as set out in the letter; or
(2) the firm becomes aware of an error or misspelling in the drafting of the letter.
CASS 7.18.14
01/06/2015
FCA
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 7.18.15
01/06/2015
FCA
If a firm opens a client bank account after a primary pooling event, the firm must:
(1) promptly draw up and send out a new acknowledgement letter under CASS 7.18.2 R;
(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) 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.

CASS 7.19 Clearing member client money sub-pools

CASS 7.19.1
01/07/2014
FCA
(1) Under CASS 7.7.2R (2), a firm acts as trustee for all client money received or held by it for the benefit of the clients for whom that client money is held, according to their respective interests in it.
(2) A firm that is also a clearing member of an authorised central counterparty may wish to segregate client money specifically for the benefit of a group of clients who have chosen to clear positions through a net margined omnibus client account maintained by the firm with that authorised central counterparty, where that segregation might facilitate the porting of client positions recorded in that net margined omnibus client account. To segregate client money (that would otherwise be held in the general pool) for a specific group of clients clearing positions through a particular net margined omnibus client account, a clearing member firm may, in accordance with these rules, create a sub-pool of client money.
(3) Upon the occurrence of a primary pooling event, the client money for:
(a) the general pool, should be distributed in accordance with CASS 7A to the clients for whom the firm receives or holds client money in that general pool; and
(b) a sub-pool, should either be:
(i) transferred to facilitate porting; or
(ii) distributed to the clients who are beneficiaries of that sub-pool, according to their respective interests under CASS 7A.2.4R (2)(a).
(4) All client money is received or held by the firm as trustee for the clients of the firm. However, a clearing member of an authorised central counterparty who clears client positions through a net margined omnibus client account may organise its affairs (with the consent of the relevant clients) in such a way that those clients need not share in the general pool of client money following a primary pooling event, save to the extent that such clients otherwise have an interest in the general pool.
CASS 7.19.2
01/07/2014
FCA
Where a firm creates a sub-pool for a particular net margined omnibus client account, it must not clear positions through that omnibus client account for clients who are not beneficiaries of that sub-pool.

Internal controls

CASS 7.19.3
01/07/2014
FCA
A firm wishing to establish a sub-pool must establish and maintain adequate internal controls necessary to comply with the firm's obligations under CASS 7 for the general pool and each sub-pool that it may establish.

Records

CASS 7.19.4
01/06/2015
FCA
Where a firm establishes one or more sub-pools, CASS 7.15 (Records, accounts and reconciliations) shall be read as applying separately to the firm's general pool and each sub-pool.
CASS 7.19.5
01/06/2015
FCA
A firm that establishes one or more sub-pools must establish and maintain adequate internal controls and records in accordance with CASS 7.15 (Records, accounts and reconciliations) to conduct internal and external reconciliations for each sub-pool and the general pool individually.
CASS 7.19.6
01/07/2014
FCA
(1) The records maintained for a sub-pool under CASS 7.19.4 R must identify all the client beneficiaries of that sub-pool.
(2) The beneficiaries of each sub-pool are those clients:
(a) from whom the firm has received a signed sub-pool disclosure document in accordance with CASS 7.19.11 R;
(b) for whom the firm maintains, previously maintained or is in the process of establishing a margined transaction(s) in the relevant net margined omnibus client account at the authorised central counterparty; and
(c) to whom any client equity balance or other client money is required to be segregated for the client by the firm in respect of the margined transactions under (2)(b) from that sub-pool.
CASS 7.19.7
01/07/2014
FCA
(1) For each sub-pool that the firm establishes, it must maintain a record of:
(a) the name of the sub-pool;
(b) the particular net margined omnibus client account at an authorised central counterparty to which the sub-pool relates;
(c) each client bank account and each client transaction account (other than the net margined omnibus client account) maintained for the sub-pool, including the unique identifying reference or descriptor under CASS 7.19.13R (2); and
(d) the applicable sub-pool disclosure document for the sub-pool.
CASS 7.19.8
01/07/2014
FCA
The firm must maintain an up-to-date list of all the sub-pools it has created.

Sub-pool disclosure document

CASS 7.19.9
01/07/2014
FCA
(1) A firm wishing to establish a sub-pool must prepare a sub-pool disclosure document for each sub-pool.
(2) The sub-pool disclosure document for each sub-pool must:
(a) identify the sub-pool by name, as stated in its records under CASS 7.19.7 R, the net margined omnibus client account and the authorised central counterparty to which the sub-pool disclosure document relates;
(b) contain a statement that the client consents to the firm receiving and holding the client's client money in the sub-pool;
(c) contain a statement that, in the event of the failure of the firm, the firm is directed by the client to use any client money held by the firm in the sub-pool to facilitate the porting of the positions recorded in that net margined omnibus client account; and
(d) a statement reminding the client that, in the event of the failure of the firm, if porting is not effected or if porting is effected but any money in the sub-pool is not used to facilitate porting, the client beneficiaries of the sub-pool will be entitled to a distribution of any client money held for that sub-pool in line with CASS 7A. However, the client beneficiaries will not have a claim on any other pool of client money, except to the extent that the client is a beneficiary of another pool.
CASS 7.19.10
01/07/2014
FCA
In preparing a sub-pool disclosure document under CASS 7.19.9R (1), a firm may use the template in CASS 7 Annex 6.
CASS 7.19.11
01/07/2014
FCA
(1) Before receiving or holding client money for a client for a sub-pool, a firm must:
(a) provide to the client a copy of the sub-pool disclosure document applicable to that sub-pool; and
(b) obtain a signed copy of that sub-pool disclosure document from the client.
(2) A firm must provide the beneficiary of a sub-pool with a copy of its signed sub-pool disclosure document applicable to that sub-pool upon the beneficiary's request.

