7This chapter applies to a firm that receives money from or holds money for, or on behalf of, a client in the course of, or in connection with, its:7

1. (1)

   MiFID business; and/or

2. (2)

   designated investment business; and/or8

3. (3)

   stocks and shares ISA business;8

unless otherwise specified in this section.

1. (1)

   A firm that receives or holds money to which this chapter applies in relation to: 3

   3
   1. (a)

      its MiFID business; or3

   2. (b)

      its MiFID business and its designated investment business which is not MiFID business; 3

   and holds money in respect of which CASS 5 applies, may elect to comply with the provisions of this chapter in respect of all such money and if it does so, this chapter applies as if all such money were money that the firm receives and holds in the course of, or in connection with, its MiFID business.

2. (1A)

   [deleted]3

   3
3. (1B)

   A firm that receives or holds money to which this chapter applies solely in relation to its designated investment business which is not MiFID business and receives or holds money in respect of which the insurance client money chapter applies, may elect to comply with the provisions of this chapter in respect of all such money and if it does so, this chapter applies as if all such money were money that the firm receives and holds in the course of or in connection with its designated investment business.3

4. (1C)
   1. (a)

      A firm may elect to comply with all the provisions of this chapter for money that it receives or holds in respect of an ISA that only contains a cash deposit ISA.

   2. (b)

      Where a firm makes an election under (a), this chapter applies to it in the same way that it applies to a firm that receives and holds money in the course of or in connection with its MIFID business.8

5. (2)

   A firm must make and retain a written record of any election it makes under this rule, including the date from which the election is to be effective. The firm must make the record on the date it makes the election and must keep it for a period of five years after ceasing to use it.

6. (3)

   This rule is subject to CASS 1.2.11 R.7

Where a firm opts into this chapter under CASS 7.1.3 R (1C) it must notify clients for whom it holds the opted-in money that it is holding their money in accordance with the client money rules.

3 CASS 7.1.7C G to CASS 7.1.7I G do not apply to a firm in relation to money held in connection with its MiFID business to which this chapter applies or in relation to money for which the firm has made an election under CASS 7.1.3 R (1).

3Subject to CASS 7.1.7F R, money is not client money when a firm (other than a sole trader) holds that money on behalf of, or receives it from, a professional client, other than in the course of insurance mediation activity, and the firm has obtained written acknowledgement from the professional client that:

1. (1)

   money will not be subject to the protections conferred by the client money rules;

2. (2)

   as a consequence, this money will not be segregated from the money of the firm in accordance with the client money rules and will be used by the firm in the course of its own business; and

3. (3)

   the professional client will rank only as a general creditor of the firm.

3 Money is not client money if a firm, in respect of designated investment business which is not an investment service or activity, an ancillary service, a listed activity or insurance mediation activity:

1. (1)

   holds it on behalf of or receives it from a professional client who is not an authorised person; and

2. (2)

   has sent a separate written notice to the professional client stating the matters set out in CASS 7.1.7DR (1) to CASS 7.1.7DR (3).

3When a firm transfers client money to another person, the firm must not enter into an agreement under CASS 7.1.7D R or CASS 7.1.7F R with that other person in relation to that client money or represent to that other person that the money is not client money.

7In relation to the application of the client money rules (and any other rule in so far as it relates to matters covered by the client money rules) to the firms referred to in (1) and (2), the following is not client money:

1. (1)

   any deposits within the meaning of the CRD held by a CRD credit institution; and

   [Note: article 13(8) of MiFID and article 18(1) of the MiFID Implementing Directive]

2. (2)

   any money held by an approved bank that is not a CRD credit institution in an account with itself in relation to designated investment business carried on for its clients.7

7A firm holding money in either of the ways described in CASS 7.1.8A R must, before providing designated investment business services to the client in respect of those sums, notify the client that:

1. (1)

   the money held for that client is held by the firm as banker and not as a trustee under the client money rules; and

2. (2)

   if the firmfails, the client money distribution rules will not apply to these sums and so the client will not be entitled to share in any distribution under the client money distribution rules.

7

7A firm holding money in either of the ways described in CASS 7.1.8A R in respect of a client and providing the services to it referred to in CASS 7.1.8C R must:

1. (1)

   explain to its clients the circumstances, if any, under which it will cease to hold any money in respect of those services as banker and will hold the money as trustee in accordance with the client money rules; and

2. (2)

   set out the circumstances in (1), if any, in its terms of business so that they form part of its agreement with the client.

7

7If a CRD credit institution or an approved bank that is not a CRD credit institution wishes to hold client money for a client (rather than hold the money in either of the ways described in CASS 7.1.8A R) it must, before providing designated investment business services to the client, disclose the following information to the client:

1. (1)

   that the money held for that client in the course of or in connection with the business described under (2) is being held by the firm as client money under the client money rules;

2. (2)

   a description of the relevant business carried on with the client in respect of which the client money rules apply to the firm; and

3. (3)

   that, if the firmfails, the client money distribution rules will apply to money held in relation to the business in question.

7

7A CRD credit institution or an approved bank that is not a CRD credit institution must, in respect of any client money held in relation to its designated investment business that is not MiFID business, comply with the obligations referred to in COBS 6.1.16 R (Compensation information).7

3A firm that holds money on behalf of, or receives money from, an affiliated company in respect of designated investment business which is not MiFID business must not treat the money as client money unless:

1. (1)

   the firm has been notified by the affiliated company that the money belongs to a client of the affiliated company; or

2. (2)

   the affiliated company is a client dealt with at arm's length; or

3. (3)

   the affiliated company is a manager of an occupational pension scheme or is an overseas company; and

   1. (a)

      the money is given to the firm in order to carry on designated investment business for or on behalf of the clients of the affiliated company; and

   2. (b)

      the firm has been notified by the affiliated company that the money is to be treated as client money.

