1 1This 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:

1. (1)

   MiFID business; and/or

2. (2)

   designated investment business; and/or3

3. (3)

   stocks and shares ISA business;3 and/or5

4. (4)

   innovative finance ISA business;5 and/or6

5. (5)

   lifetime ISA business,

   6

unless otherwise specified in this section.

1. (1)

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

   1. (a)

      its MiFID business; or

   2. (b)

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

   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. (2)

   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. (2A)
   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.3

   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 who receives and holds money in the course of or in connection with its MIFID business.3

4. (3)

   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.

5. (4)

   This rule is subject to CASS 1.2.11 R.

3Where a firm opts into this chapter under CASS 7.10.3 R (2A) 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.

1. (1)

   4If both the conditions in (a) and (b) below are met in respect of a firm, or the firm reasonably expects that they will all be met in the future, then the firm has the option to elect to comply with this chapter for all of the money described in those conditions:

   1. (a)

      the firm receives or holds money for one or more persons in the course of, or in connection with, the firm’s activity of operating an electronic system in relation to non-P2P agreements; and

   2. (b)

      those persons are customers of the firm in their capacity as lenders under non-P2P agreements or prospective lenders under non-P2P agreements.

2. (2)

   A firm can only make the election under (1) by informing the FCA in writing of the election at least one month before the date on which it intends to start holding the money in accordance with the client money rules (“the effective date”).

3. (3)

   The communication in (2) must specify the effective date.

4. (4)

   The firm may change the effective date after it has made the communication in (2) provided that:

   1. (a)

      it informs the FCA in writing before the new effective date; and

   2. (b)

      the new effective date is not less than one month after the date of the communication in (2).

1. (1)

   4When a firm makes an election under CASS 7.10.7AR it must write to any customer (“C”) with whom it has agreed to provide relevant electronic lending services in C’s capacity as a lender or prospective lender, informing C at least one month before it will start to hold the money in accordance with the client money rules:

   1. (a)

      that all the money it holds in the course of, or in connection with, operating an electronic system in relation to non-P2P agreements for lenders and prospective lenders under non-P2P agreements will be treated in accordance with the client money rules; and

   2. (b)

      of the date on which this will start.

2. (2)

   The firm must also write to any customer (“C”) with whom, following the firm’s election, it agrees to provide relevant electronic lending services in C’s capacity as a lender or prospective lender.

   1. (a)

      The firm must make this communication in advance of it receiving any money from or on behalf of C.

   2. (b)

      The communication must inform C that all the money the firm holds in the course of, or in connection with, operating an electronic system in relation to non-P2P agreements for lenders and prospective lenders under non-P2P agreements will be treated in accordance with the client money rules from the date specified under (1)(b) or, if that date has passed, that this will be the case from the time of the communication onwards.

4Once an election made by a firm under CASS 7.10.7AR becomes effective, and until it ceases to be effective:

1. (1)

   the firm must treat all the money referred to under CASS 7.10.7AR(1) in accordance with the election; and

2. (2)

   for the purposes of (1), this chapter applies to the firm in the same way that it applies to a firm that receives and holds money in the course of or in connection with its designated investment business, except that:

   1. (a)

      CASS 7.10.10R will not apply to the money referred to under CASS 7.10.7AR(1); and

   2. (b)

      “client” for the purposes of CASS and rules and guidance related to CASS and their application to the firm includes customers of the firm in their capacity as lenders or prospective lenders under non-P2P agreements.

4If a firm that has made an election under CASS 7.10.7AR subsequently decides to cancel that election:

1. (1)

   it can only do so by writing to the FCA, at least one month before the date the election ceases to be effective;

2. (2)

   it must write to any customer with whom, as at the time of the cancellation, it has agreed to operate an electronic system in relation to non-P2P agreements in their capacity as a lender or prospective lender, informing them at least one month before the date the election ceases to be effective:

   1. (a)

      of the extent to which it will cease to hold their money in accordance with the client money rules; and

   2. (b)

      of the date from which those changes will take effect; and

3. (3)

   it must write to any customer (“C”) with whom, following the firm’s decision to cancel the election but before the election ceases to be effective, it agrees to operate an electronic system in relation to non-P2P agreements in C’s capacity as a lender or prospective lender, in advance of the firm receiving any money from them or on their behalf, informing them:

   1. (a)

      of the period during which it will continue to hold all the money of lenders and prospective lenders under non-P2P agreements in accordance with the client money rules;

   2. (b)

      of the extent to which it will subsequently cease to hold their money in accordance with the client money rules; and

   3. (c)

      of the date from which those changes will take effect.

1. (1)

   4A firm must make and retain a written record of any election it makes under CASS 7.10.7AR including:

   1. (a)

      the date from which the election is to be effective; and

   2. (b)

      if it cancels the election, the date from which the election is to cease to be effective.

2. (2)

   The firm must:

   1. (a)

      make the record on the date it makes the election;

   2. (b)

      update the record it if it decides to cancel the election or change the effective date; and

   3. (c)

      keep the record for a period of five years after ceasing to use the election.

