CASS 7.10 Application and purpose

11This chapter applies to a firm that receives money from or holds money for, or on behalf of, a client in the course of, or in connection with, its:

1. (1)

   MiFID business; and/or

2. (2)

   designated investment business; and/or3

3. (3)

   stocks and shares ISA business;3 and/or5

4. (4)

   innovative finance ISA business;5 and/or6

5. (5)

   lifetime ISA business,

   6

unless otherwise specified in this section.

1. (1)

   A firm that receives or holds money to which this chapter applies in relation to:

   1. (a)

      its MiFID business; or

   2. (b)

      its MiFID business and its designated investment business which is not MiFID business;

   and holds money in respect of which CASS 5 applies, may elect to comply with the provisions of this chapter in respect of all such money and if it does so, this chapter applies as if all such money were money that the firm receives and holds in the course of, or in connection with, its MiFID business.

2. (2)

   A firm that receives or holds money to which this chapter applies solely in relation to its designated investment business which is not MiFID business and receives or holds money in respect of which the insurance client money chapter applies, may elect to comply with the provisions of this chapter in respect of all such money and if it does so, this chapter 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.

3. (2A)
   1. (a)

      A firm may elect to comply with all the provisions of this chapter for money that it receives or holds in respect of an ISA that only contains a cash deposit ISA.3

   2. (b)

      Where a firm makes an election under (a), this chapter applies to it in the same way that it applies to a firm who receives and holds money in the course of or in connection with its MIFID business.3

4. (3)

   A firm must make and retain a written record of any election it makes under this rule, including the date from which the election is to be effective. The firm must make the record on the date it makes the election and must keep it for a period of five years after ceasing to use it.

5. (4)

   This rule is subject to CASS 1.2.11 R.

3Where a firm opts into this chapter under CASS 7.10.3 R (2A) it must notify clients for whom it holds the opted-in money that it is holding their money in accordance with the client money rules.

1. (1)

   4If both the conditions in (a) and (b) below are met in respect of a firm, or the firm reasonably expects that they will all be met in the future, then the firm has the option to elect to comply with this chapter for all of the money described in those conditions:

   1. (a)

      the firm receives or holds money for one or more persons in the course of, or in connection with, the firm’s activity of operating an electronic system in relation to non-P2P agreements; and

   2. (b)

      those persons are customers of the firm in their capacity as lenders under non-P2P agreements or prospective lenders under non-P2P agreements.

2. (2)

   A firm can only make the election under (1) by informing the FCA in writing of the election at least one month before the date on which it intends to start holding the money in accordance with the client money rules (“the effective date”).

3. (3)

   The communication in (2) must specify the effective date.

4. (4)

   The firm may change the effective date after it has made the communication in (2) provided that:

   1. (a)

      it informs the FCA in writing before the new effective date; and

   2. (b)

      the new effective date is not less than one month after the date of the communication in (2).

1. (1)

   4When a firm makes an election under CASS 7.10.7AR it must write to any customer (“C”) with whom it has agreed to provide relevant electronic lending services in C’s capacity as a lender or prospective lender, informing C at least one month before it will start to hold the money in accordance with the client money rules:

   1. (a)

      that all the money it holds in the course of, or in connection with, operating an electronic system in relation to non-P2P agreements for lenders and prospective lenders under non-P2P agreements will be treated in accordance with the client money rules; and

   2. (b)

      of the date on which this will start.

2. (2)

   The firm must also write to any customer (“C”) with whom, following the firm’s election, it agrees to provide relevant electronic lending services in C’s capacity as a lender or prospective lender.

   1. (a)

      The firm must make this communication in advance of it receiving any money from or on behalf of C.

   2. (b)

      The communication must inform C that all the money the firm holds in the course of, or in connection with, operating an electronic system in relation to non-P2P agreements for lenders and prospective lenders under non-P2P agreements will be treated in accordance with the client money rules from the date specified under (1)(b) or, if that date has passed, that this will be the case from the time of the communication onwards.

4Once an election made by a firm under CASS 7.10.7AR becomes effective, and until it ceases to be effective:

1. (1)

   the firm must treat all the money referred to under CASS 7.10.7AR(1) in accordance with the election; and

2. (2)

   for the purposes of (1), this chapter applies to the firm in the same way that it applies to a firm that receives and holds money in the course of or in connection with its designated investment business, except that:

   1. (a)

      CASS 7.10.10R will not apply to the money referred to under CASS 7.10.7AR(1); and

   2. (b)

      “client” for the purposes of CASS and rules and guidance related to CASS and their application to the firm includes customers of the firm in their capacity as lenders or prospective lenders under non-P2P agreements.