The client money rules do not apply with respect to coins held on behalf of a client if the firm and the client have agreed that the money (or money of that type) is to be held by the firm for the intrinsic value of the metal which constitutes the coin.

1. (1)

   An authorised professional firm regulated by the Law Society (of England and Wales), the Law Society of Scotland or the Law Society of Northern Ireland that, with respect to its regulated activities, is subject to 5the following rules of its designated professional body, must comply with those rules and,5 where relevant paragraph (3), and3 if it does so, it will be deemed to comply with the client money rules.

   5353
2. (2)

   The relevant rules are:

   1. (a)

      if the firm is regulated by the Law Society (of England and Wales), the SRA Accounts Rules 2011;7

      7
   2. (b)

      if the firm is regulated by the Law Society of Scotland, the Law Society of Scotland Practice Rules 20117; and

      7
   3. (c)

      if the firm is regulated by the Law Society of Northern Ireland, the Solicitors' Accounts Regulations 1998.

3. (3)

   If the firm in (1) is a MiFID investment firm that receives or holds money for, or on behalf of a client77 in the course of, or in connection with its MiFID business, it must also comply with the MiFID client money (minimum implementing) rules in relation to that business.3

   7

3This chapter does not apply to the permitted activities of a long-term insurer or a friendly society, unless it is a MiFID investment firm that receives money from or holds money for or on behalf of a client in the course of, or in connection with, its MiFID business.

7Provided it complies with CASS 1.2.11 R, a firm that receives or holds client money in relation to contracts of insurance may elect to comply with the provisions of the insurance client money chapter, instead of this chapter, in respect of all such money.

3A firm must7 make and retain a written record of any election which it makes under CASS 7.1.15BA R7 . 7

3A trustee firm which holds money in relation to its designated investment business which is not MiFID business to which this chapter applies, must hold any such client money separate from its own money at all times.

1. (1)

   7A trustee firm to which CASS 7.1.15F R applies may, in addition to the client money rules set out at CASS 7.1.15F R, also elect to comply with:

   1. (a)

      all the client money rules in CASS 7.4 (Segregation of client money);

   2. (b)

      CASS 7.5 (Transfer of client money to a third party);

   3. (c)

      all the client money rules in CASS 7.6 (Records, accounts and reconciliations); or

   4. (d)

      CASS 7.8 (Notification and acknowledgement of trust).

2. (2)

   A trustee firm must make a written record of any election it makes under this rule, including the date from which the election is to be effective. The firm must make the record on the date it makes the election and must keep it for a period of five years after ceasing to use it.

3. (3)

   Where a trustee firm has made an election under (1) which it subsequently decides to cease to use, it must make a written record of this decision, including the date from which the decision is to be effective, and keep that record from the date the decision is made for a period of five years after the date it is to be effective.

7

7A trustee firm to which CASS 7.1.15F R applies and which is otherwise subject to the client money rules must ensure that any client money it holds other than in its capacity as trustee firm is segregated from client money it holds as a trustee firm.7

1. (1)

   7A trustee firm to which CASS 7.1.15F R applies may elect that:

   1. (a)

      the applicable provisions of CASS 7.4 (Segregation of client money) and CASS 7.6 (Records, accounts and reconciliations) under CASS 7.1.15F R; and

   2. (b)

      and any further provisions it elects to comply with under CASS 7.1.15G R (1);

   will apply separately and concurrently for each distinct trust that the trustee firm acts for.

2. (2)

   A trustee firm must make a written record of any election it makes under this rule, including the date from which the election is to be effective. The firm must make the record on the date it makes the election and must keep it for a period of five years after ceasing to use it.

3. (3)

   Where a trustee firm has made an election under (1) which it subsequently decides to cease to use, it must make a written record of this decision, including the date from which the decision is to be effective, and must keep that record from the date the decision is made for a period of five years after the date it is to be effective.

7

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

      33
   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

      33
   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.

7

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.

7

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

   7
   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

      7

   3. (c)

      transferred in accordance with CASS 7.2.17B R; or7

   4. (d)

      transferred in accordance with CASS 7.2.17D R; or7

   7

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

   44
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

   44
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

   77
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).

7

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.

7

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

7

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.

7

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).

7

A firm must, when holding client money, make adequate arrangements to safeguard the client's rights and prevent the use of client money for its own account.

[Note: article 13(8) of MiFID]

A firm must introduce adequate organisational arrangements to minimise the risk of the loss or diminution of client money, or of rights in connection with client money, as a result of misuse of client money, fraud, poor administration, inadequate record-keeping or negligence.

[Note: article 16(1)(f) of the MiFID implementing Directive]1

6Where a firm establishes one or more sub-pools, the provisions of CASS 7.4 (Segregation of client money) shall be read as applying separatelyto the firm'sgeneral pool and each sub-pool in line with CASS 7.19.3 R and CASS 7.19.12 R.6

A firm, on receiving any client money, must promptly place this money into one or more accounts opened with any of the following:

1. (1)

   a central bank;

2. (2)

   a CRDcredit institution;5

   5
3. (3)

   a bank authorised in a third country;

4. (4)

   a qualifying money market fund.

[Note: article 18(1) of the MiFID implementing Directive]

6Where a firm deposits client money with a qualifying money market fund, the firm's holding of those units in that fund will be subject to any applicable requirements of the custody rules.

[Note: recital 23 to the MiFID implementing Directive]6

A firm must give a client the right to oppose the placement of his money in a qualifying money market fund.

