CASS 7.11 Treatment of client money

1. (1)

   [deleted]5

   1
2. (2)

   [deleted]5

3. (3)
   1. (a)

      A firm must not enter into a TTCA in respect of money belonging to a retail client. 5

   2. (b)

      Where a firm entered into a TTCA in respect of money belonging to a retail client (or money which would belong to a retail client but for the arrangement) before 3 January 2018, the firm must terminate that TTCA.5

   [Note: article 16(10) of MiFID and article 5(5) of the MiFID Delegated Directive]5

4. (4)

   Money that is subject to a TTCA does not amount to client money, provided that the TTCA is not with a retail client.

   [Note: recital 52 to MiFID]5

1. (1)

   A firm must ensure that any TTCA5 is the subject of a written agreement made on a durable medium between the firm and the client.

2. (2)

   Regardless of the form of the written agreement in (1) (which may have additional commercial purposes), it must cover the client's agreement to:

   1. (a)

      the terms for the arrangement relating to the transfer of the client's full ownership of money to the firm;

   2. (b)

      any terms under which the ownership of money is to transfer from the firm back to the client; and

   3. (c)

      (to the extent not covered by the terms under (b)), any terms for the termination of:

      1. (i)

         the arrangement under (a); or

      2. (ii)

         the overall agreement in (1).

3. (3)

   A firm must retain a copy of the agreement under (1) from the date the agreement is entered into and until five years after the agreement is terminated.

1. (1)

   5A firm must properly consider and document the use of TTCAs in the context of the relationship between the client’s obligation to the firm and the money subjected to TTCAs by the firm.

2. (2)

   A firm must be able to demonstrate that it has complied with the requirement under (1).

3. (3)

   When considering, and documenting, the appropriateness of the use of TTCAs, a firm must take into account the following factors:

   1. (a)

      whether there is only a very weak connection between the client’s obligation to the firm and the use of TTCAs, including whether the likelihood of a liability arising is low or negligible;

   2. (b)

      the extent by which the amount of money subject to a TTCA is in excess of the client’s obligations (including where the TTCA applies to all money from the point of receipt by the firm) and whether the client might have no obligations at all to the firm; and

   3. (c)

      whether all the client’s money is made subject to TTCAs, without consideration of what obligation the client has to the firm.

4. (4)

   Where a firm uses a TTCA, it must highlight to the client the risks involved and the effect of any TTCA on the client’s money.

[Note: article 6 of the MiFID Delegated Directive]

1. (1)

   If a client communicates to a firm that it wishes (whether pursuant to a contractual right or otherwise) to terminate a TTCA5, and the client's communication is not in writing, the firm must make a written record of the client's communication, which also records the date the communication was received.

2. (2)

   A firm must keep a client's written communication, or a written record of the client's communication in (1), for five years starting from the date the communication was received by the firm.

3. (3)
   1. (a)

      If a firm agrees to the termination of a TTCA5, it must notify the client of its agreement in writing. The notification must state when the termination is to take effect and whether or not the client's money will be treated as client money by the firm thereafter.

   2. (b)

      If a firm does not agree to terminate a TTCA5, it must notify the client of its disagreement in writing.

4. (4)

   A firm must keep a written record of any notification it makes to a client under (3) for a period of five years, starting from the date the notification was made.

1. (1)

   If a TTCA is terminated then, unless otherwise permitted under the client money rules and notified to the client under CASS 7.11.9R(3)(a), the firm must treat that money as client money from the start of the next business day following the date of termination as set out in the firm’s notification under CASS 7.11.9R (3)(a). 5

2. (2)

   Where the firm’s notification under CASS 7.11.9R(3)(a) does not state when the termination of the arrangement will take effect, the firm must treat that money as client money from the start of the next business day following the date on which the firm’s notification is made.5

1. (1)

   Subject to (2) and CASS 7.11.16 R and with the agreement of the relevant client, money need not be treated as client money in respect of a delivery versus payment transaction through a commercial settlement system if:

   1. (a)

      in respect of a client's purchase the firm intends for the money from the client to be due to it within one business day following the firm's fulfilment of its delivery obligation to the client; or

   2. (b)

      in respect of a client's sale, the firm intends for the money in question to be due to the client within one business day following the client's fulfilment of its delivery obligation to the firm.