CASS 7.10.9 G to CASS 7.10.15 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 7.10.3 R(1) or CASS 7.10.7AR4.

Subject to CASS 7.10.12 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 distribution activity10, 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.

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 distribution activity10:

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 7.10.10 R (1) to CASS 7.10.10 R (3).

When a firm transfers client money to another person, the firm must not enter into an agreement under CASS 7.10.10 R or CASS 7.10.12 R with that other person in relation to that client money or represent to that other person that the money is not client money.

In 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 16(9)7 of MiFID and article 4(1)7 of the MiFID Delegated Directive7]

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.

A firm holding money in either of the ways described in CASS 7.10.16 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 and transfer rules8 will not apply to these sums and so the client will not be entitled to share in any distribution under the client money distribution and transfer rules8.

A firm holding money in either of the ways described in CASS 7.10.16 R in respect of a client and providing the services to it referred to in CASS 7.10.19 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.

If 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 7.10.16 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 firm fails, the client money distribution and transfer rules8 will apply to money held in relation to the business in question.

A 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).

A 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 the following rules of its designated professional body, must comply with those rules and, where relevant paragraph (3), and if it does so, it will be deemed to comply with the client money rules.

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;

   2. (b)

      if the firm is regulated by the Law Society of Scotland, the Law Society of Scotland Practice Rules 2011; and

   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 client 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.

This 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.

1. (1)

   Provided 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.

2. (2)

   This rule is subject to CASS 1.2.11 R.

A firm must make and retain a written record of any election which it makes under CASS 7.10.30 R.

A 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)

   A trustee firm to which CASS 7.10.34 R applies may, in addition to the client money rules set out at CASS 7.10.34 R, also elect to comply with:

   1. (a)

      all the client money rules in CASS 7.13 (Segregation of client money);

   2. (b)

      CASS 7.14 (Client money held by a third party);

   3. (c)

      all the client money rules in CASS 7.15 (Records, accounts and reconciliations); or

   4. (d)

      CASS 7.18 (Acknowledgement letters).

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.

A trustee firm to which CASS 7.10.34 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.

1. (1)

   A trustee firm to which CASS 7.10.34 R applies may elect that:

   1. (a)

      the applicable provisions of CASS 7.13 (Segregation of client money) and CASS 7.15 (Records, accounts and reconciliations) under CASS 7.10.34 R; and

   2. (b)

      2any further provisions it elects to comply with under CASS 7.10.35 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.

1. (1)

   [deleted]5

   1
2. (2)

   [deleted]5

3. (3)
   1. (a)

      A firm must not enter into a TTCA in respect of money belonging to a retail client. 5

   2. (b)

      Where a firm entered into a TTCA in respect of money belonging to a retail client (or money which would belong to a retail client but for the arrangement) before 3 January 2018, the firm must terminate that TTCA.5

   [Note: article 16(10) of MiFID and article 5(5) of the MiFID Delegated Directive]5

4. (4)

   Money that is subject to a TTCA does not amount to client money, provided that the TTCA is not with a retail client.

   [Note: recital 52 to MiFID]5

1. (1)

   A firm must ensure that any TTCA5 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)

   5A firm must properly consider and document the use of TTCAs in the context of the relationship between the client’s obligation to the firm and the money subjected to TTCAs by the firm.

2. (2)

   A firm must be able to demonstrate that it has complied with the requirement under (1).

3. (3)

   When considering, and documenting, the appropriateness of the use of TTCAs, a firm must take into account the following factors:

   1. (a)

      whether there is only a very weak connection between the client’s obligation to the firm and the use of TTCAs, including whether the likelihood of a liability arising is low or negligible;

   2. (b)

      the extent by which the amount of money subject to a TTCA is in excess of the client’s obligations (including where the TTCA applies to all money from the point of receipt by the firm) and whether the client might have no obligations at all to the firm; and

   3. (c)

      whether all the client’s money is made subject to TTCAs, without consideration of what obligation the client has to the firm.

4. (4)

   Where a firm uses a TTCA, it must highlight to the client the risks involved and the effect of any TTCA on the client’s money.

[Note: article 6 of the MiFID Delegated Directive]

1. (1)

   If a client communicates to a firm that it wishes (whether pursuant to a contractual right or otherwise) to terminate a TTCA5, and the client's communication is not in writing, the firm must make a written record of the client's communication, which also records the date the communication was received.

2. (2)

   A firm must keep a client's written communication, or a written record of the client's communication in (1), for five years starting from the date the communication was received by the firm.

3. (3)
   1. (a)

      If a firm agrees to the termination of a TTCA5, it must notify the client of its agreement in writing. The notification must state when the termination is to take effect and whether or not the client's money will be treated as client money by the firm thereafter.

   2. (b)

      If a firm does not agree to terminate a TTCA5, it must notify the client of its disagreement in writing.

4. (4)

   A firm must keep a written record of any notification it makes to a client under (3) for a period of five years, starting from the date the notification was made.