[Note: article 18(3) of the MiFID implementing Directive]6

A firm that does not deposit client money with a central bank must exercise all due skill, care and diligence in the selection, appointment and periodic review of the credit institution, bank or qualifying money market fund where the money is deposited and the arrangements for the holding of this money.

[Note: article 18(3) of the MiFID implementing Directive]6

When a firm makes the selection, appointment and conducts the periodic review of a credit institution, a bank or a qualifying money market fund, it must take into account:

1. (1)

   the expertise and market reputation of the third party; and6

2. (2)

   any legal requirements or market practices related to the holding of client money that could adversely affect clients' rights.6

[Note: article 18(3) of the MiFID implementing Directive]6

3A firm must limit the funds that it deposits or holds with a relevant group entity or combination of such entities so that those funds do not at any point in time exceed 20 per cent of the balance on:

1. (1)

   all of its general client bank accounts considered in aggregate;

2. (2)

   each of its designated client bank accounts; and

3. (3)

   each of its designated client fund accounts.

3For the purpose of CASS 7.4.9A R an entity is a relevant group entity if it is:

1. (1)

   a CRDcredit institution or6 a bank authorised in a third country; and6

   5566
2. (2)

   a member of the same group as that firm.

A firm must make a record of the grounds upon which it satisfies itself as to the appropriateness of its selection of a credit institution, a bank or a qualifying money market fund. The firm must make the record on the date it makes the selection and must keep it from the date of such selection until five years after the firm ceases to use the third party to hold client money.

A firm must take the necessary steps to ensure that client money deposited, in accordance with CASS 7.4.1 R, in a central bank, a credit institution, a bank authorised in a third country or a qualifying money market fund is held in an account or accounts identified separately from any accounts used to hold money belonging to the firm.

[Note: article 16(1)(e) of the MiFID implementing Directive]

1. (1)

   6An account which the firm uses to deposit client money under CASS 7.4.1 R (1) to CASS 7.4.1 R (3) must be a client bank account.6

2. (2)

   Each client bank account used by a firm must be held on terms under which:

   1. (a)

      the relevant bank's contractual counterparty is the firm that is subject to the requirement under CASS 7.4.1 R; and

   2. (b)

      unless the firm has agreed terms that comply with CASS 7.4.11A R (3), the firm is able to make withdrawals of client money promptly and, in any event, within one business day of a request for withdrawal.

   Transitional provision CASS TP 1.10AR applies to (2).

3. (3)

   Firms may use client bank accounts held on terms under which withdrawals are, without exception, prohibited until the expiry of a fixed term or a notice period of a maximum of 30 days.

4. (4)

   Paragraphs (2)(b) and (3) do not apply in respect of client money received by a firm in its capacity as a trustee firm.

6A firm that wishes to adopt the alternative approach for a particular business line must first establish, and document in writing, its reasons for concluding, that:

1. (1)

   adopting the normal approach would lead to greater operational risks to client money protection compared to the alternative approach;

2. (2)

   adopting the alternative approach (including complying with the requirements for alternative approach mandatory prudent segregation under CASS 7.4.18B R) would not result in undue operational risk to client money protection; and

3. (3)

   the firm has systems and controls that are adequate to enable it to operate the alternative approach effectively and in compliance with Principle 10 (Clients' assets).

6A firm must retain any documents created under CASS 7.4.17B R in relation to a particular business line for a period of at least five years after the date it ceases to use the alternative approach in connection with that business line.

6At least three months before adopting the alternative approach for a particular business line, a firm must:

1. (1)

   inform the FCA in writing that it intends to adopt the alternative approach for that particular business line; and

2. (2)

   if requested by the FCA, make any documents it created under CASS 7.4.17B R available to the FCA for inspection.

1. (1)

   6In addition to the requirement under CASS 7.4.17D R, before adopting the alternative approach, a firm must send a written report to the FCA prepared by an independent auditor of the firm in line with a reasonable assurance engagement, stating the matters set out in (2).

2. (2)

   The written report in (1) must state whether, in the auditor's opinion:

   1. (a)

      the firm's systems and controls are suitably designed to enable it to comply with CASS 7.4.18A R to CASS 7.4.18B R; and

   2. (b)

      the firm's calculation of its alternative approach mandatory prudent segregation amount under CASS 7.4.18B R is suitably designed to enable the firm to comply with CASS 7.4.18B R.

1. (1)

   6A firm that uses the alternative approach must review, at least on an annual basis and with no more than one year between each review, whether its reasons for adopting the alternative approach for a particular business line, as documented under CASS 7.4.17B R, continue to be valid.

2. (2)

   If, following the review in (1), a firm finds that its reasons for adopting the alternative approach are no longer valid for a particular business line, it must stop using the alternative approach for that business line as soon as reasonably practicable, and in any event within six months of the conclusion of its review in (1).

6A firm that uses the alternative approach must not materially change how it will calculate and maintain the alternative approach mandatory prudent segregation amount under CASS 7.4.18B R unless:

1. (1)

   an auditor of the firm has prepared a report that complies with the requirements in CASS 7.4.17E R (2)(b) in respect of the firm's proposed changes; and

2. (2)

   the firm provides a copy of the report prepared by the auditor under (a) to the FCA before implementing the change.

6A firm that uses the alternative approach for a particular business line must, on each business day ('T0'):

1. (1)

   receive any money from and pay any money to (or, in either case, on behalf of) clients into and out of its own bank accounts;

2. (2)

   perform the necessary reconciliations of records and accounts required under CASS 7.6 (Records, accounts and reconciliations);

3. (3)

   adjust the balances held in its client bank account (by effecting transfers between its own bank account and its client bank account) to address any difference arising between its client money requirement and its client money resource as at the close of business on the previous business day ('T-1'), so that the correct amount reflected in the reconciliations under (2) is segregated in its client bank account; and

4. (4)

   subject to CASS 7.4.18AA R below, keep segregated in its client bank account the balance held under (3) until it has performed a reconciliation on the following business day ('T+1') and as a result of that reconciliation is undertaking further adjustments under (3).

