1This chapter applies to a firm that:

1. (1)

   carries on a regulated claims management activity; and

2. (2)

   receives or holds client money.

1A firm must, when holding client money, make adequate arrangements to safeguard the customer’s rights and prevent the use of client money for its own account.

1A 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.

1A firm must allocate to a director or senior manager responsibility for:

1. (1)

   oversight of the firm’s operational compliance with CASS 13;

2. (2)

   reporting to the firm’s governing body in respect of that oversight; and

3. (3)

   completing and submitting the client money parts of a CMC001 return in accordance with SUP 16.25.3R to SUP 16.25.8R.

1. (1)

   1A firm must make and retain an appropriate record of the person to whom responsibility is allocated in accordance with CASS 13.2.3R.

2. (2)

   But a firm must make and retain such a record only where:

   1. (a)

      there is a person in that firm who performs the compliance oversight function; and

   2. (b)

      it allocates responsibility in accordance with CASS 13.2.3R to a person other than the person in that firm who performs the compliance oversight function.

3. (3)

   A firm must ensure that a record made under this rule is retained for a period of five years after it is made.

1A firm receives and holds client money as trustee on the following terms:

1. (1)

   for the purposes and on the terms of the claims management client money rules and the claims management client money distribution rules;

2. (2)

   subject to (3), for the customers for whom that money is held, according to their respective interests in it;

3. (3)

   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

4. (4)

   after all valid claims and costs under (2) and (3) have been met, for the firm itself.

1Before a firm opens a client bank account and as often as is appropriate on a continuing basis (such frequency being no less than once in each financial year) it must take reasonable steps to establish that it is appropriate for the firm to hold client money at the approved bank concerned.

1A firm must consider the risks associated with holding all client money with one approved bank and should consider whether it would be appropriate to hold client money in client bank accounts at a number of different approved banks.

1. (1)

   1For each client bank account, a firm must, in accordance with CASS 13.5.4R, complete and sign a client bank account acknowledgement letter clearly identifying the client bank account, and send it to the approved bank with whom the client bank account is, or will be, opened, requesting the bank to acknowledge and agree to the terms of the letter by countersigning it and returning it to the firm.

2. (2)

   Subject to CASS 13.5.6R, 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 approved bank. The letter must not have been inappropriately redrafted and should clearly identify the client bank account.

1In drafting client bank account acknowledgement letters under CASS 13.5.2R a firm is required to use the relevant template in CASS 13 Annex 1R.

1When completing a client bank account acknowledgement letter under CASS 13.5.2R(1) a firm:

1. (1)

   must not amend any of the acknowledgement letter fixed text;

2. (2)

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

3. (3)

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

1. (1)

   1If, on countersigning and returning the client bank account acknowledgement letter to a firm, the relevant approved bank has also:

   1. (a)

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

   2. (b)

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

   the client bank account acknowledgement letter will have been inappropriately redrafted for the purposes of CASS 13.5.2R(2).

2. (2)

   Amendments made to the acknowledgement letter variable text, in the client bank account acknowledgement letter returned to a firm by the relevant approved bank, will not have the result that the letter has been inappropriately redrafted if those amendments:

   1. (a)

      do not affect the meaning of the acknowledgement letter fixed text;

   2. (b)

      have been specifically agreed with the firm; and

   3. (c)

      do not cause the client bank account acknowledgement letter to be inaccurate.

1A firm must use reasonable endeavours to ensure that any individual that has countersigned a client bank account acknowledgement letter that has been returned to the firm was authorised to countersign the letter on behalf of the relevant approved bank.

1A firm must retain each countersigned client bank account acknowledgement letter it receives from the date of receipt until the expiry of a period of five years starting on the date on which the last client bank account to which the acknowledgment letter relates is closed.

1A 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 a client bank account acknowledgement letter that has been returned to the firm was authorised to countersign the letter on behalf of the relevant approved bank).

1A firm must, periodically (at least annually, and whenever it becomes aware that something referred to in a client bank account acknowledgement letter has changed) review each of its countersigned client bank account acknowledgement letters to ensure that they remain accurate.