2. (2)

   If the payment or delivery by the firm to the client has not occurred by the close of business on the third business day following the date on which the firm makes use of the exemption under (1), the firm must stop using that exemption for the transaction.

A firm cannot, in respect of a particular delivery versus payment transaction, make use of the exemption under CASS 7.11.14 R in either or both of the following circumstances:

1. (1)

   it is not a direct member or participant of the relevant commercial settlement system, nor is it sponsored by such a member or participant, in accordance with the terms and conditions of that commercial settlement system;

2. (2)

   the transaction in question is being settled by another person on behalf of the firm through an account held at the relevant commercial settlement system by that other person.

Where a firm does not meet the requirements in CASS 7.11.14 R or CASS 7.11.16 R for the use of the exemption in CASS 7.11.14 R , the firm is subject to the client money rules in respect of any money it holds in connection with the delivery versus payment transaction in question.

A firm will not be in breach of the requirement under CASS 7.13.6 R to receive client money directly into a client bank account if it:

1. (1)

   receives the money in question:

   1. (a)

      in accordance with CASS 7.11.14 R (1)(a) but it is subsequently required under CASS 7.11.14 R (2) to hold that money in accordance with the client money rules; or

   2. (b)

      in the circumstances referred to in CASS 7.11.18 G (2)(b); and

2. (2)

   pays the money in question into a client bank account promptly, and in any event by close of business on the business day following:

   1. (a)

      the expiration of the relevant period referred to in CASS 7.11.14 R (2); or

   2. (b)

      receipt of the money in the circumstances referred to in CASS 7.11.18 G (2)(b).

1. (1)

   If a firm makes use of the exemption under CASS 7.11.14 R, it must obtain the client's written agreement to the firm's use of the exemption.

2. (2)

   In respect of each client, the record created in (1) must be retained during the time that the firm makes use, or intends to make use, of the exemption under CASS 7.11.14 R in respect of that client's monies.

1. (1)

   Subject to (2)(a)3, money need not be treated as client money:

   3
   1. (a)

      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 in either of the following circumstances:

      1. (i)

         the authorised fund manager receives the money from a client in relation to the authorised fund manager's obligation to issue units, in an AUT or ACS, or to arrange for the issue of units in an ICVC, in accordance with COLL; or

      2. (ii)

         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 COLL.2

2. (2)
   1. (a)

      Where, in respect of money received in any of the circumstances set out in (1), the authorised fund manager has not, by close of business on the business day following the date of receipt of the money, paid this money to the depositary of an AUT or ACS, the ICVC or to the client as the case may be, the authorised fund manager must stop using the exemption under (1) for that transaction.3

   2. (b)

      Paragraph (2)(a) does not prevent a firm transferring client money segregated under (2)(a) into the firm's own account, provided this is done only for the purpose of making a payment on the same day from that account in accordance with CASS 7.11.34R(1) to CASS 7.11.34R(3) (Discharge of fiduciary duty).3

An authorised fund manager will not be in breach of the requirement under CASS 7.13.6R to receive client money directly into a client bank account if it received the money in accordance with CASS 7.11.21 R (1) and is subsequently required under CASS 7.11.21 R (2) to hold that money in accordance with the client money rules.

1. (1)

   If a firm makes use of the exemption under CASS 7.11.21 R, it must obtain the client's written agreement to the firm's use of the exemption.

2. (2)

   In respect of each client, the record created in (1) must be retained for the duration of the time that the firm makes use of the exemption under CASS 7.11.21 R in respect of that client's money.

1. (1)

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

2. (2)

   For these purposes, if a firm makes a payment to, or on the instructions of, a client, from an account other than a client bank account, until that payment has cleared, no equivalent sum from a client bank account for reimbursement will become due and payable to the firm.

A firm must pay a retail client any interest earned on client money held for that client unless it has otherwise notified him in writing.

1. (1)

   6CASS 7.11.34R(2)(c), CASS 7.11.34R(2)(d) and CASS 7.11.34R(10) do not apply to a firm following a primary pooling event.

2. (2)

   CASS 7.11.34R(2)(e) only applies to a firm following a primary pooling event.