4If a firm that has made an election under CASS 7.10.7AR subsequently decides to cancel that election:

1. (1)

   it can only do so by writing to the FCA, at least one month before the date the election ceases to be effective;

2. (2)

   it must write to any customer with whom, as at the time of the cancellation, it has agreed to operate an electronic system in relation to non-P2P agreements in their capacity as a lender or prospective lender, informing them at least one month before the date the election ceases to be effective:

   1. (a)

      of the extent to which it will cease to hold their money in accordance with the client money rules; and

   2. (b)

      of the date from which those changes will take effect; and

3. (3)

   it must write to any customer (“C”) with whom, following the firm’s decision to cancel the election but before the election ceases to be effective, it agrees to operate an electronic system in relation to non-P2P agreements in C’s capacity as a lender or prospective lender, in advance of the firm receiving any money from them or on their behalf, informing them:

   1. (a)

      of the period during which it will continue to hold all the money of lenders and prospective lenders under non-P2P agreements in accordance with the client money rules;

   2. (b)

      of the extent to which it will subsequently cease to hold their money in accordance with the client money rules; and

   3. (c)

      of the date from which those changes will take effect.

1. (1)

   4A firm must make and retain a written record of any election it makes under CASS 7.10.7AR including:

   1. (a)

      the date from which the election is to be effective; and

   2. (b)

      if it cancels the election, the date from which the election is to cease to be effective.

2. (2)

   The firm must:

   1. (a)

      make the record on the date it makes the election;

   2. (b)

      update the record it if it decides to cancel the election or change the effective date; and

   3. (c)

      keep the record for a period of five years after ceasing to use the election.

CASS 7.10.9 G to CASS 7.10.15 G do not apply to a firm in relation to money held in connection with its MiFID business to which this chapter applies or in relation to money for which the firm has made an election under CASS 7.10.3 R(1) or CASS 7.10.7AR4.

Subject to CASS 7.10.12 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 professional client, other than in the course of insurance distribution activity10, and the firm has obtained written acknowledgement from the professional client that:

1. (1)

   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 professional client 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 an investment service or activity, an ancillary service, a listed activity or insurance distribution activity10:

1. (1)

   holds it on behalf of or receives it from a professional client who is not an authorised person; and

2. (2)

   has sent a separate written notice to the professional client stating the matters set out in CASS 7.10.10 R (1) to CASS 7.10.10 R (3).

When a firm transfers client money to another person, the firm must not enter into an agreement under CASS 7.10.10 R or CASS 7.10.12 R with that other person in relation to that client money or represent to that other person that the money is not client money.

In relation to the application of the client money rules (and any other rule in so far as it relates to matters covered by the client money rules) to the firms referred to in (1) and (2), the following is not client money:

1. (1)

   any deposits within the meaning of the CRD held by a CRD credit institution; and

   [Note: article 16(9)7 of MiFID and article 4(1)7 of the MiFID Delegated Directive7]

2. (2)

   any money held by an approved bank that is not a CRD credit institution in an account with itself in relation to designated investment business carried on for its clients.

A firm holding money in either of the ways described in CASS 7.10.16 R must, before providing designated investment business services to the client in respect of those sums, notify the client that:

1. (1)

   the money held for that client is held by the firm as banker and not as a trustee under the client money rules; and

2. (2)

   if the firm fails, the client money distribution and transfer rules8 will not apply to these sums and so the client will not be entitled to share in any distribution under the client money distribution and transfer rules8.

A firm holding money in either of the ways described in CASS 7.10.16 R in respect of a client and providing the services to it referred to in CASS 7.10.19 R must:

1. (1)

   explain to its clients the circumstances, if any, under which it will cease to hold any money in respect of those services as banker and will hold the money as trustee in accordance with the client money rules; and

2. (2)

   set out the circumstances in (1), if any, in its terms of business so that they form part of its agreement with the client.