1Whenever a firm finds a countersigned client bank account acknowledgement letter to contain an inaccuracy, the firm must promptly draw up a new replacement client bank account acknowledgement letter under CASS 13.5.2R and ensure that the new client bank account acknowledgement letter is duly countersigned and returned by the relevant approved bank.

1If a firm’s client bank account is transferred to another approved bank, the firm must promptly draw up a new client bank account acknowledgement letter under CASS 13.5.2R and ensure that the new client bank account acknowledgement letter is duly countersigned and returned by the relevant approved bank within 20 business days of the firm sending it to that person.

1A firm must take all reasonable steps to ensure that all client money it receives is paid directly into a client bank account at an approved bank, rather than being first received into the firm’s own account and then segregated.

1A firm must ensure that client money is held in a client bank account at one or more approved banks.

1Cheques received by a firm, made out to the firm, representing client money or a mixed remittance must be treated as client money from receipt by the firm.

1Where a firm receives client money in the form of cash, a cheque or other payable order, it must:

1. (1)

   pay the money into a client bank account in accordance with CASS 13.6.1R promptly and no later than the business day after the day on which it receives the money;

2. (2)

   if the firm holds the money overnight, hold it in a secure location in line with Principle 10; and

3. (3)

   record the receipt of the money in the firm’s books and records under the applicable requirements of CASS 13.10 (Records, accounts and reconciliations).

1If a firm receives money (either in a client bank account or an account of its own) which it is unable immediately to identify as client money or its own money, it must:

1. (1)

   take all necessary steps to identify the money as either client money or its own money; and

2. (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).

1If a firm receives a mixed remittance it must:

1. (1)

   pay the full sum into a client bank account promptly and in accordance with CASS 13.6.1R to 13.6.5R; and

2. (2)

   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.

1A firm must pay a client any interest earned on client money held for that client.

1 Money is not client money when it is or becomes properly due and payable to the firm for its own account.

1 Client money in respect of money recovered for a customer or money in respect of damages, compensation or settlement of a claim received into a client bank account must be paid to the customer, or a duly authorised representative of the customer, as soon as reasonably practicable after receipt and, in any event, a firm must take steps within two business days of receipt to make such a payment.

1 Money received from a customer in respect of third party disbursements which is due and payable to the third party in accordance with the terms of the contractual arrangements between the parties should be paid to the third party as soon as reasonably practicable after receipt.

1 Money ceases to be client money if:

1. (1)

   it is paid to the customer, or a duly authorised representative of the customer; or

2. (2)

   it is:

   1. (a)

      paid to a third party on the instruction of the customer, or with the specific consent of the customer; or

   2. (b)

      paid to a third party further to an obligation on the firm under any applicable law; or

3. (3)

   it is paid into an account of the customer (not being an account which is also in the name of the firm) on the instruction, or with the specific consent, of the customer; or

4. (4)

   it is due and payable to the firm for its own account (see CASS 13.7.1R to 13.7.2G); or

5. (5)

   it is paid to the firm as an excess in the client bank account (see CASS 13.10.15R(3)).

1When 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.

1. (1)

   1A 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 customer from client money held for any other customer, and from its own money.

2. (2)

   A firm must allocate in its books and records any client money it receives to an individual customer promptly and, in any case, no later than two business days following the receipt.

3. (3)

   Pending a firm’s allocation of a receipt of client money to an individual customer under (2), it must record the received client money in its books and records as “unallocated client money”.

1A 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 individual customers.

1A firm must maintain up-to-date records that detail all payments received for, or on behalf of, customers and all payments to, from, or made on behalf of, customers.

1A firm must carry out an internal client money reconciliation each business day.

1An internal client money reconciliation requires a firm to check whether its client money resource, as determined by CASS 13.10.8R, on the previous business day, was at least equal to the client money requirement, as determined by CASS 13.10.9R, as at the close of business on that day.