6During the period between the adjustment in CASS 7.4.18A R (3) and the completion of the next reconciliations in CASS 7.4.18A R (2), a firm that uses the alternative approach for a particular business line may:

1. (1)

   increase the balance held in its client bank account by making intra-day transfers (during T0) from its own bank account to its client bank account before the completion of the internal client money reconciliation under CASS 7.4.18A R (2) (that is expected sometime later on T0) only if:

   1. (a)

      the firm reasonably expects that the client money requirement for the previous business day (T-1) will increase above the client money resource currently (during T0) held in its client bank account; and

   2. (b)

      such reasonable expectations are based on the working calculation of the client money requirement relating to the previous business day (T-1) that the firm has already determined on that business day (during T0) (as part of the process of completing its internal client money reconciliation); or

2. (2)

   decrease the balance held in its client bank account by making intra-day transfers (during T0) from its client bank account to its own bank account before the completion of the internal client money reconciliation under CASS 7.4.18A R (2) (that is expected sometime later on T0) only if:

   1. (a)

      the firm reasonably expects that the client money requirement for the previous business day (T-1) will decrease below the client money resource currently held (during T0) in its client bank account; and

   2. (b)

      such reasonable expectations are based on the working calculation of the client money requirement relating to the previous business day (T-1) that the firm has already determined on that business day (during T0) (as part of the process of completing its internal client money reconciliation).

   However, in doing so, a firm must act prudently and should take appropriate steps to manage the risk of not having segregated an amount that appropriately reflects its actual client money requirement at any given time.

1. (1)

   6A firm that uses the alternative approach must, in addition to CASS 7.4.18A R, pay an amount (determined in accordance with this rule) of its own money into its client bank account and subsequently retain that money in its client bank account (alternative approach mandatory prudent segregation). The amount segregated by a firm in its client bank account under this rule is client money for the purposes of the client money rules and the client money distribution rules.

2. (2)

   The amount required to be segregated under this rule must be an amount that a firm reasonably determines would be sufficient, at the time it makes the determination, to protect client money against the risk that at any time in the following three months the following categories of client money may not have been fully segregated in its client bank account or may not be (or become) available for pooling under , were a primary pooling event to occur:

   1. (a)

      client money that is received and held by the firm in its own bank account during the period between:

      1. (i)

         the firm's adjustment of client bank account balances under CASS 7.4.18A R (3) on a particular business day; and

      2. (ii)

         the firm's subsequent adjustments under CASS 7.4.18A R (3) on the following business day; and

   2. (b)

      money received and held by the firm in its own bank account which the firm does not initially identify as part of its client money requirement, but which subsequently does become part of its client money requirement;

   with the effect that the firm'salternative approach mandatory prudent segregation under this rule will reduce, as far as possible, any shortfall that might have been produced as a result of (a) or (b) on the occurrence of a primary pooling event.

3. (3)
   1. (a)

      Subject to (c), in reaching its determination under (2) of the amount of money that would be sufficient to address the risks referred to in (2) for the forthcoming three months, a firm must take into account the following in respect of each business line for which it uses the alternative approach, and for at least the previous three months:

      1. (i)

         the firm'sclient money requirement over the course of that prior period (excluding any amount that was required to be segregated under this rule during that prior period for the purposes of alternative approach mandatory prudent segregation);

      2. (ii)

         the daily adjustment payments that the firm made into its client bank account under CASS 7.4.18A R (3); during that prior period; and

      3. (iii)

         the amount of money received by the firm in its own bank account which it did not initially identify as part of its client money requirement, but which subsequently, and during that prior period, became part of its client money requirement;

      as shown in its internal records.

   2. (b)

      In reaching its determination under (2) a firm must also take into account, but at all times having regard to the requirement under (2), any impact that particular events, the seasonal nature of each relevant business line, or any other aspect of those business lines may have on:

      1. (i)

         the firm'sclient money requirement during the forthcoming three months for which the amount of alternative approach mandatory prudent segregation required under this rule is being determined;

      2. (ii)

         the daily adjustment payments that the firm is likely to make into its client bank account under CASS 7.4.18A R (3) in that same period; and

      3. (iii)

         the amount of unidentified receipts of money that the firm is likely to receive into its own bank account and which will subsequently, in that same period, become part of its client money requirement.

   3. (c)

      If, at the time of its determination under (2), the firm has not been trading for three months in a business line for which it is using the alternative approach, then it must use the records that are available to it and must also factor in reasonable forecasts, as required under (b), to establish a three-month reference period.

4. (4)
   1. (a)

      A firm must, at regular intervals that are at least quarterly, repeat and complete the combined process of:

      1. (i)

         determining the amount that it is required to segregate for the purposes of alternative approach mandatory prudent segregation under (2) and (3);

      2. (ii)

         making necessary adjustments to its records to reflect any changes to its client money requirement; and

      3. (iii)

         paying any additional amounts of its own money into its client bank account to increase the firm'salternative approach mandatory prudent segregation or withdrawing any excess amounts from its client bank account to decrease the firm'salternative approach mandatory prudent segregation after it has adjusted its records under (ii).

   2. (b)

      The combined process of (a)(i) to (iii) must take no longer than 10 business days.

   3. (c)

      To the extent that a firm's compliance with (a)(i) and (ii) results in there being an excess in the firm'sclient bank account, the firm may cease to treat that money as client money.