Segregation and operation of sub-pools

CASS 7.19.12
01/07/2014
FCA
Where a firm establishes one or more sub-pools, CASS 7.4 (Segregation of client money) shall be read as applying separately to the firm's general pool and each sub-pool.
CASS 7.19.13
01/07/2014
FCA
(1) A firm must not hold client money for a sub-pool in a client bank account or a client transaction account used for holding client money for any other sub-pool or the general pool.
(2) A firm that establishes a sub-pool must ensure that the name of each client bank account and each client transaction account (other than the net margined omnibus client account) maintained for that sub-pool includes a unique identifying reference or descriptor that enables the account to be identified with that sub-pool.
(3) Where a client of the firm is a beneficiary of the general pool and wishes to become a beneficiary of a sub-pool, the client in question shall become a beneficiary of the relevant sub-pool when :
(a) the firm has obtained the signed sub-pool disclosure document from that client in accordance with CASS 7.19.11R (1); and
(b) the firm has either:
(i) transferred the relevant amount of client money for that client from a client bank account maintained for the general pool to a client bank account maintained for the relevant sub-pool; or
(ii) if the firm is not making a transfer of client money from the general pool, when it has received that client's money in a client bank account maintained for the relevant sub-pool.
(4) Where a client of the firm is a beneficiary of the general pool and wishes to become a beneficiary of a sub-pool, the firm must ensure that it does not transfer client money from a client bank account maintained for the general pool to a client bank account maintained for a sub-pool in accordance with CASS 7.19.13R (3)(b)(i), unless the amount of client money held for the general pool is sufficient, immediately after that transfer, to satisfy the firm's client money obligations to the remaining beneficiaries of the general pool.
(5) A client of the firm who is a beneficiary of a sub-pool ceases to be a beneficiary of that sub-pool when:
(a) the firm has settled the amount owing to that client for all of the margined transactions cleared through the related net margined omnibus client account and no longer holds any client money for that client in that sub-pool, and so CASS 7.19.6R (2)(b) and CASS 7.19.6R (2)(c) no longer apply for that client; or
(b) the firm has complied with (i) or (ii), and in either case (iii):
(i) the firm has received a written instruction from the client stating that the client no longer wishes to have its positions cleared through the net margined omnibus client account or its client money held in that sub-pool, or the firm has notified the client under CASS 7.19.18 R that it is making a material change to a sub-pool; or
(ii) the firm has closed or moved that client's positions to an account other than the net margined omnibus client account referable to that sub-pool; and
(iii) the firm has either transferred the relevant amount of client money for that client from a client bank account maintained for the relevant sub-pool to a client bank account maintained by the firm for the general pool (or, if applicable, another sub-pool), or transferred the amount owing to that client for all of the margined transactions cleared through the related net margined omnibus client account and no longer holds any client money for that client in that sub-pool.
(6) In relation to the transfer of client money under CASS 7.19.13R (5)(b)(iii), a firm must ensure that it does not transfer client money from a client bank account maintained for a sub-pool, unless the amount of client money held for the sub-pool is sufficient, immediately after that transfer, to satisfy the firm's client money obligations to the remaining beneficiaries of that sub-pool.
CASS 7.19.14
01/06/2015
FCA
Save to the extent permitted under CASS 7.13.70 G a firm that receives client money to be credited in part to the general pool or one sub-pool and in part to another sub-pool must:
(1) take the necessary steps to ensure that the full sum is paid directly into a client bank account maintained for the general pool; and
(2) promptly, and in any event no later than one business day after receipt, pay the money that is not client money for the general pool out of that client bank account and into a client bank account maintained for the appropriate sub-pool.
CASS 7.19.15
01/07/2014
FCA
(1) If a primary pooling event occurs before client money is transferred from a client bank account maintained for the general pool to a client bank account maintained for the appropriate sub-pool in accordance with CASS 7.19.14R (2), the amount in question will not form part of that sub-pool, including for the purposes of CASS 7A.2.4R (1).
(2) If a primary pooling event occurs before client money is transferred from a client bank account maintained for a sub-pool to a client bank account maintained for the general pool or another sub-pool in accordance with CASS 7.19.13R (5), the amount in question will not form part of the general pool or that other sub-pool, including for the purposes of CASS 7A.2.4R (1), but will remain part of the original sub-pool.
CASS 7.19.16
01/07/2014
FCA
A client for whom a firm receives or holds client money for a sub-pool has no claim to or interest in client money received or held for the general pool or any other sub-pool unless:
(1) that client is a beneficiary of that other sub-pool; or
(2) the firm receives or holds client money for that client for other business which does not relate to any sub-pool (and thus the client is a beneficiary of the firm's general pool).
CASS 7.19.17
01/07/2014
FCA
A client for whom a firm receives or holds client money in more than one pool as described in CASS 7.19.16R (1) and/or CASS 7.19.16R (2) has an interest in a distribution from each such pool, and each interest is separate and distinct.

Material changes to sub-pools

CASS 7.19.18
01/07/2014
FCA
Before making a material change to a sub-pool, a firm must:
(1) notify the then current beneficiaries of that sub-pool in writing, not less than two months before the date on which the firm intends the change to take effect; and
(2) include in the notification an explanation of the consequences for the beneficiaries of the proposed change and the options available to them, such as the option of a beneficiary of the affected sub-pool to cease to be a beneficiary of that sub-pool and to become a beneficiary of the firm's general pool or, if applicable, another sub-pool.
CASS 7.19.19
01/07/2014
FCA
A firm should keep in mind its obligations under CASS 7.19.11R (1)(b) (before receiving or holding client money for a client in a sub-pool, a firm must obtain a signed copy of the sub-pool disclosure document from the client) when making a material change to a sub-pool. A firm is also reminded of the conditions under CASS 7.19.13R (5)(b) (when a client of the firm who is a beneficiary of a sub-pool ceases to be a beneficiary of that sub-pool) if a material change proposed to a sub-pool results in a client ceasing to be a beneficiary of that sub-pool.
CASS 7.19.20
01/07/2014
FCA
The FCA would normally consider the dissolution of a sub-pool, such that the firm no longer operates the sub-pool or no longer uses the relevant net margined omnibus client account or transfers the business to another authorised central counterparty, to be examples of material changes to a sub-pool.
CASS 7.19.21
01/07/2014
FCA
Before materially changing a sub-pool, a firm must provide a copy of the notice provided to clients under CASS 7.19.18 R R to the FCA not less than two months before the date on which the firm intends the change to take place.

Notifications

CASS 7.19.22
01/07/2014
FCA
A firm that wishes to establish a sub-pool of client money must notify the FCA in writing not less than two months before the date on which the firm intends to receive or hold client money for that sub-pool.
CASS 7.19.23
01/07/2014
FCA
Upon request, a firm must deliver to the FCA a copy of the sub-pool disclosure document for any sub-pool established by the firm.
CASS 7.19.24
01/07/2014
FCA
A firm must inform the FCA in writing, without delay, if it has not complied, or is unable to comply with the requirements in CASS 7.19.11 R or the requirements in CASS 7.19.18 R.

