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CASS 7.5 Transfer of client money to a third party

CASS 7.5.1G

This section sets out the requirements a firm must comply with when it allows another person to hold2 client money , other than under CASS 7.4.1 R,2 without discharging its fiduciary duty owed 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. 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.2 In all cases,2 the firm remains responsible for that client's client equity balance 2 held at the intermediate broker until the contract is terminated and all of that client's positions at that broker closed. 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 7.2.15 R).

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CASS 7.5.2R

A firm may allow another person, such as an exchange, a clearing house or an intermediate broker, to hold or control client money, but only if:

  1. (1)

    the firm allows that person to hold2 the client money:

    2
    1. (a)

      for the purpose of one or more transactions2 for a client through or with that person; or

      2
    2. (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

  2. (2)

    in the case of a retail client, that client has been notified that the firm may allow the other personto hold its client money2.

CASS 7.5.2AG

22Client money that a firm allows another person to hold under CASS 7.5.2 R:

  1. (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. (2)

    should be recorded in client transaction accounts by that other person.

CASS 7.5.3G