CASS 11.13 Client money distribution in the event of a failure of a firm or approved bank

This section (the debt management client money distribution rules) applies to a CASS debt management firm that holds client money which is subject to the debt management client money rules when a primary pooling event or a secondary pooling event occurs.

A primary pooling event occurs:

1. (1)

   on the failure of a CASS debt management firm;

2. (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 where such a requirement is imposed in respect of all client money held by the firm.

If a primary pooling event1 occurs, then:2

1. (1)

   all client money:2

   1. (a)

      held in the CASS debt management firm's client bank accounts; and

   2. (b)

      received by the CASS debt management firm on behalf of a client but not yet paid into the firm's client bank accounts;

   is treated as pooled together to form a notional pool;

2. (2)

   a CASS debt management firm must calculate the amount it should be holding on behalf of each individual client as at the time of the primary pooling event using the method of calculating individual client balance provided for by CASS 11.11.21 R;

3. (3)

   a CASS debt management firm must decide whether it is in the best interests of its clients to transfer all its debt management activity business to another CASS debt management firm.

Where a primary pooling event1 occurs and the client money is not transferred to another firm in accordance with CASS 11.13.4 R, a CASS debt management firm must distribute client money comprising the notional pool so that each client 2 receives a sum that is rateable to their entitlement to the notional pool calculated in CASS 11.13.4 R (2).

1. (1)

   3Subject to (2), as an alternative to distributing a client’s client money to them under CASS 11.13.5R, a firm may transfer all of that client’s client money to a dormant asset fund operator under the applicable provisions of Part 1 of the Dormant Assets Act 2022 and in accordance with CASS 11.4.5R.

2. (2)

   As a consequence of any such transfer to a dormant asset fund operator, the firm must not distribute to any other client an amount of money that would be less than that which such other client was entitled to have distributed under CASS 11.13.5R.

The remaining client money may be transferred under CASS 11.13.6 G only if it will be held by the transferee in accordance with the debt management client money chapter, including the statutory trust in CASS 11.6.1 R.

If there is a shortfall in the client money transferred under CASS 11.13.6 G then the client money must be allocated to each of the clients for whom the client money was held so that each client is allocated a sum which is rateable to that client's client money entitlement in accordance with CASS 11.13.4 R (2). This calculation may be done by either transferor or transferee in accordance with the terms of any transfer.

The transferee must, within seven days after the transfer of client money under CASS 11.13.6 G notify clients that:

1. (1)

   their money has been transferred to the transferee; and

2. (2)

   they have the option of having client money returned to them or to their order by the transferee, otherwise the transferee will hold the client money for the clients and conduct debt management activities for those clients.

1. (1)

   3This rule applies to a firm which, prior to a primary pooling event, had put in place contractual or other arrangements with a dormant asset fund operator of the sort described at section 23 of the Dormant Assets Act 2022.

2. (2)

   If, having attempted to, a firm is unable to distribute a balance of client money in accordance with CASS 11.13.5R to the relevant client, it must attempt to transfer the balance to a dormant asset fund operator under the applicable provisions of Part 1 of the Dormant Assets Act 2022 and in accordance with CASS 11.4.5R.

A secondary pooling event occurs on the failure of an approved bank at which a CASS debt management firm holds client money in a client bank account.

1. (1)

   Subject to (2), if a secondary pooling event occurs as a result of the failure of an approved bank where one or more client bank accounts are held then in relation to every client bank account of the firm, the provisions of CASS 11.13.12 R (1), CASS 11.13.12 R (2) and CASS 11.13.12 R (3) will apply.

2. (2)

   CASS 11.13.12 R does not apply if, on the failure of the approved bank, the CASS debt management firm pays to its clients, or pays into a client bank account at an unaffected approved bank, an amount equal to the amount of client money that would have been held if a shortfall had not occurred as a result of the failure.

Money held in each client bank account of the firm must be treated as pooled and:

1. (1)

   any shortfall in client money held, or which should have been held, in client bank accounts, that has arisen as a result of the failure of the approved bank, must be borne by all clients whose client money is held in a client bank account of the firm, rateably in accordance with their entitlements to the pool;

2. (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. (3)

   the CASS debt management firm must make and retain a record of each client's share of the client money shortfall at the failed approved bank until the client is repaid; and

4. (4)

   the firm must use the new client entitlements, calculated in accordance with (2), when performing the client money calculation in CASS 11.11.17 R.

The term 'which should have been held' is a reference to the failed approved bank's failure to hold the client money at the time of the pooling event.

Any interest earned on client money following a primary or secondary pooling event will be due to clients in accordance with CASS 11.9.11 R (Interest).