Record-keeping

CASS 7.19.25
01/07/2014
FCA
The records maintained under this section, including the sub-pool disclosure documents, are a record of the firm that must be kept in a durable medium for at least five years following the date on which client money was last held by the firm for a sub-pool to which those records or the sub-pool disclosure document applied.
31/05/2015 is the last day this material was in force

CASS 7 Annex 2 Client bank account acknowledgment letter template

01/06/2015
FCA
[letterhead of firm subject toCASS 7.18.2 R, including full name and address of firm]
[name and address of bank]
[date]

Client Money Acknowledgment Letter (pursuant to the rules of the Financial Conduct Authority)

We refer to the following [current/deposit account[s]] [and/or] [money market deposit[s]] which [name of CASS firm], regulated by the Financial Conduct Authority (Firm Reference Number [FRN]), ("us", "we" or "our") [has opened or will open] [and/or] [has deposited or will deposit] with [name of bank] ("you" or "your"):

[insert the account title[s], the account unique identifier[s] (for example, as relevant, sort code and account number, deposit number or reference code) and (if applicable) any abbreviated name of the account[s] as reflected in the bank's systems]

([collectively,] the "Client Bank Account[s]").

In relation to [each of] the Client Bank Account[s] identified above you acknowledge that we have notified you that:
 (a) we are under an obligation to keep money we hold belonging to our clients separate from our own money;
 (b) we have opened, or will open, the Client Bank Account for the purpose of depositing money with you on behalf of our clients; and
 (c) we hold all money standing to the credit of the Client Bank Account in our capacity as trustee under the laws applicable to us.

In relation to [each of] the Client Bank Account[s] above you agree that:
 (d) you do not have any recourse or right against money in the Client Bank Account in respect of any sum owed to you, or owed to any third party, on any other account (including any account we use for our own money), and this means for example that you do not have any right to combine the Client Bank Account with any other account and any right of set-off or counterclaim against money in the Client Bank Account;
 (e) you will title, or have titled, the Client Bank Account as stated above and that such title is different to the title of any other account containing money that belongs to us or to any third party; and
 (f) you are required to release on demand all money standing to the credit of the Client Bank Account upon proper notice and instruction from us or a liquidator, receiver, administrator, or trustee (or similar person) appointed for us in bankruptcy (or similar procedure), in any relevant jurisdiction, except for:
 (1) any properly incurred charges or liabilities owed to you on, and arising from the operation of, the Client Bank Account; and
 (2) until the fixed term expires, any amounts held for the time being under a fixed term deposit arrangement which cannot be terminated before the expiry of the fixed term,
provided that you have a contractual right to retain such money under (1) or (2) and that this right is notwithstanding paragraphs (a) to (c) above and without breach of your agreement to paragraph (d) above.

We acknowledge that:
 (g) you are not responsible for ensuring compliance by us with our own obligations, including as trustee, in respect of the Client Bank Account[s].

You and we agree that:
 (h) the terms of this letter shall remain binding upon the parties, their successors and assigns, and, for the avoidance of doubt, regardless of any change in name of any party;
 (i) this letter supersedes and replaces any previous agreement between the parties in connection with the Client Bank Account[s], to the extent that such previous agreement is inconsistent with this letter;
 (j) in the event of any conflict between this letter and any other agreement between the parties in connection with the Client Bank Account[s], this letter agreement shall prevail;
 (k) no variation to the terms of this letter shall be effective unless it is in writing, signed by the parties and permitted under the rules of the Financial Conduct Authority;
 (l) this letter shall be governed by the laws of [insert appropriate jurisdiction] [firms may optionally use this space to insert additional wording to record an intention to exclude any rules of private international law that could lead to the application of the substantive law of another jurisdiction]; and
 (m) the courts of [insert same jurisdiction as previous] shall have non-exclusive jurisdiction to settle any dispute or claim arising out of or in connection with this letter or its subject matter or formation (including non-contractual disputes or claims).

Please sign and return the enclosed copy of this letter as soon as possible. We remind you that, pursuant to the rules of the Financial Conduct Authority, we are not allowed to use the Client Bank Account[s] to deposit any money belonging to our clients with you until you have acknowledged and agreed to the terms of this letter.

For and on behalf of [name of CASS firm]
x___________________________
Authorised Signatory
[Signed by [name of third party administrator] on behalf of [CASS firm]]
Print Name:
Title:

ACKNOWLEDGED AND AGREED:
For and on behalf of [name of bank]
x___________________________
Authorised Signatory
Print Name:
Title:
Contact Information: [insert signatory's phone number and email address]
Date:

CASS 7 Annex 3 Client transaction account acknowledgment letter template

01/06/2015
FCA
[letterhead of firm subject toCASS 7.18.3 R, including full name and address of firm]
[name and address of counterparty]
[date]

Client Money Acknowledgment Letter (pursuant to the rules of the Financial Conduct Authority)

We refer to the following transaction account[s] which [name of CASS firm], regulated by the Financial Conduct Authority (Firm Reference Number [FRN]), ("us", "we" or "our") has opened or will open with [name of counterparty] ("you" or "your"):

[insert the account title[s], the account unique identifier[s] (for example, as relevant, account number, reference code or pool ID) and (if applicable) any abbreviated name of the account[s] as reflected in the counterparty's systems]

([collectively,] the "Client Transaction Account[s]").

In relation to [each of] the Client Transaction Account[s] identified above you acknowledge that we have notified you that:
 (a) we are under an obligation to keep money we hold belonging to our clients separate from our own money;
 (b) we have opened, or will open, the Client Transaction Account for the purpose of placing money with you on behalf of our clients in connection with carrying out one or more transactions with or through you; and
 (c) you are instructed to promptly credit to this Client Transaction Account any money you receive in respect of any transaction that we have notified to you as being carried out on behalf of our clients.

In relation to [each of] the Client Transaction Account[s] identified above you agree that:
 (d) all money standing to the credit of the Client Transaction Account is payable to us in our capacity as trustee under the laws applicable to us[, except where, in accordance with your default management procedures in respect of a default by us, you transfer money credited to the Client Transaction Account to anyone other than us in accordance with articles 4(4) or 4(5) of Commission Delegated Regulation (EU) No 149/2013 of 19 December 2012];
 (e) you do not have any recourse or right against money credited to the Client Transaction Account in respect of any sum owed to you, or owed to any third party, on any other account (including any account we use for our own money), and this means for example that you do not have any right to combine the Client Transaction Account with any other account and any right of set-off or counterclaim against money in the Client Transaction Account; and
 (f) you will title, or have titled, the Client Transaction Account as stated above and that such title is different to the title of any other account containing money that is payable to us in a capacity other than as trustee or that is payable to any third party.