1. (1)

   If a TTCA is terminated then, unless otherwise permitted under the client money rules and notified to the client under CASS 7.11.9R(3)(a), the firm must treat that money as client money from the start of the next business day following the date of termination as set out in the firm’s notification under CASS 7.11.9R (3)(a). 5

2. (2)

   Where the firm’s notification under CASS 7.11.9R(3)(a) does not state when the termination of the arrangement will take effect, the firm must treat that money as client money from the start of the next business day following the date on which the firm’s notification is made.5

1. (1)

   Subject to (2) and CASS 7.11.16 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.

A firm cannot, in respect of a particular delivery versus payment transaction, make use of the exemption under CASS 7.11.14 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.

Where a firm does not meet the requirements in CASS 7.11.14 R or CASS 7.11.16 R for the use of the exemption in CASS 7.11.14 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.

A firm will not be in breach of the requirement under CASS 7.13.6 R to receive client money directly into a client bank account if it:

1. (1)

   receives the money in question:

   1. (a)

      in accordance with CASS 7.11.14 R (1)(a) but it is subsequently required under CASS 7.11.14 R (2) to hold that money in accordance with the client money rules; or

   2. (b)

      in the circumstances referred to in CASS 7.11.18 G (2)(b); and

2. (2)

   pays the money in question into a client bank account promptly, and in any event by close of business on the business day following:

   1. (a)

      the expiration of the relevant period referred to in CASS 7.11.14 R (2); or

   2. (b)

      receipt of the money in the circumstances referred to in CASS 7.11.18 G (2)(b).

1. (1)

   If a firm makes use of the exemption under CASS 7.11.14 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 record created in (1) must be retained during the time that the firm makes use, or intends to make use, of the exemption under CASS 7.11.14 R in respect of that client's monies.

1. (1)

   Subject to (2)(a)3, money need not be treated as client money:

   3
   1. (a)

      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 in either of the following circumstances:

      1. (i)

         the authorised fund manager receives the money from a client in relation to the authorised fund manager's obligation to issue units, in an AUT or ACS, or to arrange for the issue of units in an ICVC, in accordance with COLL; or

      2. (ii)

         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.2

2. (2)
   1. (a)

      Where, in respect of money received in any of the circumstances set out in (1), the authorised fund manager has not, by close of business on the business day following the date of receipt of the money, paid this money to the depositary of an AUT or ACS, the ICVC or to the client as the case may be, the authorised fund manager must stop using the exemption under (1) for that transaction.3

   2. (b)

      Paragraph (2)(a) does not prevent a firm transferring client money segregated under (2)(a) into the firm's own account, provided this is done only for the purpose of making a payment on the same day from that account in accordance with CASS 7.11.34R(1) to CASS 7.11.34R(3) (Discharge of fiduciary duty).3

An authorised fund manager will not be in breach of the requirement under CASS 7.13.6R to receive client money directly into a client bank account if it received the money in accordance with CASS 7.11.21 R (1) and is subsequently required under CASS 7.11.21 R (2) to hold that money in accordance with the client money rules.

1. (1)

   If a firm makes use of the exemption under CASS 7.11.21 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 record created in (1) must be retained for the duration of the time that the firm makes use of the exemption under CASS 7.11.21 R in respect of that client's money.

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.

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

1. (1)

   6CASS 7.11.34R(2)(c), CASS 7.11.34R(2)(d) and CASS 7.11.34R(10) do not apply to a firm following a primary pooling event.

2. (2)

   CASS 7.11.34R(2)(e) only applies to a firm following a primary pooling event.

Money ceases to be client money (having regard to CASS 7.11.40 R where applicable) if:

1. (1)

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

2. (2)

   it is:

   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 7.14.2 R (Transfer of client money to a third party); or

   2. (b)

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

      1. (i)

         that obligation arises under an enactment; and

      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; or

   3. (c)

      transferred in accordance with CASS 7.11.42 R; or

   4. (d)

      transferred in accordance with CASS 7.11.44 R; or

   5. (e)

      transferred in accordance with CASS 7A.2.4R(4); or6

3. (3)

   subject to CASS 7.11.39R4, it is paid into a bank account of the client (not being an account which is also in the name of the firm); or

4. (4)

   it is due and payable to the firm in accordance with CASS 7.11.25 R (Money due and payable to the firm); or

5. (5)

   it is paid to the firm as an excess in the client bank account (see CASS 7.15.29 R (2) (Reconciliation discrepancies)); or

6. (6)

   it 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 7.11.35 R; or

7. (7)

   it is paid by an authorised central counterparty directly to the client in accordance with CASS 7.11.36 R; or

8. (8)

   it 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 7.11.37 R (1); or

9. (9)

   it 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 firm in accordance with CASS 7.11.37 R (2);2 or

10. (10)

    it is paid to charity under CASS 7.11.50 R or CASS 7.11.57 R.

Client money which the firm places at an authorised central counterparty in 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.

Client money which the firm places at an authorised central counterparty in 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.

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 in accordance with the EMIR indirect clearing default management obligations or the MiFIR indirect clearing default management obligations (as applicable)7:

1. (1)

   remits payment to another firm or to another clearing member; or7

2. (2)

   remits payment to the indirect clients of the firm7.

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 a result of porting.

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

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.