5. (5)

   A firm must ensure that the individual responsible for CASS oversight under CASS 1A.3.1 R, CASS 1A.3.1A R or CASS 1A.3.1C R (as appropriate) reviews the adequacy of the amount of the firm'salternative approach mandatory prudent segregation maintained under this rule at least annually.

6A firm must create and keep up-to-date records so that any amount of money that is, pursuant to CASS 7.4.18B R:

1. (1)

   paid into a client bank account and retained as client money; or

2. (2)

   withdrawn from a client bank account;

can be easily ascertained (the alternative approach mandatory prudent segregation record).

6The alternative approach mandatory prudent segregation record under CASS 7.4.19A R must record:

1. (1)

   the date of the first determination under CASS 7.4.18B R (2) and each subsequent review undertaken under CASS 7.4.18B R (4), and the total amount that the firm determined was required to be segregated under CASS 7.4.18B R (2) as at that date;

2. (2)

   the date of any payment of the firm's own money into a client bank account, or withdrawal of any excess from a client bank account under CASS 7.4.18B R, and for each such occasion:

   1. (a)

      the amount of the payment or withdrawal;

   2. (b)

      the fact that the money was paid or withdrawn by the firm in accordance with CASS 7.4.18B R; and

   3. (c)

      as at that date, the total amount actually segregated by the firm under CASS 7.4.18B R.

6The alternative approach mandatory prudent segregation record must be retained for five years after the firm ceases to segregate any money in accordance with CASS 7.4.18B R.

If it is prudent to do so to ensure that client money is protected, a firm may pay into a client bank accountmoney of its own, and that money will then become client money for the purposes of this chapter.

A firm may segregate client money in a different currency from that of receipt. If it does so, the firm must ensure that the amount held is adjusted each day to an amount at least equal to the original currency amount (or the currency in which the firm has its liability to its clients, if different), translated at the previous day's closing spot exchange rate.

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.

3 3Where a firm establishes one or more sub-pools, the provisions of CASS 7.6 (Records, accounts and reconciliations) shall be read as applying separately to the firm'sgeneral pool and each sub-pool in line with CASS 7.19.3 R and CASS 7.19.4 R.

A firm must keep such records and accounts as are necessary to enable it, at any time and without delay, to distinguish client money held for one client from client money held for any other client, and from its own money.

[Note: article 16(1)(a) of the MiFID implementing Directive]

A firm must maintain its records and accounts in a way that ensures their accuracy, and in particular their correspondence to the client money held for clients.

[Note: article 16(1)(b) of the MiFID implementing Directive]

Unless otherwise stated, a3firm must ensure that any record3 made under the client money rules is3 retained for a period of five years starting from the later of:3

1. (1)

   the date it was created; and3

2. (2)

   (if it has been modified since the date it was created), the date it was most recently modified.3

1. (1)

   3Before using a non-standard method of internal client money reconciliation, a firm must:

   1. (a)

      establish and document in writing its reasons for concluding that the method of internal client money reconciliation it proposes to use will:

      1. (i)

         (for the normal approach to segregating client money) check whether the amount of client money recorded in the firm's records as being segregated in client bank accounts meets the firm's obligation to its clients under the client money rules on a daily basis; or

      2. (ii)

         (for the alternative approach to segregating client money) calculate the amount of client money to be segregated in client bank accounts which meets the firm's obligations to its clients under the client money rules on a daily basis;

   2. (b)

      notify the FCA of its intentions to use a non-standard method of internal client money reconciliation; and

   3. (c)

      send a written report to the FCA prepared by an independent auditor of the firm in line with a reasonable assurance engagement and stating the matters set out in CASS 7.6.6A R (2).

2. (2)

   The written report in (1)(c) must state whether in the auditor's opinion:

   1. (a)

      the method of internal client money reconciliation which the firm will use is suitably designed to enable it to (as applicable):

      1. (i)

         (for the normal approach to segregating client money) check whether the amount of client money recorded in the firm's records as being segregated in client bank accounts meets the firm's obligation to its clients under the client money rules on a daily basis; or

      2. (ii)

         (for the alternative approach to segregating client money) calculate the amount of client money to be segregated in client bank accounts which meets the firm's obligations to its clients under the client money rules on a daily basis; and

   2. (b)

      the firm's systems and controls are suitably designed to enable it to carry out the method of internal client money reconciliation the firm will use.

3. (3)

   A firm using a non-standard method of internal client money reconciliation must not materially change its method of undertaking internal reconciliations of client money balances unless:

   1. (a)

      the firm has established and documented in writing its reasons for concluding that the changed methodology will meet the requirements in (1)(a)(i) and (ii), as applicable;

   2. (b)

      an auditor of the firm has prepared a report that complies with the requirements in (1)(c) and (2) in respect of the firm's proposed changes; and

   3. (c)

      the firm provides a copy of the report prepared by the auditor under (3)(a) to the FCA before implementing the change.

A firm must conduct, on a regular basis, reconciliations between its internal accounts and records and those of any third parties by whom client money is held.

[Note: article 16(1)(c) of the MiFID implementing Directive]

Any approved collateral held in accordance with the client money rules must be included within this reconciliation.

When any discrepancy arises as a result of a firm's internal reconciliations, the firm must identify the reason for the discrepancy and ensure that:

1. (1)

   any shortfall is paid into a client bank account by the close of business on the day that the reconciliation is performed; or

2. (2)

   any excess is withdrawn within the same time period (but see CASS 7.4.20 G and CASS 7.4.21 R).

When any discrepancy arises as a result of the reconciliation between a firm's internal records and those of third parties that hold client money, the firm must identify the reason for the discrepancy and correct it as soon as possible, unless the discrepancy arises solely as a result of timing differences between the accounting systems of the party providing the statement or confirmation and that of the firm.