You and we agree that:
 (g) the terms of this letter shall remain binding upon the parties, their successors and assigns, and, for the avoidance of doubt, regardless of any change in name of any party;
 (h) this letter supersedes and replaces any previous agreement between the parties in connection with the Client Transaction Account[s], to the extent that such previous agreement is inconsistent with this letter;
 (i) in the event of any conflict between this letter and any other agreement between the parties in connection with the Client Transaction Account[s], this letter agreement shall prevail;
 (j) no variation to the terms of this letter shall be effective unless it is in writing, signed by the parties and permitted under the rules of the Financial Conduct Authority;
 (k) this letter shall be governed by the laws of [insert appropriate jurisdiction] [firms may optionally use this space to insert additional wording to record an intention to exclude any rules of private international law that could lead to the application of the substantive law of another jurisdiction]; and
 (l) the courts of [insert same jurisdiction as previous] shall have non-exclusive jurisdiction to settle any dispute or claim arising out of or in connection with this letter or its subject matter or formation (including non-contractual disputes or claims).

Please sign and return the enclosed copy of this letter as soon as possible. We remind you that, pursuant to the rules of the Financial Conduct Authority, we are not allowed to permit you to hold any money belonging to our clients on the Client Transaction Account[s] until you have acknowledged and agreed to the terms of this letter.

For and on behalf of [name of CASS firm]
x___________________________
Authorised Signatory
Print Name:
Title:

ACKNOWLEDGED AND AGREED:
For and on behalf of [name of counterparty]
x___________________________
Authorised Signatory
Print Name:
Title:
Contact Information: [insert signatory's phone number and email address]
Date:

CASS 7 Annex 4 Authorised central counterparty acknowledgment letter template

01/06/2015
FCA
[letterhead of firm subject toCASS 7.18.4 R, including full name and address of authorised central counterparty]
[name and address of counterparty]
[date]

Client Money Acknowledgment Letter (pursuant to the rules of the Financial Conduct Authority)

We refer to the following transaction account[s] which [name of CASS firm], regulated by the Financial Conduct Authority (Firm Reference Number [FRN]), ("us", "we" or "our") has opened or will open with [name of authorised Central counterparty] ("you" or "your"):

[insert the account title[s], the account unique identifier[s] (for example, as relevant, account number, reference code or pool ID) and (if applicable) any abbreviated name of the account[s] as reflected in the authorised central counterparty's systems]

([collectively,] the "Client Transaction Account[s]").

In relation to [each of] the Client Transaction Account[s] identified above we are writing to put you on notice that:
 (a) we are under an obligation to keep money we hold belonging to our clients separate from our own money;
 (b) we have opened, or will open, the Client Transaction Account for the purpose of placing money with you on behalf of our clients in connection with carrying out one or more transactions with or through you;
 (c) you are instructed to promptly credit to this Client Transaction Account any money you receive in respect of any transaction that we have notified to you as being carried out on behalf of our clients;
 (d) all money standing to the credit of the Client Transaction Account is payable to us in our capacity as trustee under the laws applicable to us, except where, as a part of your default management process in respect of a default by us, you transfer money credited to the Client Transaction Account to anyone other than us in accordance with article 48 of Regulation (EU) No 648/2012 of 4 July 2012;
 (e) you do not have any recourse or right against money credited to the Client Transaction Account in respect of any sum owed to you, or owed to any third party, on any other account (including any account we use for our own money), and this means for example that you do not have any right to combine the Client Transaction Account with any other account and any right of set-off or counterclaim against money in the Client Transaction Account; and
 (f) we understand the title of the Client Transaction Account is, or will be, as stated above and that such title is different to the title of any other account containing money that is payable to us in a capacity other than as trustee or is payable to any third party.

[Please confirm your receipt of this letter by signing and returning the enclosed copy of this letter as soon as possible.]

For and on behalf of [name of CASS firm]
x___________________________
Authorised Signatory
Print Name:
Title:

[RECEIPT CONFIRMED:
For and on behalf of [name of counterparty]
x___________________________
Authorised Signatory
Print Name:
Title:
Contact Information: [insert signatory's phone number and email address]
Date:]

CASS 7 Annex 5 Guidance notes for acknowledgement letters (CASS 7.18)

01/06/2015
FCA
Introduction
 1 This annex contains guidance on the use of the templates for acknowledgement letters in CASS 7 Annex 2, CASS 7 Annex 3 and CASS 7 Annex 4.
 2 Unless stated otherwise, a reference to 'counterparty' in this annex is:
 (a) in the context of a client bank account acknowledgement letter (and CASS 7 Annex 2), to the relevant bank;
 (b) in the context of a client transaction account acknowledgement letter (and CASS 7 Annex 3), to the relevant exchange, clearing house, intermediate broker, OTC counterparty or other person (as the case may be); and
 (c) in the context of an authorised central counterparty acknowledgement letter (and CASS 7 Annex 4), to the relevant authorised central counterparty.


General
 3 Under CASS 7.18.2R (2) and CASS 7.18.3R (3), firms are required to have in place a duly signed and countersigned acknowledgment letter for a client bank account or client transaction account (respectively) before they are allowed to hold or receive client money in or into the client bank account, or allow the relevant person to hold any client money on the client transaction account (respectively).
 4 However, a firm may place client money at an authorised central counterparty in connection with a regulated clearing arrangement if it has provided the relevant authorised central counterparty with a signed and completed authorised central counterparty acknowledgement letter (see CASS 7.8.3 R).
 5 For each client bank account or client transaction account, a firm is required to complete, sign and send to the counterparty an acknowledgment letter identifying that account and in the form set out in CASS 7 Annex 2 (Client bank account acknowledgment letter template), CASS 7 Annex 3 (Client transaction account acknowledgment letter template) or CASS 7 Annex 4 (Authorised central counterparty acknowledgment letter), as appropriate.
 6 When completing an acknowledgment letter using the appropriate template, a firm is reminded that it must not amend any of the text which is not in square brackets (acknowledgment letter fixed text). A firm should also not amend the non-italicised text that is in square brackets. It may remove or include square bracketed text from the letter, or replace bracketed and italicised text with the necessary wording, in either case as appropriate. The notes below give further guidance on this.


