CASS 7.17 Statutory trust
Section 137B(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). This section 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
Subject to CASS 7.17.3 R in respect of a trustee firm, a firm receives and holds client money as trustee 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)
- (a)
where a firm maintains only a general pool of client money, subject to (4), for the clients (other than clients which are insurance undertakings when acting as such with respect to client money received in the course of insurance mediation activity and that was opted in to this chapter) for whom that money is held, according to their respective interests in it;
- (b)
where a firm has established one or more pools of client money, subject to (4):
- (i)
the general pool is held for all the clients of the firm for whom the firm receives or holds client money (other than clients which are insurance undertakings when acting in regard to client money received during insurance mediation activity and that was opted in to this chapter) according to their respective interests; and
- (ii)
each sub-pool is for the clients of the firm who are identified as beneficiaries of the sub-pool in question, in accordance with CASS 7.19.6 R (2), according to their respective interests in it;
- (i)
- (a)
- (3)
after all valid claims in (2) have been met, for clients which are insurance undertakings with respect of client money received in the course of insurance mediation activity according to their respective interests in it;
- (4)
for the payment of the costs properly attributable to the distribution of the client money in (2) if such distribution takes place following the failure of the firm; and
- (5)
after all valid claims and costs under (2) to (4) have been met, for the firm itself.
A trustee firm which is subject to the client money rules by virtue of CASS 7.10.1 R (2) receives and holds client money as trustee on the terms in CASS 7.17.2 R, subject to its obligations to hold client money as trustee under the relevant instrument of trust.
If a trustee firm holds client money, the firm should follow the provisions in CASS 7.10.33 R to CASS 7.10.40 G.
The statutory trust under CASS 7.17.2 R does not permit a firm, in its capacity as trustee, to use client money to advance credit to the firm's clients, itself, or any other person. For example, if a firm wishes to undertake a transaction for a client in advance of receiving client money from that client to fund that transaction, it should not advance credit to that client or itself using other clients' client money (ie, it should not 'pre-fund' the transaction using other clients' client money).