CASS 7.14 Client money held by a third party
This section sets out the requirements a firm must comply with when it allows another person to hold client money, other than under CASS 7.13.3 R, without discharging its fiduciary duty to that client. Such circumstances arise when, for example, a firm passes client money to a clearing house in the form of margin for the firm's obligations to the clearing house that are referable to transactions undertaken by the firm for the relevant clients. They may also arise when a firm passes client money to an intermediate broker for contingent liability investments in the form of initial or variation margin on behalf of a client. In these circumstances, the firm remains responsible for that client equity balance held at the intermediate broker until the contract is terminated and all of that client's positions at that broker closed. Similarly, this section applies where a firm allows a broker to hold client money in respect of the firm's client's non-margined transactions, again without the firm discharging its fiduciary duty to that client. In all cases, if a firm wishes to discharge itself from its fiduciary duty, it should do so in accordance with the rule regarding the discharge of a firm's fiduciary duty to the client (CASS 7.11.34 R).
A firm may allow another person, such as an exchange, a clearing house or an intermediate broker, to hold client money, but only if:
- (1)
the firm allows that person to hold the client money:
- (a)
for the purpose of one or more transactions for a client through or with that person; or
- (b)
to meet a client's obligation to provide collateral for a transaction (for example, an initial margin requirement for a contingent liability investment); and
- (a)
- (2)
in the case of a retail client, that client has been notified that the firm may allow the other person to hold its client money.
Client money that a firm allows another person to hold under CASS 7.14.2 R:
- (1)
should only be held for transactions which are likely to occur (and for which the other person needs to receive client money) or have recently settled (and such that the other person has received client money); and
- (2)
should be recorded in client transaction accounts by that other person.
Apart from client money held by a firm in an individual client account or an omnibus client account at an authorised central counterparty, a firm should not hold excess client money in its client transaction accounts.
Client money arising from, or in connection with, safe custody assets
- (1)
Money arising from, or in connection with, the holding of a safe custody assets by a firm which is due to clients should, unless treated otherwise under the client money rules, be treated as client money by the firm.
- (2)
Firms are reminded of the guidance in CASS 6.1.2 G.
If a firm has deposited safe custody assets with a third party under CASS 6.3 and client money arises from, or in connection with, those safe custody assets then the firm must ensure that the third party either deposits the money in a client bank account of the firm or records it in a client transaction account for the benefit of the firm clients as appropriate.
Firms are reminded of the guidance in CASS 7.14.4 G which is applicable to client transaction accounts.
If the third party holding the safe custody assets under CASS 7.14.6 R is a bank with which the firm is permitted to deposit client money under CASS 7.13.3 R, then the client bank account referred to in CASS 7.14.6 R may be an account with that bank.
Firms are reminded of the requirements under CASS 7.18 for acknowledgement letters, which must be complied with before using client bank accounts and client transaction accounts.