CASS 7.2 7 Treatment of client money7

1. (1)

   Where a client transfers full ownership of money to a firm for the purpose of securing or otherwise covering present or future, actual or contingent or prospective obligations, such money should no longer be regarded as client money.

   [Note: recital 27 to MiFID]2

2. (2)

   2Excepted from (1) is a transfer of the full ownership of money:

   1. (a)

      belonging to a retail client;

   2. (b)

      whose purpose is to secure or otherwise cover that client's present or future, actual, contingent or prospective obligations under a contract for differences or 3a rolling spot forex contract that is a future, and in either case where that contract is3 entered into with a firm acting as market maker; and

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   3. (c)

      which is made to that firm or to any other personarranging on its behalf.

1. (1)

   2Subject to (2), where a firm makes arrangements for the purpose of securing or otherwise covering present or future, actual, contingent or prospective obligations of a retail client those arrangements must not provide for the taking of a transfer of full ownership of any of that client's money.

2. (2)

   The application of (1) is confined to the taking of a transfer of full ownership:

   1. (a)

      whose purpose is to secure or otherwise cover that retail client's obligations under a contract for differences or 3a rolling spot forex contract that is a future, and in either case where that contract is3 entered into with a firm acting as market maker; and

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   2. (b)

      which is made to that firm or to any other person arranging on its behalf.

1. (1)

   7A firm must ensure that any arrangement relating to the transfer of full ownership of a client'smoney to the firm for the purposes set out in CASS 7.2.3 R (1) and CASS 7.2.3A R (1) 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)

   7Subject to (2) and CASS 7.2.8AB 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.

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7A firm cannot, in respect of a particular delivery versus payment transaction, make use of the exemption under CASS 7.2.8AA 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.

7Where a firm does not meet the requirements in CASS 7.2.8AA R or CASS 7.2.8AB R for the use of the exemption in CASS 7.2.8AA 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.7

1. (1)

   7If a firm makes use of the exemption under CASS 7.2.8AA 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 written agreement in (1) must be retained during the time that the firm makes use, or intends to make use, of the exemption under CASS 7.2.8AA R in respect of that client's monies.

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1 Money need not be treated as client money 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, if:

1. (1)

   the authorised fund manager receives it from a client in relation to the authorised fund manager's obligation to issue units, in an AUT or ACS,5 or to arrange for the issue of units in an ICVC, in accordance with COLL, unless the price of those units has not been determined by the close of business on the next business day:

   1. (a)

      following the date of the receipt of the money from the client; or

   2. (b)

      if the money was received by an appointed representative of the authorised fund manager, in accordance with CASS 7.4.24 G, following the date of receipt at the specified business address of the authorised fund manager; or

2. (2)

   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; when an authorised fund manager draws a cheque or other payable order within these time frames the provisions of CASS 7.2.17 R and CASS 7.2.9 R (2) will not apply.

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.

7A firm must pay a retail client any interest earned on client money held for that client unless it has otherwise notified him in writing. 7

Money ceases to be client money (having regard to CASS 7.2.17 R where applicable) if4:

1. (1)

   it is paid4 to the client, or a duly authorised representative of the client; or

2. (2)

   it is:7

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   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 7.5.2 R (Transfer of client money to a third party); or77

   2. (b)

      paid to a third party pursuant to an obligation on the firm where:7

      1. (i)

         that obligation arises under an enactment; and7

      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; or7

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   3. (c)

      transferred in accordance with CASS 7.2.17B R; or7

   4. (d)

      transferred in accordance with CASS 7.2.17D R; or7

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3. (3)

   subject to CASS 7.2.16A R,7 it is paid4 into a bank account of the client (not being an account which is also in the name of the firm); or7

4. (4)

   it is due and payable to the firm in accordance with4CASS 7.2.9 R (Money due and payable to the firm); or7

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5. (5)

   it is paid to the firm as4 an excess in the client bank account (see CASS 7.6.13 R (2) (Reconciliation discrepancies)); or4

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6. (6)

   4it 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 7.2.15A R; or

7. (7)

   4it is paid by an authorised central counterparty directly to the client in accordance with CASS 7.2.15B R6; or

8. (8)

   6it 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 7.2.15CR (1); or

9. (9)

   6it 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 firm7 in accordance with CASS 7.2.15CR (2); or77

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10. (10)

    it is paid to charity under CASS 7.2.19 R or CASS 7.2.25 R.77

4 Client money which the firmplaces at an authorised central counterparty 6in 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.

4 Client money which the firmplaces at an authorised central counterparty6in 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.

6 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:

1. (1)

   remits payment to another firm or to another clearing member in accordance with default management procedures adopted by the clearing member which comply with the requirements of article 4(4) of the EMIR L2 Regulation; or

2. (2)

   remits payment to the indirect clients of the firm in accordance with default management procedures adopted by the clearing member which comply with the requirements of articles 4(4) and 4(5) of the EMIR L2 Regulation.

7 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 result of porting.7

7A firm must not pay client money into a bank account of the client that has been opened without the consent of that client.7

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.

7Subject to CASS 7.2.17D R, money ceases to be client money of the 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 as soon as practicable at the client's request;

3. (3)

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

   1. (a)

      the firm may transfer the client'sclient 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).

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1. (1)

   7Client 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.

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7Where a firm transfers client money belonging to its clients under either or both of CASS 7.2.17B R and CASS 7.2.17D R it must ensure that those clients are notified no later than seven days after the transfer takes 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 7.2.17B R and CASS 7.2.17D R at least seven days before it transfers the client money in question.7

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 7.2.15 R (10), provided:77

1. (1)

   this is permitted by law and consistent with the arrangements under which the client money is held;77

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);77

3. (3)

   it can demonstrate that it has taken reasonable steps to trace the client concerned and to return the balance; and77

4. (4)

   the firm complies with CASS 7.2.22 R.7

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1. (1)

   7Where a firm wishes to release a balance allocated to an individual client under CASS 7.2.19 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; or7

   2. (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. 7

2. (2)

   The undertakings in this rule must be:

   1. (a)

      authorised by the firm'sgoverning body where (1)(a) applies or by the governing body of the group member where (1)(b) applies; 7

   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; and7

   3. (c)

      retained by the firm, and, where (1)(b) applies, by the group member, indefinitely.7

1. (1)

   7If a firm pays away client money under CASS 7.2.19 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 7.2.19 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 7.2.19 R (3).

2. (2)

   The records in (1) must be retained indefinitely.

3. (3)

   If a member of the firm'sgroup has provided an undertaking under CASS 7.2.22 R (2) then the records in (1) must be readily accessible to that group member.

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7A 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 7.2.15 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 7.2.23 R (1)(a) and CASS 7.2.23 R (1)(b).

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