While a firm is unable to resolve a difference arising from a reconciliation between a firm's internal records and those of third parties that hold client money, and one record or a set of records examined by the firm during its reconciliation indicates that there is a need to have a greater amount of client money or approved collateral than is in fact the case, the firm must assume, until the matter is finally resolved, that the record or set of records is accurate and pay its own money into a relevant account.

A firm must inform the FCA in writing without delay:

1. (1)

   if it has not complied with, or is unable, in any material respect, to comply with the requirements in CASS 7.6.1 R, CASS 7.6.2 R or CASS 7.6.9 R;

2. (2)

   if having carried out a reconciliation it has not complied with, or is unable, in any material respect, to comply with CASS 7.6.13 R to CASS 7.6.15 R.

Subject to CASS 7.7.3 R in respect of a trustee firm, a3firm receives and holds client money as trustee on the following terms:

1. (1)

   for the purposes of and on the terms of the client money rules and the client money distribution rules;

   1
2. (2) 3
   1. (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;3

   2. (b)

      where a firm has established one or more pools of client money, subject to (4):3

      1. (i)

         the general pool is held for all the clients of the firm for whom the firm holds client money (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) according to their respective interests in it; and3

      2. (ii)

         each sub-pool is for the clients of the firm who are beneficiaries of the sub-pool in question accordance with CASS 7.19.6 R (2), according to their respective interests in it;3

3. (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. (4)

   for the payment of the costs properly attributable to the distribution of the client money in accordance with (2) if such distribution takes place following the failure of the firm3; and

   3
5. (5)

   after all valid claims and costs under (2) to (4) have been met, for the firm itself.

1A trustee firm which is subject to the client money rules by virtue of CASS 7.1.1A R (2)4 receives and holds client money as trustee on the terms in CASS 7.7.2 R, subject to its obligations to hold client money as trustee under the relevant instrument of trust.3

1. (1)

   For each4client bank account, a4firm must, in accordance with CASS 7.8.5 R, complete and sign a client bank account acknowledgement letter clearly identifying the client bank account, and send it4 to the bank with whom the client bank account is, or will be, opened,4 requesting the bank to acknowledgeand agree to the terms of the letter by countersigning it and returning it to the firm.4

   4444
2. (2)

   Subject to CASS 7.8.13 R and CASS 7.8.14 R, a firm must not hold or receive any client money in or into a client bank account unless it has received a duly countersigned client bank account acknowledgement letter from the relevant bank that has not been inappropriately redrafted (see CASS 7.8.7 R) and clearly identifies the client bank account.4

   4

1. (1)

   This rule does not apply to a firm to which CASS 7.8.3 R (1) applies.4

   4
2. (2)

   For each client transaction account, a firm must, in accordance with CASS 7.8.5 R, complete and sign a client transaction account acknowledgement letter clearly identifying the client transaction account. That letter must be sent to the person with whom the client transaction account is, or will be, opened, requesting such person to acknowledge and agree to the terms of the letter by countersigning it and returning it to the firm.4

   24
3. (3)

   Subject to CASS 7.8.13 R and CASS 7.8.14 R, a firm must not allow the relevant person to hold any client money in a client transaction account maintained by that person for the firm unless the firm has received a duly countersigned client transaction account acknowledgement letter from that person that has not been inappropriately redrafted (see CASS 7.8.7 R) and that clearly identifies the client transaction account.4

1. (1)

   4A firm which places client money at an authorised central counterparty in connection with a regulated clearing arrangement must, in accordance with CASS 7.8.5 R, complete and sign an authorised central counterparty acknowledgement letter clearly identifying the relevant client transaction account. That letter must be sent to the authorised central counterparty with whom the client transaction account is, or will be, opened, requesting such authorised central counterparty to acknowledge receipt of the letter by countersigning it and returning it to the firm.

2. (2)

   A firm which has complied with CASS 7.8.3 R (1) may allow the authorised central counterparty to hold client money on the relevant client transaction account, whether or not the authorised central counterparty has countersigned and returned the authorised central counterparty acknowledgement letter it received from the firm.

4When completing an acknowledgement letter under CASS 7.8.1 R (1), CASS 7.8.2 R (1) or CASS 7.8.3 R (1), a firm:

1. (1)

   must not amend any of the acknowledgement letter fixed text;

2. (2)

   subject to (3), must ensure the acknowledgement letter variable text is removed, included or amended as appropriate; and

3. (3)

   must not amend any of the acknowledgement letter variable text in a way that would alter or otherwise change the meaning of the acknowledgement letter fixed text.

1. (1)

   4If, on countersigning and returning the acknowledgement letter to a firm, the relevant person has also:

   1. (a)

      made amendments to any of the acknowledgement letter fixed text; or

   2. (b)

      made amendments to any of the acknowledgement letter variable text in a way that would alter or otherwise change the meaning of the acknowledgement letter fixed text;

   the acknowledgement letter will have been inappropriately redrafted for the purposes of CASS 7.8.1 R (2) or CASS 7.8.2 R (3) (as applicable).

2. (2)

   For the purposes of CASS 7.8.1 R (2) or CASS 7.8.2 R (3), amendments made to the acknowledgement letter variable text in the acknowledgement letter returned to a firm by the relevant person, will not have the result that the letter has been inappropriately redrafted if those amendments do not affect the meaning of the acknowledgement letter fixed text, have been specifically agreed with the firm and do not cause the acknowledgement letter to be inaccurate.

4A firm must use reasonable endeavours to ensure that any individual that has countersigned an acknowledgement letter that has been returned to the firm was authorised to countersign the letter on behalf of the relevant person.

1. (1)

   4A firm must retain each countersigned client bank account acknowledgement letter and client transaction account acknowledgement letter it receives, from the date of receipt until the expiry of five years from the date on which the last client bank account or client transaction account to which the acknowledgement letter relates is closed.