6 CASS 7.11.41G to CASS 7.11.47R do not apply to a firm following a primary pooling event.

Subject to CASS 7.11.44 R, money ceases to be client money for a 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 to the client as soon as practicable at the client's request;

3. (3)

   a written agreement between the firm and the relevant client 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).

1. (1)

   Client 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.

Where a firm transfers client money belonging to its clients under either or both of CASS 7.11.42 R and CASS 7.11.44 R it must ensure that those clients are notified no later than seven days after the transfer taking 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 7.11.42 R and CASS 7.11.44 R at least seven days before it transfers the client money in question.

6 CASS 7.11.48G to CASS 7.11.58G do not apply to a firm following a primary pooling event.

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 7.11.34 R (10), provided:

1. (1)

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

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)

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

4. (4)

   the firm complies with CASS 7.11.54 R.

1. (1)

   Where a firm wishes to release a balance allocated to an individual client under CASS 7.11.50 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;

   or

   1. (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.

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;

   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; and

   3. (c)

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

1. (1)

   If a firm pays away client money under CASS 7.11.50 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 7.11.50 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 7.11.50 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 7.11.54 R (2) then the records in (1) must be readily accessible to that group member.

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 7.11.34 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 7.11.55 R (1)(a) and CASS 7.11.55 R (1)(b).

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 16(9)1 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 2(1)(f)1 of the MiFID Delegated Directive1]

Where a firm establishes one or more sub-pools, the provisions of CASS 7.13 (Segregation of client money) shall be read as applying separately to the firm's general pool and each sub-pool in line with CASS 7.19.3 R and CASS 7.19.12 R.

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 CRD credit institution;

3. (3)

   a bank authorised in a third country6;

4. (4)

   a qualifying money market fund.

[Note: article 4(1) of the MiFID Delegated Directive6]

Unless otherwise permitted by any other rule in this chapter2, a firm using the normal approach must ensure that all client money it receives is paid directly into a client bank account at an institution referred to in CASS 7.13.3 R (1) to CASS 7.13.3 R (3), rather than being first received into the firm's own account and then segregated.

1. (1)

   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 CRD credit institution, bank or qualifying money market fund where the money is deposited and the arrangements for the holding of this money. 6

2. (2)

   The firm must consider the need for diversification as part of its due diligence under (1).6

[Note: article 4(2) first sub-paragraph of the MiFID Delegated Directive6]

When a firm makes the selection, appointment and conducts the periodic review of a CRD 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 with a view to ensuring the protection of clients’ rights6; and

2. (2)

   any legal or regulatory6 requirements or market practices related to the holding of client money that could adversely affect clients' rights.

[Note: article 4(2) second sub-paragraph of the MiFID Delegated Directive6]

A firm must take the necessary steps to ensure that client money deposited, in accordance with CASS 7.13.3 R, in a central bank, a credit institution, a bank authorised in a third country6 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 2(1)(e) of the MiFID Delegated Directive6]

1. (1)

   An account which the firm uses to deposit client money under CASS 7.13.3 R (1) to CASS 7.13.3 R (3) must be a client bank account.

2. (2)

   In respect of each8client bank account used by a firm to satisfy its obligation under CASS 7.13.3R(1) to (3)8:

   1. (a)

      the relevant bank's contractual counterparty must be the firm itself8; and

   2. (b)

      ) subject to paragraph (3A),8 the firm must be8 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 1.1.10AR applies to (2).

3. (3)

   [deleted]8

4. (3A)

   Where the requirement under sub-paragraph (2)(b) is not satisfied and provided that the client bank account is not included in a sub-pool, a firm may use a client bank account from which it will be unable to make a withdrawal of client money until the expiry of a period lasting:8

   1. (a)

      up to 30 days; or8

   2. (b)

      provided the firm complies with CASS 7.13.14AR, from 31 to 95 days.8

5. (4)

   Paragraphs (2)(b) and (3A)8 do not apply in respect of client money received by a firm in its capacity as a trustee firm.

8A firm may only use one or more client bank accounts under CASS 7.13.13R(3A)(b) if:

1. (1)

   prior to using any such client bank accounts, it:

   1. (a)

      produces a written policy that sets out:

      1. (i)

         for each of its business lines, the maximum proportion of the client money held by the firm that the firm considers would be appropriate to hold in such client bank accounts having regard to the need to manage the risk of the firm being unable to access client money when required;

      2. (ii)

         the firm’s rationale for reaching its conclusion(s) under (i); and

      3. (iii)

         the measures that it will put into place to comply with sub-paragraph (2)(a) of this rule, having regard to CASS 7.13.14CE; and

   2. (b)

      provides each of its clients with a written explanation of the risks that arise as a result of the longer notice period for withdrawals that:

      1. (i)

         is clear, fair and not misleading; and

      2. (ii)

         in respect of the medium of the explanation, satisfies whichever of COBS 6.1.13R (Medium of disclosure) or COBS 6.1ZA.19EU (Medium of disclosure) applies to the firm in respect of its obligations to provide information to the client; and

2. (2)

   while the firm uses any such client bank accounts, it:

   1. (a)

      takes appropriate measures to manage the risk of the firm being unable to access client money when required;

   2. (b)

      keeps its written policy under sub-paragraph (1)(a) under review, amending it where necessary; and

   3. (c)

      provides any of its clients to whom it has not previously provided the explanation under sub-paragraph (1)(b) with such a written explanation before it starts to hold or receive client money for them.

