CASS 4.1 Application and Purpose

This section (the client money rules) applies to a firm that receives or holds money from, or on behalf of, a client in the course of, or in connection with:

1. (1)

   its designated investment business; or1

2. (2)

   1in the circumstances set out in CASS 4.1.1A R, insurance mediation activity;

1except where CASS 4.1.2 R applies.1

1A firm that receives or holds money to which this section applies and money in respect of which CASS 5.1 applies, may elect to comply with the provisions of this section CASS 44 in respect of all such money and if it does so CASS 4 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.

The client money rules do not apply with respect to:

1. (1)

   the permitted activities of a long-term insurer or a friendly society; or

2. (2)

   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; or

3. (3)

   money held by a firm which is an approved bank, but only when held in an account with itself, in which case the firm must notify the client in writing that:

   1. (a)

      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

   2. (b)

      as a result, the money will not be held in accordance with the client money rules;

      1
4. (4)

   money held by depositaries which are regulated by COB 11;

5. (5)

   1client money held by a firm which:

   1. (a)

      receives or holds client money in relation to contracts of insurance; but which

   2. (b)

      in relation to such client money elects to act in accordance with CASS 5.1 to 5.6.

1A firm should make and retain a written record of any election which it makes under CASS 4.1.1A R or CASS 4.1.2 R (5).

Subject to CASS 4.1.11 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 market counterparty or an intermediate customer4, other than in the course of insurance mediation activity, and the firm has obtained written acknowledgement from the market counterparty or intermediate customer that:3

1. (1)

   the money will not be subject to the protections conferred by the client money rules;

2. (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. (3)

   the market counterparty or intermediate customer will rank only as a general creditor of the firm.

Money is not client money if a firm, in respect of designated investment business which is not a core investment service, a non-core investment service, a listed activity or insurance mediation activity:3

1. (1)

   holds it on behalf of or receives it from a market counterparty who is not an authorised person or an intermediate customer who is not an authorised person; and

2. (2)

   has sent a separate written notice stating the matters set out in CASS 4.1.9 R (1) to (3).

When a firm transfers client money to another person, the firm must not enter into an agreement under CASS 4.1.9 R or CASS 4.1.11 R with that other person in relation to that client money or represent to that other person that the money is not client money.

Money need not be treated as client money in respect of a delivery versus payment transaction through a commercial settlement system if it is intended that either:

1. (1)

   in respect of a client's purchase, money from a client will be due to the firm within one business day upon the fulfilment of a delivery obligation; or

2. (2)

   in respect of a client's sale, money is due to the client within one business day following the client's fulfilment of a delivery obligation;

unless the delivery or payment by the firm does not occur by the close of business on the third business day following the date of payment or delivery of the investments by the client.

Money need not be treated as client money 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, if:

1. (1)

   the authorised fund manager receives it from a client in relation to the authorised fund manager's obligation to issue units, in an AUT or to arrange for the issue of units in an ICVC, in accordance with CIS, unless the price of those units has not been determined by the close of business on the next business day:

   1. (a)

      following the date of the receipt of the money from the client; or

   2. (b)

      if the money was received by an appointed representative of the authorised fund manager, in accordance with CASS 4.3.15 R, following the date of receipt at the specified business address of the authorised fund manager; or

2. (2)

   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 CIS; when an authorised fund manager draws a cheque or other payable order within these timeframes the provisions of CASS 4.3.101 R and CASS 4.3.102 R will not apply.2

Money is not client money if the firm holds it on behalf of, or receives it from, an affiliated company, unless:

1. (1)

   the firm has been notified by the affiliated company that the money belongs to a client of the affiliated company; or

2. (2)

   the affiliated company is a client dealt with at arm's length; or

3. (3)

   the affiliated company is a manager of an occupational pension scheme or is an overseas company; and

   1. (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

   2. (b)

      the firm has been notified by the affiliated company that the money is to be treated as client money.

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

An authorised professional firm regulated by The Law Society (England and Wales), The Law Society of Scotland or The Law Society of Northern Ireland must comply with the rules of its designated professional body as specified in CASS 4.1.26 R, in force at commencement, and if it does so, it will be deemed to comply with CASS 4.1 to CASS 4.3.

For the purposes of CASS 4.1.25 R the relevant rules are:

1. (1)

   if regulated by the Law Society (of England and Wales):

   1. (a)

      the Solicitors' Accounts Rules 1998; or

   2. (b)

      where applicable, the Solicitors Overseas Practice Rules 1990;

2. (2)

   if regulated by the Law Society of Scotland, the Solicitors' (Scotland) Accounts, Accounts Certificate, Professional Practice and Guarantee Fund Rules 2001;

3. (3)

   if regulated by the Law Society of Northern Ireland, the Solicitors' Accounts Regulations 1998.

A trustee firm must hold any client money separate from its own money at all times.

Only the client money rules listed in COB 9.3.29 apply to a trustee firm in respect of client money held in the course of that trustee business.