Clear identification of relevant accounts
 7 A firm is reminded that for each client bank account or client transaction account it needs to have in place an acknowledgement letter. Accordingly, it is important that it is clear to which account or accounts each acknowledgement letter relates. As a result, the templates in CASS 7 Annex 2, CASS 7 Annex 3 and CASS 7 Annex 4 require that the acknowledgement letter include the full title and at least one unique identifier, such as a sort code and account number, deposit number, reference code or pool ID, for each client bank account or client transaction account to which the letter relates.
 8 The title and unique identifiers included in an acknowledgement letter for a client bank account or client transaction account should be the same as those reflected in both the records of the firm and the relevant counterparty, as appropriate, for that account. Where a counterparty's systems are not able to reflect the full title of an account, that title may be abbreviated to accommodate that system, provided that:
 (a) the account may continue to be appropriately identified in accordance with the requirements of CASS 7 (eg, 'designated' may be shortened to 'des', 'designated fund' may be shortened to 'des fnd', 'segregated' may be shortened to 'seg', 'account' may be shortened to 'acct', etc); and
 (b) when completing an acknowledgement letter, such letter must include both the long and short versions of the account title.
 9 A firm should ensure that all relevant account information is contained in the space provided in the body of the acknowledgement letter. Nothing should be appended to an acknowledgement letter.
 10 In the space provided in the template letters for setting out the account title and unique identifiers for each relevant account/deposit, a firm may include the required information in the format of the following table:
Full account titleUnique identifierTitle reflected in [name of bank] systems
[Investment Firm Client Bank Account][00-00-00 12345678][INV FIRM CLIENT A/C]
   
   
   

 11 Where an acknowledgement letter is intended to cover a range of client bank accounts or client transaction accounts, some of which may not exist as at the date the acknowledgement letter is countersigned by the relevant person (or, in the case of an authorised central counterparty acknowledgement letter, the date it is sent by the firm to the relevant authorised central counterparty), a firm should set out in the space provided in the body of the acknowledgement letter that it is intended to apply to all present and future accounts which: (a) are titled in a specified way (eg, with the word 'client' in their title); and (b) which possess a common unique identifier or which may be clearly identified by a range of unique identifiers (eg, all accounts numbered between XXXX1111 and ZZZZ9999). For example, in the space provided in the template letter in CASS 7 Annex 2 which allows a firm to include the account title and a unique identifier for each relevant account, a firm should include a statement to the following effect:
 Any account open at present or to be opened in the future which contains the term ['client'][insert appropriate abbreviation of the term 'client' as agreed and to be reflected in the Bank's systems] in its title and which may be identified with [the following [insert common unique identifier]][an account number from and including [XXXX1111] to and including [ZZZZ9999]][clearly identify range of unique identifiers].


Signature and countersignatures
 12 A firm should ensure that each acknowledgement letter is signed and countersigned by all relevant parties and individuals (including where a firm or its counterparty may require more than one signatory).
 13 An acknowledgement letter that is signed or countersigned electronically should not, for that reason alone, result in a breach of the rules in CASS 7.19. However, where electronic signatures are used, a firm should consider whether, under CASS 7.13.8 R and taking into account the governing law and choice of competent jurisdiction, it needs to ensure that the electronic signature and the certification by any person of such signature would be admissible as evidence in any legal proceedings in the relevant jurisdiction in relation to any question as to the authenticity or integrity of the letter.


Completing an acknowledgment letter
 14 A firm should use at least the same level of care and diligence when completing an acknowledgement letter as it would in managing its own commercial agreements.
 15 A firm should ensure that each acknowledgement letter is legible (eg, any handwritten details should be easy to read), produced on the firm's own letter-headed paper, dated and addressed to the correct legal entity (eg, where the counterparty belongs to a group of companies).
 16 A firm should also ensure each acknowledgement letter includes all the required information (such as account names and numbers, the parties' full names, addresses and contact information, and each signatory's printed name and title).
 17 A firm should similarly ensure that no square brackets remain in the text of each acknowledgement letter (ie, after having removed or included square bracketed text, as appropriate, or having replaced square bracketed and italicised text with the required information as indicated in the templates in CASS 7 Annex 2, CASS 7 Annex 3 and CASS 7 Annex 4) and that each page of the acknowledgement letter is numbered.
 18 A firm should complete an acknowledgement letter so that no part of the letter can be easily altered (eg, the letter should be signed in ink rather than pencil).
 19 In respect of a client bank account acknowledgement letter's governing law and choice of competent jurisdiction (see paragraphs (l) and (m) of the template in CASS 7 Annex 2R) or a client transaction account acknowledgement letter's governing law and choice of competent jurisdiction (see paragraphs (k) and (l) of the template in CASS 7 Annex 3 R), the letter should reflect a firm's agreement with its counterparty that the laws of a particular jurisdiction will govern the acknowledgement letter and that the courts of that same jurisdiction will have non-exclusive jurisdiction to settle any disputes arising out of, or in connection with, the acknowledgement letter, its subject matter or formation.
 20 If a firm does not, in any client bank account acknowledgement letter or client transaction account acknowledgement letter, utilise the governing law and choice of competent jurisdiction that is the same as either or both:
 (a) the law and the jurisdiction under which either the firm or the relevant counterparty are organised; and
 (b) that specified in the underlying agreement/s (eg, banking, custody or clearing services agreement) with the relevant counterparty;
then the firm should consider whether it is at risk of breaching either CASS 7.18.6R (3) or, in the case of a client bank account acknowledgement letter, CASS 7.13.8 R.
 21 The FCA recognises that some firms and their counterparties may wish to clarify through additional words in the governing law provision (see paragraph (l) of the template in CASS 7 Annex 2 and paragraph (k) of the template in CASS 7 Annex 3) that they are agreeing that the substantive law of the governing jurisdiction shall apply and that their intention is that a court should not decide to apply the substantive provisions of some other law instead of the parties' chosen governing law (a 'renvoi'). Where this is the case firms are permitted to insert additional text that seeks to provide increased legal certainty in the space provided. There is no restriction as to what additional words may be used (eg, additional words such as "without regard to the principles of choice of law" may be appropriate in the circumstances), but a firm should at all times have regard to the need to comply with CASS 7.18.6R (3). However, for the majority of firms the FCA does not expect additional wording for the governing law provision to be necessary. This is likely to be the case where only a court that is subject to 'Rome I' (Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008) is likely to accept jurisdiction over a dispute arising out of or in connection with the relevant acknowledgement letter.


Authorised signatories
 22 A firm is required, under CASS 7.18.9 R, to use reasonable endeavours to ensure that any individual that has countersigned an acknowledgement letter returned to the firm was authorised to countersign the letter on behalf of the relevant counterparty.
 23 If an individual that has countersigned an acknowledgement letter does not provide the firm with sufficient evidence of his/her authority to do so then the firm is expected to make appropriate enquires to satisfy itself of that individual's authority.
 24 Evidence of an individual's authority to countersign an acknowledgement letter may include a copy of the counterparty's list of authorised signatories, a duly executed power of attorney, use of a company seal or bank stamp, and/or material verifying the title or position of the individual countersigning the acknowledgement letter.
 25 A firm should ensure it obtains at least the same level of assurance over the authority of an individual to countersign the acknowledgement letter as the firm would seek when managing its own commercial arrangements.