1. (1)

   8A firm must make and retain a written record of:

   1. (a)

      the written policy it produces under CASS 7.13.14AR(1)(a); and

   2. (b)

      each subsequent version of the written policy it produces as a result of CASS 7.13.14AR(2)(b).

2. (2)

   The firm must make the record:

   1. (a)

      under sub-paragraph (1)(a) on the date it produces the written policy; and

   2. (b)

      under sub-paragraph (1)(b) on the date it produces the new version of the written policy.

3. (3)

   The firm must keep each record under this rule for a period of five years after the earlier of:

   1. (a)

      the date on which the version of the policy to which the record relates was superseded; and

   2. (b)

      the date on which the firm ceased to use client bank accounts under CASS 7.13.13R(3A)(b).

Notwithstanding the requirement at CASS 7.13.22 R a firm must limit the funds that it deposits or holds with a relevant group entity or combination of such entities so that the value of those funds do not at any point in time exceed 20 per cent of the total of all the client money held by the firm under CASS 7.13.3R6.

[Note: article 4(3) first sub-paragraph of the MiFID Delegated Directive]6

For the purpose of CASS 7.13.20 R an entity is a relevant group entity if it is:

1. (1)
   1. (a)

      a CRD credit institution; or 6

   2. (b)

      a bank authorised in a third country; or6

   3. (c)

      a qualifying money market fund; or6

   4. (d)

      the entity operating or managing the qualifying money market fund; and6

2. (2)

   a member of the same group as that firm.

[Note: article 4(3) first sub-paragraph of the MiFID Delegated Directive]6

1. (1)

   6A firm need not comply with CASS 7.13.20R if, following an assessment, it is able to demonstrate that the requirement under that rule is not proportionate, in view of:

   1. (a)

      the small balance of client money that it holds;

   2. (b)

      the nature, scale and complexity of its business; and

   3. (c)

      the safety offered by the relevant third parties referred to under CASS 7.13.20R.

2. (2)

   A firm must review any assessment it makes under (1) periodically.

3. (3)

   A firm must notify its assessment under (1) and its reviewed assessments under (2) to the FCA in accordance with CASS 7.13.21CR.

[Note: article 4(3) second sub-paragraph of the MiFID Delegated Directive]

1. 6Where a firm decides following an assessment under CASS 7.13.21AR(1) that it intends to use the approach under that rule, the firm must give the FCA notice of this upon reaching that decision and before it starts to use that approach.

2. Where, following a review under CASS 7.13.21AR(2) a firm decides that it will either cease to use the approach under CASS 7.13.21AR(1) or continue to use it, it must give the FCA notice of this upon reaching that decision.

Subject to the requirement at CASS 7.13.20 R, and in accordance with Principle 10 and CASS 7.12.1 R, a firm must:

1. (1)

   periodically review6 whether it is appropriate to diversify (or further diversify) the third parties with which it deposits some or all of the client money that the firm holds; and

2. (2)

   whenever it concludes that it is appropriate to do so, it must make adjustments accordingly to the third parties it uses and to the amounts of client money deposited with them.

[Note: article 4(2) first sub-paragraph of the MiFID Delegated Directive]6

1. (1)

   A firm must make a record of the grounds upon which it satisfies itself as to the appropriateness of its selection and appointment of a bank or a qualifying money market fund under CASS 7.13.8 R. The firm must make the record on the date it makes the selection or appointment and must keep it from that date until five years after the firm ceases to use that particular person for the purposes of depositing client money under CASS 7.13.3 R.

2. (2)

   A firm must make a record of each periodic review of its selection and appointment of a bank or a qualifying money market fund that it conducts under CASS 7.13.8 R, its considerations and conclusions. The firm must make the record on the date it completes the review and must keep it from that date until five years after the firm ceases to use that particular person for the purposes of depositing client money under CASS 7.13.3 R.

3. (3)

   A firm must make a record of each periodic review that it conducts under CASS 7.13.22 R, its considerations and conclusions. The firm must make the record on the date it completes out the review and must keep it for five years from that date.

Where a firm deposits client money with a qualifying money market fund, the firm's holding of those units or shares6 in that fund will be subject to any applicable requirements of the custody rules.

1. (1)

   A firm must inform a client that money placed with a qualifying money market fund will not be held in accordance with the requirements for holding client money.6

2. (2)

   A firm must ensure that, having provided the information to the client under (1), the client gives its explicit consent to the placement of their money in a qualifying money market fund. 6

A firm may segregate client money in a different currency from that in which it was received or in which the firm is liable to the relevant client. 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.

Except in the circumstances described in CASS 7.13.72 R (1)(a), where a firm using the normal approach receives a mixed remittance it should:

1. (1)

   in accordance with CASS 7.13.6 R, take necessary steps to ensure the mixed remittance is paid directly into a client bank account; and

2. (2)

   promptly and, in any event no later than one business day after the payment of the mixed remittance into the client bank account has cleared, pay the money that is not client money out of the client bank account.

