CASS 13.11 Client money distribution in the event of a failure of a firm or approved bank

1This section (the claims management client money distribution rules) applies to a firm that holds client money which is subject to the claims management client money rules when a primary pooling event or a secondary pooling event occurs.

1A primary pooling event occurs:

1. (1)

   on the failure of the 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; or

3. (3)

   on the coming into force of a requirement or requirements which, either separately or in combination:

   1. (a)

      is or are for all client money held by the firm; and

   2. (b)

      require the firm to take steps to cease holding all client money.

1If a primary pooling event occurs, then:

1. (1)

   all client money:

   1. (a)

      held in the firm’s client bank accounts; and

   2. (b)

      any client money identifiable in any other account held by the firm into which client money has been received;

   is treated as pooled together to form a notional pool; and

2. (2)

   a firm must calculate the amount it should be holding on behalf of each individual customer as at the time of the primary pooling event using the method of calculating individual customer balance provided for by CASS 13.10.13R.

1Where a primary pooling event occurs and the client money pool is not transferred to another firm in accordance with CASS 13.11.6R, a firm must distribute client money comprising the notional pool so that each client receives a sum that is rateable to its entitlement to the notional pool calculated in accordance with CASS 13.11.4R(2).

1. (1)

   2Subject to (2), as an alternative to distributing a client’s client money to them under CASS 13.11.5R, 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 13.9.4R.

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 13.11.5R.

1If, in the event of a primary pooling event occurring, the regulated claims management activity business undertaken by a firm (“the transferor”) is to be transferred to another firm (“the transferee”), then the transferor may move the client money pool to the transferee.

1If the transferor decides to move the client money pool to the transferee, the transferor must immediately on making the decision, and before the move takes place, notify the FCA in writing of:

1. (1)

   the proposed move, including the date of the proposed move if known at the time of the notification; and

2. (2)

   the proposed transferee.

1The client money pool may be transferred under CASS 13.11.6R only if it will be held by the transferee in accordance with CASS 13, including the statutory trust in CASS 13.3.1R.

1If there is a shortfall in the client money transferred under CASS 13.11.6R then the client money must be allocated to each of the customers for whom the client money was held so that each client is allocated a sum which is rateable to that customer’s client money entitlement in accordance with CASS 13.11.4R(2). This calculation may be done by either transferor or transferee in accordance with the terms of any transfer.

1The transferee must, within seven days after the transfer of client money under CASS 13.11.6R notify customers 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 customers and conduct regulated claims management activities for those customers.

1. (1)

   2This 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 13.11.5R 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 13.9.4R.

1A secondary pooling event occurs on the failure of an approved bank at which a firm holds client money in a client bank account.

1. (1)

   1Subject 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 13.11.13R(1), CASS 13.11.13R(2) and CASS 13.11.13R(3) will apply.

2. (2)

   CASS 13.11.13R does not apply if, on the failure of the approved bank, the 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.

1Money 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 customers 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 customer 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 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 13.10.9R.

1The 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.

1Any interest earned on client money following a primary or secondary pooling event will be due to clients in accordance with CASS 13.6.10R (Interest).