Third party administrators
 26 If a firm uses a third party administrator ('TPA') to carry out the administrative tasks of drafting, sending and processing a client bank account acknowledgement letter, the text "[Signed by [Name of Third Party Administrator] on behalf of [CASS Firm]]" should be inserted to confirm that the acknowledgement letter was signed by the TPA on behalf of the firm.
 27 In these circumstances, the firm should first provide the TPA with the requisite authority (such as a power of attorney) before the TPA will be able to sign the client bank account acknowledgement letter on the firm's behalf. A firm should also ensure that the acknowledgement letter continues to be drafted on letter-headed paper belonging to the firm.


Designated client bank accounts and designated client fund accounts
 28 A firm must ensure that each of its client bank accounts follows the naming conventions prescribed in the Glossary. This includes ensuring that (i) all client bank accounts include the term 'client' in their title; and (ii) all designated client bank accounts or designated client fund accounts include, as appropriate, the terms 'designated' or 'designated fund' in their title, or in each case an appropriate abbreviation in circumstances where this is permitted by the Glossary definition.
 29 All references to the term "Client Bank Account[s]" in a client bank account acknowledgement letter should also be made consistently in either the singular or plural, as appropriate.


Indirect clearing arrangements
 30 For use with client transaction accounts maintained with a clearing member who facilitates indirect clearing through a regulated clearing arrangement, the square-bracketed text in paragraph (d) of the template letter in CASS 7 Annex 3 should remain in the letter.
 31 All references to the term "Client Transaction Account[s]" in a client transaction account acknowledgement letter should be made consistently in either the singular or plural, as appropriate.


Direct clearing arrangements
 32 For use with client transaction accounts maintained with an authorised central counterparty in respect of a regulated clearing arrangement, a firm may identify whether each account is an omnibus client account or an individual client account in the space provided in the body of the template letter in CASS 7 Annex 4. For example, if using the table mentioned in paragraph 10 above, a firm may include an additional column in which for each account it includes the reference "Individual Client Account" or "Omnibus Client Account", as appropriate.
 33 All references to the term "Client Transaction Account[s]" in an authorised central counterparty acknowledgement letter should be made consistently in either the singular or plural, as appropriate.


Money market deposits
 34 The client bank account acknowledgement letter in CASS 7 Annex 2 may be used with money market deposits identified as being client money.
 35 A firm should ensure that client money placed in a money market deposit is clearly identified as client money (see CASS 7.13.15 G).
 36 Before a firm places client money in a money market deposit, it must have a client bank account acknowledgement letter for that deposit. If the unique identifier which will be associated with a money market deposit consisting of client money is unable to be included in a client bank account acknowledgement letter before it is duly countersigned and returned to the firm, a firm should set out in the body of the letter: (a) the title and other account information for the client bank account from which the deposits will be placed with the bank; and (b) how the firm will notify the bank that a money market deposit placed with it consists of client money (eg, by the inclusion of the words 'Client Money Deposit'). For example, in the space provided in the template letter in CASS 7 Annex 2 which allows a firm to include the account title and a unique identifier for each relevant account/deposit, a firm should include a statement to the following effect:
 [[CASS Firm] money market deposits placed from [title of relevant [client bank account], [sort code], [account number]] and identified with the reference '[Client Money Deposit]' as being client money)]
 37 A firm which operates the alternative approach to client money segregation (see CASS 7.13.62 R) might not make deposits of client money in a money market deposit from another client bank account. In these circumstances, the firm need only include in the body of the letter how the firm will notify the bank that a money market deposit placed with it consists of client money. For example, the relevant space in the template letter in CASS 7 Annex 2 may set out that:
 [[CASS firm] money market deposits identified with the reference '[Client Money Deposit]' as being client money]

CASS 7 Annex 6 Sub-pool disclosure document

01/07/2014
FCA
[letterhead of firm, including full name and address of firm, firm reference number]
[addressee - client participating in specified sub-pool]
[date]

Sub-pool disclosure document (under the rules of the Financial Conduct Authority)
 1. The sub-pool to which this sub-pool disclosure document relates is designated in the firm's records as:
 [insert name of sub-pool in firm's records]
 (for the purposes of this document, the "sub-pool")
 2. The net margined omnibus client account relating to the sub-pool is held at [insert name of authorised CCP] and is designated as:
 [insert the account title, the account unique identifier and (if applicable) any abbreviated name of the account as reflected in the authorised CCP's systems]
 (for the purposes of this document, the "omnibus client account").
 3. The purpose of this letter is to:
 (a) provide you with information relating to the sub-pool [operated or to be operated] by [insert name of CASS firm] in relation to the omnibus client account held by the firm at [insert name of authorised CCP];
 (b) obtain your consent to holding your money in the sub-pool; and
 (c) confirm your direction that upon the failure of [insert name of CASS firm], we are to use any client money held by the firm in the sub-pool to facilitate porting.
 4. [name of CASS firm] will hold any client money that we receive from you in relation to the cleared transactions that we maintain for you in the omnibus client account in client bank accounts that we open in relation to the sub-pool, or we will allow the CCP to hold this client money in the omnibus client account.
 5. In the event of the failure of the [insert name of CASS firm], you hereby direct the [insert name of CASS firm] to use any client money held by the [insert name of CASS firm] in the sub-pool to facilitate the porting of the positions recorded in the omnibus client account.
 6. In the event of the failure of [insert name of CASS firm], if porting is not effected, or if porting is effected but any money in the sub-pool is not used to facilitate porting, you and the other beneficiaries of the sub-pool will be entitled to a distribution from any client money held in respect of this sub-pool, in accordance with the client money distribution rules in CASS 7A. Save to the extent that [insert name of CASS firm] holds any other client money for you in the context of any other business or sub-pool, you will not be entitled to a distribution of any other client money held by [insert name of CASS firm].
 7. You hereby consent to the firm receiving and holding your money as client money as part of [sub-pool specified above or specify name of sub-pool]. Until you sign and return this letter the firm will not hold money for you in the sub-pool and you will not be a beneficiary of the sub-pool.
 8. This letter shall be governed by the laws of [England and Wales/Scotland/Northern Ireland /insert appropriate jurisdiction].