Where a firm receives client money in the form of cash, a cheque or other payable order, it must:

1. (1)

   pay the money in accordance with CASS 7.13.6 R, promptly, and no later than on the business day after it receives the money into a client bank account, unless either:

   1. (a)

      the money is received by a business line for which the firm uses the alternative approach, in which case the money must be paid into the firm's own bank account promptly, and no later than on the business day after it receives the money; or

   2. (b)

      the firm is unable to meet the requirement in (1) because of restrictions under the regulatory system or law regarding the receipt and processing of money, in which case the money must be paid in accordance with CASS 7.13.6 R as soon as possible;

2. (2)

   if the firm holds the money in the meantime before paying it in accordance with CASS 7.13.6 R (or in the case of (1)(a), into its own bank account), hold it in a secure location in line with Principle 10; and

3. (3)

   in any case, record the receipt of the money in the firm's books and records in line with CASS 7.15 (Records, accounts and reconciliations).

Where a firm receives client money in the form of a cheque that is dated with a future date, unless the firm returns the cheque it must:

1. (1)

   pay the money in accordance with CASS 7.13.6 R, promptly, and no later than the date on the cheque if the date is a business day or the next business day after the date on the cheque;

2. (2)

   in the meantime, hold it in a secure location in accordance with Principle 10; and

3. (3)

   record the receipt of the money in the firm's books and records in accordance with CASS 7.15 (Records, accounts and reconciliations).

A firm must ensure that client money received by its appointed representatives, tied agents, field representatives or other agents is:

1. (1)

   received directly into a client bank account of the firm, where this would have been required if such client money had been received by the firm otherwise than through its appointed representatives, tied agents, field representatives or other agents (see CASS 7.13.6 R and CASS 7.13.7 G); or

2. (2)

   if it is received in the form of a cheque or other payable order:

   1. (a)

      paid into a client bank account of the firm promptly and, in any event, no later than the next business day after receipt; or

   2. (b)

      forwarded to the firm or, in the case of a field representative, forwarded to a specified business address of the firm, to ensure that the money arrives at the specified business address promptly and, in any event, no later than the close of the third business day.

1. (1)

   A firm must allocate any client money it receives to an individual client promptly and, in any case, no later than ten business days following the receipt (or where subsequent to the receipt of money it has identified that the money, or part of it, is client money under CASS 7.13.37 R, no later than ten business days following that identification).

2. (2)

   Pending a firm's allocation of a client money receipt to an individual client under (1), it must record the received client money in its books and records as "unallocated client money".

If a firm receives money (either in a client bank account or an account of its own) which it is unable to immediately identify as client money or its own money, it must:

1. (1)

   take all necessary steps to identify the money as either client money or its own money;

2. (2)

   if it considers it reasonably prudent to do so, given the risk that client money may not be adequately protected if it is not treated as such, treat the entire balance of money as client money and record the money in its books and records as "unidentified client money" while it performs the necessary steps under (1).

7 CASS 7.13.39R and CASS 7.13.40G do not apply to a firm following a primary pooling event.

Pursuant to the client money segregation requirements, a firm that is operating the normal approach and is liable to pay money7 to a client must7 promptly, and in any event no later than one business day after the money is due and payable, pay the money:

1. (1)

   to, or to the order of, the client; or

2. (2)

   into a client bank account.

1. (1)

   7Subject to paragraph (2), CASS 7.13.41R to CASS 7.13.49R do not apply to a firm following a primary pooling event.

2. (2)

   If, at the time of a primary pooling event, a firm has retained money in a client bank account for the purposes of CASS 7.13.41R, that money remains client money for the purposes of the client money rules and the client money distribution and transfer rules.

If it is prudent to do so to prevent a shortfall in client money on the occurrence of a primary pooling event, a firm may pay money of its own into a client bank account and subsequently retain that money in the client bank account (prudent segregation). Money that the firm retains in a client bank account under this rule7 is client money for the purposes of the client money rules and the client money distribution and transfer rules7.

If a firm intends to pays its own money into a client bank account under CASS 7.13.41 R it must establish a written policy that is approved by its governing body (and retain such policy for a period of at least five years after the date it ceases to retain such money in a client bank account under CASS 7.13.41 R) detailing:

1. (1)

   the specific anticipated risks in relation to which it would be prudent for the firm to make such payments into a client bank account;

2. (2)

   why the firm considers that the use of such a payment is a reasonable means of protecting client money against each of the risks set out in the policy; and

3. (3)

   the method that the firm will use to calculate the amount required to address each risk set out in the policy.

The firm may amend its written policy to reflect changes in the specific anticipated risks in relation to which it would be prudent for the firm to make payments into a client bank account under CASS 7.13.41 R.

The firm's written policy must not conflict with the client money rules or the client money distribution and transfer rules7. If there is a conflict, the client money rules and the client money distribution and transfer rules7 will prevail.

To the extent that the firm no longer considers it prudent to retain money in its client bank account pursuant to CASS 7.13.41 R in order to ensure that client money is protected, the firm may cease to treat that money as client money.