If a CRD credit institution or an approved bank that is not a CRD credit institution wishes to hold client money for a client (rather than hold the money in either of the ways described in CASS 7.10.16 R) it must, before providing designated investment business services to the client, disclose the following information to the client:

1. (1)

   that the money held for that client in the course of or in connection with the business described under (2) is being held by the firm as client money under the client money rules;

2. (2)

   a description of the relevant business carried on with the client in respect of which the client money rules apply to the firm; and

3. (3)

   that, if the firm fails, the client money distribution and transfer rules8 will apply to money held in relation to the business in question.

A CRD credit institution or an approved bank that is not a CRD credit institution must, in respect of any client money held in relation to its designated investment business that is not MiFID business, comply with the obligations referred to in COBS 6.1.16 R (Compensation information).

A firm that holds money on behalf of, or receives money from, an affiliated company in respect of designated investment business which is not MiFID business must not treat the money as client money 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.

The client money rules do not apply with respect to 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.

1. (1)

   An authorised professional firm regulated by the Law Society (of England and Wales), the Law Society of Scotland or the Law Society of Northern Ireland that, with respect to its regulated activities, is subject to the following rules of its designated professional body, must comply with those rules and, where relevant paragraph (3), and if it does so, it will be deemed to comply with the client money rules.

2. (2)

   The relevant rules are:

   1. (a)

      if the firm is regulated by the Law Society (of England and Wales), the SRA Accounts Rules 2011;

   2. (b)

      if the firm is regulated by the Law Society of Scotland, the Law Society of Scotland Practice Rules 2011; and

   3. (c)

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

3. (3)

   If the firm in (1) is a MiFID investment firm that receives or holds money for, or on behalf of a client in the course of, or in connection with its MiFID business, it must also comply with the MiFID client money (minimum implementing) rules in relation to that business.

This chapter does not apply to the permitted activities of a long-term insurer or a friendly society, unless it is a MiFID investment firm that receives money from or holds money for or on behalf of a client in the course of, or in connection with, its MiFID business.

1. (1)

   Provided it complies with CASS 1.2.11 R, a firm that receives or holds client money in relation to contracts of insurance may elect to comply with the provisions of the insurance client money chapter, instead of this chapter, in respect of all such money.

2. (2)

   This rule is subject to CASS 1.2.11 R.

A firm must make and retain a written record of any election which it makes under CASS 7.10.30 R.

A trustee firm which holds money in relation to its designated investment business which is not MiFID business to which this chapter applies, must hold any such client money separate from its own money at all times.

1. (1)

   A trustee firm to which CASS 7.10.34 R applies may, in addition to the client money rules set out at CASS 7.10.34 R, also elect to comply with:

   1. (a)

      all the client money rules in CASS 7.13 (Segregation of client money);

   2. (b)

      CASS 7.14 (Client money held by a third party);

   3. (c)

      all the client money rules in CASS 7.15 (Records, accounts and reconciliations); or

   4. (d)

      CASS 7.18 (Acknowledgement letters).

2. (2)

   A trustee firm must make a written record of any election it makes under this rule, including the date from which the election is to be effective. The firm must make the record on the date it makes the election and must keep it for a period of five years after ceasing to use it.

3. (3)

   Where a trustee firm has made an election under (1) which it subsequently decides to cease to use, it must make a written record of this decision, including the date from which the decision is to be effective, and keep that record from the date the decision is made for a period of five years after the date it is to be effective.

A trustee firm to which CASS 7.10.34 R applies and which is otherwise subject to the client money rules must ensure that any client money it holds other than in its capacity as trustee firm is segregated from client money it holds as a trustee firm.

1. (1)

   A trustee firm to which CASS 7.10.34 R applies may elect that:

   1. (a)

      the applicable provisions of CASS 7.13 (Segregation of client money) and CASS 7.15 (Records, accounts and reconciliations) under CASS 7.10.34 R; and

   2. (b)

      2any further provisions it elects to comply with under CASS 7.10.35 R (1);

   will apply separately and concurrently for each distinct trust that the trustee firm acts for.

2. (2)

   A trustee firm must make a written record of any election it makes under this rule, including the date from which the election is to be effective. The firm must make the record on the date it makes the election and must keep it for a period of five years after ceasing to use it.

3. (3)

   Where a trustee firm has made an election under (1) which it subsequently decides to cease to use, it must make a written record of this decision, including the date from which the decision is to be effective, and must keep that record from the date the decision is made for a period of five years after the date it is to be effective.