1In 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 approved banks with whom it has deposited client money (for example, bank statements).

1The client money resource for client money held in accordance with CASS 13.10.6R is the aggregate of the balances on the firm’s client bank accounts, as at the close of business on the previous business day.

1. (1)

   1The client money requirement is the sum of:

   1. (a)

      the aggregate of all individual customer balances calculated in accordance with CASS 13.10.13R and CASS 13.10.14R;

   2. (b)

      the amount of any unallocated client money under CASS 13.10.1R(3);

   3. (c)

      the amount of any unidentified client money under CASS 13.6.6R(2)R; and

   4. (d)

      any other amounts of client money included in the calculation under (2).

2. (2)

   For the purposes of (1)(d), the firm must consider whether there are amounts of client money, other than those in (1)(a) to (c), to which the requirement to segregate applies and that it is appropriate to include in the calculation of its client money requirement and, if so, adjust the calculation accordingly.

1The individual customer balance for each client must be calculated as follows:

1. (1)

   the amount received for or on behalf of the customer by the firm; plus

2. (2)

   the amount of any interest, and any other sums, due from the firm to the customer; less:

3. (3)

   the aggregate of the amount of money:

   1. (a)

      paid to that customer by the firm; and

   2. (b)

      due and payable by the customer to the firm; and

   3. (c)

      due by the customer to a third party in accordance with the contractual arrangements in place between the firm and the customer.

1Where the individual customer balance calculated in respect of an individual client under CASS 13.10.13R is a negative figure (because the amounts received for or on behalf of, or due, to a client under CASS 13.10.13R(1) and CASS 13.10.13R(2) are less than the amounts paid by, or due and payable by, that customer under CASS 13.10.13R(3), that individual customer balance should be treated as zero for the purposes of the calculation of the firm’s client money requirement in CASS 13.10.9R.

1When an internal client money reconciliation reveals a difference between the client money resource and its client money requirement a firm must:

1. (1)

   identify the reason for the difference;

2. (2)

   ensure that any shortfall in the amount of the client money resource as compared to the amount of the client money requirement is made up by a payment into the firm’s client bank accounts by the end of the business day following the day on which the difference was discovered; and

3. (3)

   ensure that any excess in the amount of the client money resource as compared to the amount of the client money requirement is withdrawn from the firm’sclient bank accounts by the end of the business day following the day on which the difference was discovered.

1A firm must perform an external client money reconciliation:

1. (1)

   each business day; and

2. (2)

   as soon as reasonably practicable after the relevant internal client money reconciliation;

to ensure the accuracy of its internal accounts and records by comparing its internal accounts records against those of approved banks with whom client money is deposited.

1When any discrepancy is revealed by an external client money reconciliation, a 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 system of the party providing the statement or confirmation and that of the firm.

1While a firm is unable to resolve a discrepancy arising from an external client money reconciliation, and one record or a set of records examined by the firm during the reconciliation process indicates that there is a need to have 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 pay its own money into a relevant client bank account.

1A firm must inform the FCA in writing without delay if:

1. (1)

   its internal records and accounts of client money are materially out of date or materially inaccurate so that the firm is no longer able to comply with the requirements in CASS 13.10.1R to CASS 13.10.4R; or

2. (2)

   it will be unable to or materially fails to conduct an internal client money reconciliation in compliance with CASS 13.10.5R; or

3. (3)

   after having carried out an internal client money reconciliation in accordance with CASS 13.10.5R it will be unable to, or materially fails to, pay any shortfall into (or withdraw any excess from) a client bank account so that the firm is unable to comply with CASS 13.10.15R; or

4. (4)

   it will be unable to or materially fails to conduct an external client money reconciliation in compliance with CASS 13.10.17R; or

5. (5)

   after having carried out an external client money reconciliation in accordance with CASS 13.10.17R it will be unable to, or materially fails to, identify the reason for any discrepancies and correct them in accordance with CASS 13.10.19R; or

6. (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 in accordance with the segregation requirements in CASS 13.6.

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).

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.

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.

1 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 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).