CASS 4.2 Statutory trust1
Application1
Section 139(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). CASS 4.2.3 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.
Requirement
A firm (other than a firm acting in accordance with CASS 4.2.6 R) 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 the client money rules and the client money distribution rules;
- (2)
subject to (3), for the clients for whom that money is held, according to their respective interests in it;
- (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)
after all valid claims and costs under (2) and (3) have been met, for the firm itself.
A firm can hold client money in either a general client bank account or a designated client bank account. 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 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. 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 4.3.5 R to CASS 4.3.7 G set out the circumstances in which it is permissible for a firm to hold money, which would otherwise be money belonging to the firm, in a client bank account.
A trustee firm:
- (1)
must receive and hold client money in accordance with the relevant instrument of trust;
- (2)
subject to that, receives and holds client money on trust on the terms (or in Scotland on the agency terms) specified in CASS 4.2.3 R.
If a trustee firm holds client money in accordance with CASS 4.2.6 R(2), the firm should follow the provisions in CASS 4.1.27 R and CASS 4.1.28 R.