Money ceases to be client money (having regard to CASS 7.11.40 R where applicable) if:

1. (1)

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

2. (2)

   it is:

   1. (a)

      paid to a third party on the instruction of, or with the specific consent of, the client unless it is transferred to a third party in the course of effecting a transaction under CASS 7.14.2 R (Transfer of client money to a third party); or

   2. (b)

      paid to a third party pursuant to an obligation on the firm where:

      1. (i)

         that obligation arises under an enactment; and

      2. (ii)

         the obligation under that enactment is applicable to the firm as a result of the nature of the business being undertaken by the firm for its client; or

   3. (c)

      transferred in accordance with CASS 7.11.42 R; or

   4. (d)

      transferred in accordance with CASS 7.11.44 R; or

   5. (e)

      transferred in accordance with CASS 7A.2.4R(4); or6

3. (3)

   subject to CASS 7.11.39R4, it is paid into a bank account of the client (not being an account which is also in the name of the firm); or

4. (4)

   it is due and payable to the firm in accordance with CASS 7.11.25 R (Money due and payable to the firm); or

5. (5)

   it is paid to the firm as an excess in the client bank account (see CASS 7.15.29 R (2) (Reconciliation discrepancies)); or

6. (6)

   it is paid by an authorised central counterparty to a clearing member other than the firm in connection with a porting arrangement in accordance with CASS 7.11.35 R; or

7. (7)

   it is paid by an authorised central counterparty directly to the client in accordance with CASS 7.11.36 R; or

8. (8)

   it is transferred by the firm to a clearing member in connection with a regulated clearing arrangement and the clearing member remits payment to another firm or to another clearing member in accordance with CASS 7.11.37 R (1); or

9. (9)

   it is transferred by the firm to a clearing member in connection with a regulated clearing arrangement and the clearing member remits payment directly to the indirect clients of the firm in accordance with CASS 7.11.37 R (2);2 or

10. (10)

    it is paid to charity under CASS 7.11.50 R or CASS 7.11.57 R.

Client money which the firm places at an authorised central counterparty in connection with a regulated clearing arrangement ceases to be client money for that firm if, as part of the default management process of that authorised central counterparty in respect of a default by the firm, it is ported by the authorised central counterparty in accordance with article 48 of EMIR.

Client money which the firm places at an authorised central counterparty in connection with a regulated clearing arrangement ceases to be client money if, as part of the default management process of that authorised central counterparty in respect of a default by the firm, it is paid directly to the client by the authorised central counterparty in accordance with the procedure described in article 48(7) of EMIR.

Client money received or held by the firm and transferred to a clearing member who facilitates indirect clearing through a regulated clearing arrangement ceases to be client money for that firm and, if applicable, the clearing member, if the clearing member in accordance with the EMIR indirect clearing default management obligations or the MiFIR indirect clearing default management obligations (as applicable)7:

1. (1)

   remits payment to another firm or to another clearing member; or7

2. (2)

   remits payment to the indirect clients of the firm7.

Client money received or held by the firm for a sub-pool ceases to be client money for that firm to the extent that such client money is transferred by the firm to an authorised central counterparty or a clearing member as a result of porting.

A firm must not pay client money into a bank account of the client that has been opened without the consent of that client.

When 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 by the bank.

6CASS 7.11.41G to CASS 7.11.47R do not apply to a firm following a primary pooling event.

Subject to CASS 7.11.44 R, money ceases to be client money for a firm if:

1. (1)

   it is transferred by the firm to another person as part of a transfer of business to that person where the client money relates to the business being transferred;

2. (2)

   it is transferred on terms which require the other person to return a client's transferred sums to the client as soon as practicable at the client's request;

3. (3)

   a written agreement between the firm and the relevant client provides that:

   1. (a)

      the firm may transfer the client's client money to another person; and

   2. (b)
      1. (i)

         the sums transferred will be held by the person to whom they are transferred in accordance with the client money rules for the clients; or

      2. (ii)

         if not held in accordance with (i), the firm will exercise all due skill, care and diligence in assessing whether the person to whom the client money is transferred will apply adequate measures to protect these sums; and

4. (4)

   the firm complies with the requirements in (3)(b)(ii) (if applicable).