2. (2)

   A firm must retain a copy of each authorised central counterparty acknowledgment letter it sends to an authorised central counterparty under CASS 7.8.3 R (1) from the date it was sent until the expiry of five years from the date the last client transaction account to which the acknowledgement letter relates is closed.

4A firm must also retain any other documentation or evidence it believes is necessary to demonstrate that it has complied with each of the applicable requirements in this section (such as any evidence it has obtained to ensure that the individual that has countersigned an acknowledgement letter returned to the firm was authorised to countersign the letter on behalf of the relevant person).

1. (1)

   4This rule applies to:

   1. (a)

      any countersigned client bank account acknowledgement letter or client transaction account acknowledgement letter received by a firm under CASS 7.8.1 R (2) or CASS 7.8.2 R (3) respectively; and

   2. (b)

      any authorised central counterparty acknowledgement letter sent by a firm under CASS 7.8.3 R (1), whether or not it has been countersigned by the relevant authorised central counterparty and received by the firm.

2. (2)

   A firm must, periodically (at least annually and whenever it is aware that something referred to in an acknowledgement letter has changed) review each of its acknowledgement letters to ensure that they all remain accurate.

3. (3)

   Whenever a firm finds an inaccuracy in an acknowledgement letter, it must promptly draw up a replacement acknowledgement letter under CASS 7.8.1 R, CASS 7.8.2 R or CASS 7.8.3 R, as applicable, and, if it is an acknowledgement letter required to be sent under CASS 7.8.1 R or CASS 7.8.2 R, ensure that the new acknowledgement letter is duly countersigned and returned by the relevant person.

4If a firm'sclient bank account or client transaction account is transferred to another person, the firm must promptly draw up a new acknowledgement letter under CASS 7.8.1 R, CASS 7.8.2 R or CASS 7.8.3 R, as applicable, and, if it is an acknowledgement letter required to be sent under CASS 7.8.1 R or CASS 7.8.2 R, ensure that the new acknowledgement letter is duly countersigned and returned by the relevant person within 20 business days of the firm sending it to that person.

4If a firm opens a client bank account after a primary pooling event, the firm must:

1. (1)

   promptly draw up and send out a new acknowledgement letter under CASS 7.8.1 R;

2. (2)

   not hold or receive any client money in or into the client bank account unless it has sent the acknowledgement letter to the relevant person; and

3. (3)

   if the firm has not received a duly countersigned acknowledgement letter that has not been inappropriately redrafted (see CASS 7.8.7 R) within 20 business days of the firm sending the acknowledgement letter, withdraw all money standing to the credit of the account and deposit it in a client bank account with another bank as soon as possible; and

Where a firm creates a sub-pool for a particular net margined omnibus client account, it must not clear positions through that omnibus client account for clients who are not beneficiaries of that sub-pool.

A firm wishing to establish a sub-pool must establish and maintain adequate internal controls necessary to comply with the firm's obligations under CASS 7 for the general pool and each sub-pool that it may establish.

Where a firm establishes one or more sub-pools, CASS 7.6 (Records, accounts and reconciliations) shall be read as applying separately to the firm'sgeneral pool and each sub-pool.

1. (1)

   The records maintained for a sub-pool under CASS 7.19.4 R must identify all the client beneficiaries of that sub-pool.

2. (2)

   The beneficiaries of each sub-pool are those clients:

   1. (a)

      from whom the firm has received a signed sub-pool disclosure document in accordance with CASS 7.19.11 R;

   2. (b)

      for whom the firm maintains, previously maintained or is in the process of establishing a margined transaction(s) in the relevant net margined omnibus client account at the authorised central counterparty; and

   3. (c)

      to whom any client equity balance or other client money is required to be segregated for the client by the firm in respect of the margined transactions under (2)(b) from that sub-pool.

1. (1)

   For each sub-pool that the firm establishes, it must maintain a record of:

   1. (a)

      the name of the sub-pool;

   2. (b)

      the particular net margined omnibus client account at an authorised central counterparty to which the sub-pool relates;

   3. (c)

      each client bank account and each client transaction account (other than the net margined omnibus client account) maintained for the sub-pool, including the unique identifying reference or descriptor under CASS 7.19.13 R (2); and

   4. (d)

      the applicable sub-pool disclosure document for the sub-pool.

The firm must maintain an up-to-date list of all the sub-pools it has created.

1. (1)

   A firm wishing to establish a sub-pool must prepare a sub-pool disclosure document for each sub-pool.

2. (2)

   The sub-pool disclosure document for each sub-pool must:

   1. (a)

      identify the sub-pool by name, as stated in its records under CASS 7.19.7 R, the net margined omnibus client account and the authorised central counterparty to which the sub-pool disclosure document relates;

   2. (b)

      contain a statement that the client consents to the firm receiving and holding the client'sclient money in the sub-pool;

   3. (c)

      contain a statement that, in the event of the failure of the firm, the firm is directed by the client to use any client money held by the firm in the sub-pool to facilitate the porting of the positions recorded in that net margined omnibus client account; and

   4. (d)

      a statement reminding the client that, in the event of the failure of the firm, if porting is not effected or if porting is effected but any money in the sub-pool is not used to facilitate porting, the client beneficiaries of the sub-pool will be entitled to a distribution of any client money held for that sub-pool in line with CASS 7A. However, the client beneficiaries will not have a claim on any other pool of client money, except to the extent that the client is a beneficiary of another pool.

1. (1)

   Before receiving or holding client money for a client for a sub-pool, a firm must:

   1. (a)

      provide to the client a copy of the sub-pool disclosure document applicable to that sub-pool; and

   2. (b)

      obtain a signed copy of that sub-pool disclosure document from the client.