If you are in agreement with the foregoing terms, please sign and return the enclosed copy of this letter as soon as possible. You should retain a copy of this letter for your records.

[insert name of CASS firm]
x___________________________
Authorised Signatory
Print Name:
Title:

ACKNOWLEDGED AND AGREED:
[insert name of client]
x___________________________
Authorised Signatory
Print Name:
Title:
Contact Information: [insert signatory's phone number and email address]
Date:

CASS 7A.1 Application and purpose

Application

CASS 7A.1.1
01/07/2014
FCA
Subject to CASS 7A.1.1A R, this chapter (the client money distribution rules) applies to a firm that holds client money which is subject to the client money rules when apooling event occurs.
CASS 7A.1.1A
01/07/2014
FCA
The client money distribution rules do not apply to any client money held by a trustee firm under CASS 7.1.15F R to CASS 7.1.15L G.
CASS 7A.1.1B
01/07/2014
FCA
As a result of CASS 7A.1.1A R, the client money distribution rules relating to primary pooling events and secondary pooling events will not affect any client money held by a firm in its capacity as trustee firm. Instead, the treatment of that client money will be determined by the terms of the relevant instrument of trust or by applicable law. However, the client money distribution rules do apply to a firm for any client money that it holds other than in that capacity which is subject to the client money rules.

Purpose

CASS 7A.1.2
01/01/2009
FCA
The client money distribution rules seek to facilitate the timely return of client money to a client in the event of the failure of a firm or third party at which the firm holds client money.

CASS 7A.2 Primary pooling events

Failure of the authorised firm: primary pooling event

CASS 7A.2.1
01/01/2009
FCA
(1) A firm can hold client money in a general client bank account, a designated client bank account or a designated client fund account.
(2) A firm holds all client money in general client bank accounts for its clients as part of a common pool of money so those particular clients do not have a claim against a specific sum in a specific account; they only have a claim to the client money in general.
(3) A firm holds client money in designated client bank accounts or designated client fund accounts for those clients that requested their client money be part of a specific pool of money, so those particular clients do have a claim against a specific sum in a specific account; they do not have a claim to the client money in general unless a primary pooling event occurs. A primary pooling event triggers a notional pooling of all the client money, in every type of client money account, and the obligation to distribute it.
(4) If the firm becomes insolvent, and there is (for whatever reason) a shortfall in money held for a client compared with that client's entitlements, the available funds will be distributed in accordance with the client money distribution rules.
CASS 7A.2.2
01/06/2015
FCA
A primary pooling event occurs:
(1) on the failure of the firm;
(2) on the vesting of assets in a trustee in accordance with an 'assets requirement' imposed under section 55P(1)(b) or (c) (as the case may be) of the Act;
(3) on the coming into force of a requirement for all client money held by the firm; or
(4) when the firm notifies, or is in breach of its duty to notify, the FCA, in accordance with CASS 7.15.33 R (Notification requirements), that it is unable correctly to identify and allocate in its records all valid claims arising as a result of a secondary pooling event.
CASS 7A.2.3
01/04/2013
FCA
CASS 7A.2.2R (4) does not apply so long as:
(1) the firm is taking steps, in consultation with the FCA, to establish those records; and
(2) there are reasonable grounds to conclude that the records will be capable of rectification within a reasonable period.
CASS 7A.2.3A
01/06/2015
FCA
If a primary pooling event occurs in circumstances where the firm had, before the primary pooling event, reduced its margined transaction requirement by utilising approved collateral under CASS 7.16.33 R, it must immediately liquidate this approved collateral and place the proceeds in a client bank account.
CASS 7A.2.3B
01/07/2014
FCA
CASS 7A.2.7 R (Client money received after the failure of the firm) do not apply to the proceeds under CASS 7A.2.3A R.
CASS 7A.2.3C
01/07/2014
FCA
The proceeds of the assets realised under CASS 7A.2.3A R:
(1) will form part of the notional pool of client money (see CASS 7A.2.4 R (Pooling and distribution); and
(2) must be distributed in accordance with this chapter.

Pooling and distribution

CASS 7A.2.4
01/06/2015
FCA
If a primary pooling event occurs, then:
(1) 
(a) in respect of a sub-pool, the following is treated as a single notional pool of client money for the beneficiaries of that pool:
(i) any client money held in a client bank account of the firm relating to that sub-pool; and
(ii) any client money held in a client transaction account of the firm relating to that sub-pool, except for client money held in a client transaction account at an authorised central counterparty or a clearing member which is, in either case, held as part of a regulated clearing arrangement;
(b) in respect of the general pool, the following is treated as a single notional pool of client money for the beneficiaries of the general pool:
(i) any client money held in any client bank account of the firm;
(ii) any client money held in a client transaction account of the firm, except for client money held in a client transaction account at an authorised central counterparty, or a clearing member which is, in either case, held as part of a regulated clearing arrangement; and
(iii) any client money identifiable in any other account held by the firm into which client money has been received;
except, in each case,for client money relating to a sub-pool which falls under (1)(a)(i) or (ii).
(2) the firm must :
(a) distribute client money comprising a notional pool in accordance with CASS 7.17.2 R, so that each client who is a beneficiary of that pool receives a sum which is rateable to the client money entitlement calculated in accordance with CASS 7A.2.5 R; or
(b) (where applicable) transfer client money comprising a sub-pool to effect or facilitate porting of positions held for the clients who are beneficiaries of that sub-pool; and
(3) if, in connection with a regulated clearing arrangement, client money is remitted directly to the firm either from an authorised central counterparty or from a clearing member, then:
(a) any such remittance in respect of a client transaction account that is an individual client account must be distributed to the relevant client subject to CASS 7.17.2R (4);
(b) subject to (3)(c) and (d), any such remittance in respect of a client transaction account that is an omnibus client account must form part of the notional pool under CASS 7A.2.4R (1) and be subject to distribution in accordance with CASS 7A.2.4R (2);
(c) any such remittance in respect of a client transaction account that is an omnibus client account must be distributed to the relevant clients for whom that omnibus client account is held if:
(i) 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
(ii) the amount of such remittance attributable to each client of the omnibus client account is readily apparent from information provided to the firm by the authorised central counterparty or, in the case of indirect clients, the clearing member;