1. (1)

   Client money belonging to those categories of clients set out in (2) and in respect of those amounts set out in (2) ceases to be client money of the firm if it is transferred by the firm to another person:

   1. (a)

      as part of a transfer of business to that other person where these sums relate to the business being transferred; and

   2. (b)

      on terms which require the other person to return a client's transferred sums as soon as practicable at the client's request.

2. (2)
   1. (a)

      For retail clients the amount is £25.

   2. (b)

      For all other clients the amount is £100.

Where a firm transfers client money belonging to its clients under either or both of CASS 7.11.42 R and CASS 7.11.44 R it must ensure that those clients are notified no later than seven days after the transfer taking place:

1. (1)

   whether or not the sums will be held by the person to whom they have been transferred in accordance with the client money rules and if not how the sums being transferred will be held by that person;

2. (2)

   the extent to which the sums transferred will be protected under a compensation scheme; and

3. (3)

   that the client may opt to have the client's transferred sum returned to it as soon as practicable at the client's request.

The firm must notify the FCA of its intention to effect any transfer of client money under either or both of CASS 7.11.42 R and CASS 7.11.44 R at least seven days before it transfers the client money in question.

6CASS 7.11.48G to CASS 7.11.58G do not apply to a firm following a primary pooling event.

A firm may pay away to a registered charity of its choice a client money balance which is allocated to a client and if it does so the released balance will cease to be client money under CASS 7.11.34 R (10), provided:

1. (1)

   this is permitted by law and consistent with the arrangements under which the client money is held;

2. (2)

   the firm held the balance concerned for at least six years following the last movement on the client's account (disregarding any payment or receipt of interest, charges or similar items);

3. (3)

   it can demonstrate that it has taken reasonable steps to trace the client concerned and to return the balance; and

4. (4)

   the firm complies with CASS 7.11.54 R.

1. (1)

   Where a firm wishes to release a balance allocated to an individual client under CASS 7.11.50 R it must comply with either (a) or (b) and, in either case, (2):

   1. (a)

      the firm must unconditionally undertake to pay to the client concerned a sum equal to the balance paid away to charity in the event of the client seeking to claim the balance in future;

   or

   1. (b)

      the firm must ensure that an unconditional undertaking in the terms set out in (a) is made by a member of its group and there is suitable information available for relevant clients to identify the member of the group granting the undertaking.

2. (2)

   The undertakings in this rule must be:

   1. (a)

      authorised by the firm's governing body where (1)(a) applies or by the governing body of the group member where (1)(b) applies;

   2. (b)

      legally enforceable by any person who had a legally enforceable claim to the balance in question at the time it was released by the firm, or by an assign or successor in title to such claim; and

   3. (c)

      retained by the firm, and where (1)(b) applies, by the group member indefinitely.

1. (1)

   If a firm pays away client money under CASS 7.11.50 R (4) it must make and retain, or where the firm already has such records, retain:

   1. (a)

      records of all balances released from client bank accounts under CASS 7.11.50 R (including details of the amounts and the identity of the client to whom the money was allocated);

   2. (b)

      all relevant documentation (including charity receipts); and

   3. (c)

      details of the communications the firm had or attempted to make with the client concerned pursuant to CASS 7.11.50 R (3).

2. (2)

   The records in (1) must be retained indefinitely.

3. (3)

   If a member of the firm's group has provided an undertaking under CASS 7.11.54 R (2) then the records in (1) must be readily accessible to that group member.

A firm may pay away to a registered charity of its choice a client money balance which is allocated to a client and if it does so the released balance will cease to be client money under CASS 7.11.34 R (10):

1. (1)

   the balance in question is (i) for a retail client, in aggregate, £25 or less, or (ii) for a professional client, in aggregate, £100 or less;

2. (2)

   the firm held the balance concerned for at least six years following the last movement on the client's account (disregarding any payment or receipt of interest, charges or similar items);

3. (3)

   the firm has made at least one attempt to contact the client to return the balance using the most up-to-date contact details the firm has for the client, and the client has not responded to such communication within 28 days of the communication having been made; and

4. (4)

   the firm makes and/or retains records of all balances released from client bank accounts in according with this rule. Such records must include the information in CASS 7.11.55 R (1)(a) and CASS 7.11.55 R (1)(b).