2. (2)

   A firm must provide the beneficiary of a sub-pool with a copy of its signed sub-pool disclosure document applicable to that sub-pool upon the beneficiary's request.

Where a firm establishes one or more sub-pools, CASS 7.4 (Segregation of client money) shall be read as applying separately to the firm'sgeneral pool and each sub-pool.

1. (1)

   A firm must not hold client money for a sub-pool in a client bank account or a client transaction account used for holding client money for any other sub-pool or the general pool.

2. (2)

   A firm that establishes a sub-pool must ensure that the name of each client bank account and each client transaction account (other than the net margined omnibus client account) maintained for that sub-pool includes a unique identifying reference or descriptor that enables the account to be identified with that sub-pool.

3. (3)

   Where a client of the firm is a beneficiary of the general pool and wishes to become a beneficiary of a sub-pool, the client in question shall become a beneficiary of the relevant sub-pool when :

   1. (a)

      the firm has obtained the signed sub-pool disclosure document from that client in accordance with CASS 7.19.11 R (1); and

   2. (b)

      the firm has either:

      1. (i)

         transferred the relevant amount of client money for that client from a client bank account maintained for the general pool to a client bank account maintained for the relevant sub-pool; or

      2. (ii)

         if the firm is not making a transfer of client money from the general pool, when it has received that client's money in a client bank account maintained for the relevant sub-pool.

4. (4)

   Where a client of the firm is a beneficiary of the general pool and wishes to become a beneficiary of a sub-pool, the firm must ensure that it does not transfer client money from a client bank account maintained for the general pool to a client bank account maintained for a sub-pool in accordance with CASS 7.19.13 R (3)(b)(i), unless the amount of client money held for the general pool is sufficient, immediately after that transfer, to satisfy the firm'sclient money obligations to the remaining beneficiaries of the general pool.

5. (5)

   A client of the firm who is a beneficiary of a sub-pool ceases to be a beneficiary of that sub-pool when:

   1. (a)

      the firm has settled the amount owing to that client for all of the margined transactions cleared through the related net margined omnibus client account and no longer holds any client money for that client in that sub-pool, and so CASS 7.19.6 R (2)(b) and CASS 7.19.6 R (2)(c) no longer apply for that client; or

   2. (b)

      the firm has complied with (i) or (ii), and in either case (iii):

      1. (i)

         the firm has received a written instruction from the client stating that the client no longer wishes to have its positions cleared through the net margined omnibus client account or its client money held in that sub-pool, or the firm has notified the client under CASS 7.19.18 R that it is making a material change to a sub-pool; or

      2. (ii)

         the firm has closed or moved that client's positions to an account other than the net margined omnibus client account referable to that sub-pool; and

      3. (iii)

         the firm has either transferred the relevant amount of client money for that client from a client bank account maintained for the relevant sub-pool to a client bank account maintained by the firm for the general pool (or, if applicable, another sub-pool), or transferred the amount owing to that client for all of the margined transactions cleared through the related net margined omnibus client account and no longer holds any client money for that client in that sub-pool.

6. (6)

   In relation to the transfer of client money under CASS 7.19.13 R (5)(b)(iii), a firm must ensure that it does not transfer client money from a client bank account maintained for a sub-pool, unless the amount of client money held for the sub-pool is sufficient, immediately after that transfer, to satisfy the firm'sclient money obligations to the remaining beneficiaries of that sub-pool.

1A firm that receives client money to be credited in part to the general pool or one sub-pool and in part to another sub-pool must:

1. (1)

   take the necessary steps to ensure that the full sum is paid directly into a client bank account maintained for the general pool; and

2. (2)

   promptly, and in any event no later than one business day after receipt, pay the money that is not client money for the general pool out of that client bank account and into a client bank account maintained for the appropriate sub-pool.

A client for whom a firm receives or holds client money for a sub-pool has no claim to or interest in client money received or held for the general pool or any other sub-pool unless:

1. (1)

   that client is a beneficiary of that other sub-pool; or

2. (2)

   the firm receives or holds client money for that client for other business which does not relate to any sub-pool (and thus the client is a beneficiary of the firm'sgeneral pool).

A client for whom a firm receives or holds client money in more than one pool as described in CASS 7.19.16 R (1) and/or CASS 7.19.16 R (2) has an interest in a distribution from each such pool, and each interest is separate and distinct.

Before making a material change to a sub-pool, a firm must:

1. (1)

   notify the then current beneficiaries of that sub-pool in writing, not less than two months before the date on which the firm intends the change to take effect; and

2. (2)

   include in the notification an explanation of the consequences for the beneficiaries of the proposed change and the options available to them, such as the option of a beneficiary of the affected sub-pool to cease to be a beneficiary of that sub-pool and to become a beneficiary of the firm'sgeneral pool or, if applicable, another sub-pool.

Before materially changing a sub-pool, a firm must provide a copy of the notice provided to clients under CASS 7.19.18 R R to the FCA not less than two months before the date on which the firm intends the change to take place.

A firm that wishes to establish a sub-pool of client money must notify the FCA in writing not less than two months before the date on which the firm intends to receive or hold client money for that sub-pool.

Upon request, a firm must deliver to the FCA a copy of the sub-pool disclosure document for any sub-pool established by the firm.

A firm must inform the FCA in writing, without delay, if it has not complied, or is unable to comply with the requirements in CASS 7.19.11 R or the requirements in CASS 7.19.18 R.

The records maintained under this section, including the sub-pool disclosure documents, are a record of the firm that must be kept in a durable medium for at least five years following the date on which client money was last held by the firm for a sub-pool to which those records or the sub-pool disclosure document applied.