Any money that the firm ceases to treat as client money pursuant to CASS 7.13.48 R must be withdrawn from its client bank account as an excess under CASS 7.15.29 R as part of its next reconciliation.

1. (1)

   7Subject to paragraph (2), CASS 7.13.50R to CASS 7.13.52G do not apply to a firm following a primary pooling event.

2. (2)

   Where a firm holds a prudent segregation record under CASS 7.13.53R following a primary pooling event, the prudent segregation record must continue to satisfy the requirements set out in CASS 7.13.51R.

A firm must create and keep up-to-date records so that the amount of money paid into client bank accounts and retained as client money pursuant to CASS 7.13.41 R or withdrawn pursuant to CASS 7.13.49 R, and the reasons for such payment, retention and withdrawal can be easily ascertained (the prudent segregation record).

The prudent segregation record must record:

1. (1)

   the outcome of the firm's calculation of its prudent segregation;

2. (2)

   the amounts paid into or withdrawn from a client bank account pursuant to CASS 7.13.41 R or CASS 7.13.49 R;

3. (3)

   why each payment or withdrawal is made;

4. (4)

   in respect of the firm's written policy required by CASS 7.13.43 R the firm must record, as applicable, either:

   1. (a)

      that the payment or withdrawal is made in accordance with that policy; or

   2. (b)

      that the policy will be created or amended to include the reasons for this payment or withdrawal;

5. (5)

   that the money was paid by the firm in accordance with CASS 7.13.41 R or withdrawn by the firm in accordance with CASS 7.13.49 R; and

6. (6)

   the up-to-date total amount of client money held pursuant to CASS 7.13.41 R.

The prudent segregation record must be retained for five years after the firm ceases to retain money as client money pursuant to CASS 7.13.41 R.

1. (1)

   7Subject to paragraphs (2) and (3), CASS 7.13.59R, CASS 7.13.62R(3), CASS 7.13.62R(4) and CASS 7.13.63R to CASS 7.13.67R do not apply to a firm following its failure.

2. (2)

   If, at the time of a primary pooling event, a firm has retained money in a client bank account for the purposes of alternative approach mandatory prudent segregation under CASS 7.13.65R, that money remains client money for the purposes of the client money rules and the client money distribution and transfer rules.

3. (3)

   Where a firm holds an alternative approach mandatory prudent segregation record under CASS 7.13.68R following a primary pooling event, the alternative approach mandatory prudent segregation record must continue to satisfy the requirements set out in CASS 7.13.67R.

A 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 7.13.65 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).

A firm must retain any documents created under CASS 7.13.55 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.

At 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 7.13.55 R2 available to the FCA for inspection.

1. (1)

   In addition to the requirement under CASS 7.13.57 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 7.13.62 R to CASS 7.13.65 R; and

   2. (b)

      the firm's calculation of its alternative approach mandatory prudent segregation amount under CASS 7.13.65 R is suitably designed to enable the firm to comply with CASS 7.13.65 R.

1. (1)

   A 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 7.13.55 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).

A 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 7.13.65 R unless:

1. (1)

   an auditor of the firm has prepared a report that complies with the requirements in CASS 7.13.58 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.

A 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 7.15 (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 7.13.63R 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).

During the period between the adjustment in CASS 7.13.62 R (3) and the completion of the next reconciliations in CASS 7.13.62 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 7.13.62 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 7.13.62 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)

   A firm that uses the alternative approach must, in addition to CASS 7.13.62 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 and transfer rules7.

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 CASS 7A.2.4R (1), 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 7.13.62 R (3) on a particular business day; and

      2. (ii)

         the firm's subsequent adjustments under CASS 7.13.62 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's alternative 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's client 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 7.13.62 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.

   1. (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's client 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 7.13.62 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.

   2. (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 (in accordance with CASS 7.16.16 R (3) and CASS 7.16.17 R (2)); and

      3. (iii)

         paying any additional amounts of its own money into its client bank account to increase the firm's alternative approach mandatory prudent segregation or withdrawing any excess amounts from its client bank account to decrease the firm's alternative 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 ten 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's alternative approach mandatory prudent segregation maintained under this rule at least annually.

A firm must create and keep up-to-date records so that any amount of money that is, pursuant to CASS 7.13.65 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).

The alternative approach mandatory prudent segregation record under CASS 7.13.66 R must record:

1. (1)

   the date of the first determination under CASS 7.13.65 R (2) and each subsequent review undertaken under CASS 7.13.65 R (4), and the total amount that the firm determined was required to be segregated under CASS 7.13.65 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 7.13.65 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 7.13.65 R; and

   3. (c)

      as at that date, the total amount actually segregated by the firm under CASS 7.13.65 R.

The alternative approach mandatory prudent segregation record must be retained for five years after the firm ceases to segregate any money in accordance with CASS 7.13.65 R.

A firm that is also a clearing member that is using the normal approach in connection with regulated clearing arrangements must use reasonable endeavours to ensure it is not required under its arrangements with an authorised central counterparty to receive mixed remittances from or pay mixed remittances to the authorised central counterparty through a single bank account.