in which case the amount of such remittance must be distributed to each such client in accordance with the information provided by the authorised central counterparty or clearing member subject to CASS 7.17.2R (4); and
(d) any such remittance in respect of a client transaction account that is a net margined omnibus client account in respect of which the firm maintains a sub-pool must form part of such sub-pool to be distributed in accordance with CASS 7A.2.4R (2)(a).
CASS 7A.2.4A
01/06/2015
FCA
(1) Under EMIR, where a firm that is a clearing member of an authorised central counterparty defaults, the authorised central counterparty may:
(a) port client positions where possible; and
(b) after the completion of the default management process:
(i) return any balance due directly to those clients for whom the positions are held, if they are known to the authorised central counterparty; or
(ii) remit any balance to the firm for the account of its clients if the clients are not known to the authorised central counterparty.
(1A) Under the EMIR L2 Regulation, where a firm acting in connection with a regulated clearing arrangement for a client (who is also an indirect client) defaults, the clearing member with whom the firm has placed client money of the indirect client, may, in accordance with the EMIR L2 Regulation:
(a) transfer the positions and assets either to another clearing member of the relevant authorised central counterparty or to another firm willing to act for the indirect client; or
(b) liquidate the assets and positions of the indirect clients and remit all monies due to the indirect clients.
(1B) For the avoidance of doubt, 'relevant clients' in the case of CASS 7A.2.4R (3)(a) and CASS 7A.2.4R (3)(c) includes a client who is also an indirect client.
(2) Where any balance remitted from an authorised central counterparty or, in the case of indirect clients, a clearing member, to a firm is client money, CASS 7A.2.4R (3) provides for the distribution of remittances from either an individual client account or an omnibus client account.
(3) Remittances received by the firm falling within CASS 7A.2.4R (3)(a) and CASS 7A.2.4R (3)(c) should not be pooled with client money held in any client bank account operated by the firm at the time of the primary pooling event. Those remittances should be segregated and promptly distributed to each client on whose behalf the remittance was received.
(4) For the avoidance of doubt, in respect of a regulated clearing arrangement, any client money remitted by the authorised central counterparty or, in the case of indirect clients, the clearing member, to the firm pursuant to CASS 7A.2.4R (3) should not be treated as client money received after the failure of the firm under CASS 7A.2.7 R.
(5) The firm's obligation to its client in respect of client money held in a sub-pool is discharged to the extent that the firm transfers that client money to facilitate porting in accordance with CASS 7.11.34R (8).
CASS 7A.2.5
01/06/2015
FCA
(-1) Each client's client equity balance must be reduced by:
(a) any amount paid by:
(i) an authorised central counterparty to a clearing member other than the firm in connection with a porting arrangement in accordance with CASS 7.11.34R (6) in respect of that client;
(ii) a clearing member to another clearing member or firm (other than the firm) in connection with a transfer in accordance CASS 7.11.34R (8);
(b) any amount paid by:
(i) an authorised central counterparty directly to that client, in accordance withCASS 7.11.34R (7); and
(ii) a clearing member directly to an indirect client in accordanceCASS 7.11.34R (9); and
(c) any amount that must be distributed to that client by the firm in accordance with CASS 7A.2.4R (3)(a) or (c).
(1) When, in respect of a client who is a beneficiary of a pool, there is a positive individual client balance and a negative client equity balancein relation to that pool, the credit for that pool must be offset against the debit reducing theindividual client balance for that client.
(2) When, in respect of a client who is a beneficiary of a pool, there is a negative individual client balance and a positive client equity balance in relation to that pool, the credit for that pool must be offset against the debit for that pool reducing the client equity balance for that client.
CASS 7A.2.6
01/01/2013
[deleted]

Client money received after the failure of the firm

CASS 7A.2.7
01/07/2014
FCA
Client money received by the firm after a primary pooling event in respect of a pool must not be pooled with client money held in any client money account operated by the firm either in respect of that pool or any other pool at the time of the primary pooling event. It must be placed in a client bank account that has been opened after that event and must be handled in accordance with the client money rules, and returned to the relevant client without delay, except to the extent that:
(1) it is client money relating to a transaction that has not settled at the time of the primary pooling event; or
(2) it is client money relating to a client, for whom the client money entitlement, calculated in accordance with CASS 7A.2.5 R, shows that money is due from the client to the firm at the time of the primary pooling event.
CASS 7A.2.7A
01/12/2014
FCA
If a firm opens a client bank account after a primary pooling event, it must comply with CASS 7.8.14 R regarding acknowledgement letters.
CASS 7A.2.8
01/01/2009
FCA
Client money received after the primary pooling event relating to an unsettled transaction should be used to settle that transaction. Examples of such transactions include:
(1) an equity transaction with a trade date before the date of the primary pooling event and a settlement date after the date of the primary pooling event; or
(2) a contingent liability investment that is 'open' at the time of the primary pooling event and is due to settle after the primary pooling event.
CASS 7A.2.9
01/01/2009
FCA
If a firm receives a mixed remittance after a primary pooling event, it must:
(1) pay the full sum into the separate client bank account opened in accordance with CASS 7A.2.7 R; and
(2) pay the money that is not client money out of that client bank account into a firm's own bank account within one business day of the day on which the firm would normally expect the remittance to be cleared.
CASS 7A.2.10
01/01/2009
FCA
Whenever possible the firm should seek to split a mixed remittance before the relevant accounts are credited.
CASS 7A.2.11
01/01/2009
FCA
If both a primary pooling event and a secondary pooling event occur, the provisions of this section relating to a primary pooling event apply.

CASS 7A.3 Secondary pooling events

Failure of a bank, intermediate broker, settlement agent or OTC counterparty: secondary pooling events

CASS 7A.3.1
01/06/2015
FCA
A secondary pooling event occurs on the failure of a third party 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 R (Transfer of client money to a third party).
CASS 7A.3.2
01/01/2009
FCA
CASS 7A.3.6 R to CASS 7A.3.18 R do not apply if, on the failure of the third party, the firm repays to its clients or pays into a client bank account, at an unaffected bank, an amount equal to the amount of client money which would have been held if a shortfall had not occurred at that third party.
CASS 7A.3.3
01/01/2009
FCA
When client money is transferred to a third party, a firm continues to owe fiduciary duties to the client. Whether a firm is liable for a shortfall in client money caused by a third party failure will depend on whether it has complied with its duty of care as agent or trustee.

Failure of a bank

CASS 7A.3.4
01/06/2015
FCA
When a bank fails and the firm decides not to make good the shortfall in the amount of client money held at that bank, a secondary pooling event will occur in accordance with CASS 7A.3.6 R. The firm would be expected to reflect the shortfall that arises at the failed bank 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) in its records of the entitlement of clients and of money held with third parties under CASS 7.15 (Records, accounts and reconciliations).
CASS 7A.3.5
01/01/2009
FCA
The client money distribution rules 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