1. (1)

   If, notwithstanding its reasonable endeavours in accordance with CASS 7.13.71 R, the firm is required under its arrangements with an authorised central counterparty to:

   1. (a)

      receive mixed remittances from the authorised central counterparty5 into a single bank account and pay mixed remittances to the authorised central counterparty from that bank account; or

   2. (b)

      pay mixed remittances to the authorised central counterparty using a single bank account;

then such arrangements for client money are permitted if the firm complies, 5as applicable, with (2) and CASS 7.13.73 R.

1. (2)
   1. (a)

      In either or both of the circumstances described in (1):5

      5
      1. (i)

         the firm must pay any mixed remittances to the authorised central counterparty5from its own bank account; and5

         5
      2. (ii)

         the firm is permitted to pay any remittances to the authorised central counterparty that consist only of client money from that same bank account.

   2. (aa)

      In the circumstances described in (1)(a), the firm is permitted to receive any remittances that consist only of client money from the authorised central counterparty into the same bank account that it uses under (2)(a), if it complies with (b).5

   3. (b)

      Where, in the circumstances described in (1)(a), a 5mixed remittance or a remittance that consists only of client money from an authorised central counterparty is 5received into a firm's own account, the firm5 must transfer any 5client money element of the remittance 4to its client bank account promptly and, in any event, no later than the next business day after receipt.

      55555

1. (1)

   7Subject to paragraphs (2) and (3), CASS 7.13.73R to CASS 7.13.75R do not apply to a firm following a primary pooling event.

2. (2)

   If, at the time of a primary pooling event, a firm has retained money in a client bank account for the purposes of clearing arrangement mandatory prudent segregation under CASS 7.13.73R, that money remains client money for the purposes of the client money rules and the client money distribution and transfer rules.

3. (3)

   Where a firm holds a clearing arrangement mandatory prudent segregation record under CASS 7.13.76R following a primary pooling event, the clearing arrangement mandatory prudent segregation record must continue to satisfy the requirements set out in CASS 7.13.75R.

1. (1)

   Where the circumstances described in CASS 7.13.72 R (1)(a) apply to a firm it must pay an amount (determined in accordance with this rule) of its own money into its client bank account and retain that money in its client bank account (clearing arrangement mandatory prudent segregation). The amount segregated by a firm in its client bank account under this rule will be client money for the purposes of the client money rules and the client money distribution and transfer rules7.

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 client money received from the authorised central counterparty and held by the firm in its own bank account following receipt of these monies underCASS 7.13.72 R (1)(a) and until their transfer in accordance with CASS 7.13.72 R (2)(b) may not have been fully segregated in its client bank account or may not be (or become) available for pooling under CASS 7A.2.4R (1), were a primary pooling event to occur with the effect that the firm's clearing arrangement mandatory prudent segregation under this rule will reduce, as far as possible, any shortfall that might have been produced as a result of this risk 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 for at least the previous three months:

      1. (i)

         the firm's client 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 clearing arrangement mandatory prudent segregation); and

      2. (ii)

         the payments that the firm made into its client bank account under CASS 7.13.72 R (2)(b) during that prior period;

   as shown in its internal records.

   1. (b)

      In reaching its determination under (2) a firm must also take into account, 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 line(s) may have on:

      1. (i)

         the firm's client money requirement during the forthcoming three months for which the amount of clearing arrangement mandatory prudent segregation required under this rule is being determined; and

      2. (ii)

         the payments that the firm is likely to make into its client bank account under CASS 7.13.72 R (2)(b).

   2. (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 normal approach in connection with regulated clearing arrangements, then it must use the records that are available to it and must also factor in reasonable forecasts, as required under (b), to make up 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 clearing arrangement mandatory prudent segregation under (2) and (3);

      2. (ii)

         making necessary adjustments to its records to reflect any changes to its client money requirement in accordance with CASS 7.16.16 R (3) and CASS 7.16.17 R (1); and

      3. (iii)

         paying any additional amounts of its own money into its client bank account to increase the firm's clearing arrangement mandatory prudent segregation or withdrawing any excess amounts from its client bank account to decrease the firm'sclearing arrangement 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 ten 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's clearing arrangement mandatory prudent segregation maintained under this rule at least annually.

A firm must create and keep up-to-date records so that any amount of money that is, pursuant to CASS 7.13.73 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 clearing arrangement mandatory prudent segregation record).

The clearing arrangement mandatory prudent segregation record under CASS 7.13.74 R must record:

1. (1)

   the date of the first determination under CASS 7.13.73 R (2) and each subsequent review undertaken under CASS 7.13.73 R (4), and the total amount that the firm determined was required to be segregated under CASS 7.13.73 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 7.13.73 R (4)(a)(iii), 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 7.13.73 R; and

   3. (c)

      as at that date, the total amount actually segregated by the firm under CASS 7.13.73 R.

The clearing arrangement mandatory prudent segregation record must be retained for five years after the firm ceases to segregate any money in accordance with CASS 7.13.73 R.

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

1. (1)

   the firm allows that person to hold the client money:

   1. (a)

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

   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 person to hold its client money.