GIGI 2.4 Payments into and withdrawals from the client money account

When a firm receives money from a client this must be paid into either the statutory or non-statutory trust account as soon as practical, and in most circumstances, by not later than the next business day following receipt.

When afirm receives money for a client, for example in the settlement of a claim, this must either be paid into the statutory or non-statutory trust account or paid directly to the client as soon as possible and no later than one business day after it becomes due.

From time to time a firm may pay its own money into the client account in error. It may also receive mixed remittances (comprising client money and its own money) into the client account. When this happens the firm must withdraw non-client money from the client bank account as soon as reasonably practical and in any event within 25 business days of it clearing.

CASS 5.5.16 and CASS 5.5.17 contains our rules and guidance on withdrawal of commissions. CASS 5.5.16 prohibits a firm from removing commission from the client bank account until the client or a premium finance firm has paid the premium to it (such an account is said to be operated on a 'received' as opposed to an 'earned' basis). Further, commission may only be withdrawn from the client bank account at the point at which it is due to the firm for its own account. Until that point, commission will remain client money.

The terms of business of the insurance company to whom the premium is to be paid may set out when the commission element of the premium will become due (e.g. it may state that commission will be due immediately on receipt of the premium from the customer or after, say, 25 days or 30 days). Where this is the case, commission may only be withdrawn from the client bank account if and when this is consistent with the terms of business of the insurance company to whom the premium is payable. Commission may be withdrawn before payment of the premium to the insurance company, provided the firm has received the premium from the client or a premium finance firm and provided the terms of business with the relevant insurance company permit this.

In the event that commission becomes due immediately on receipt of the premium from the client then, for the purpose of our rules, the premium must be treated as a mixed remittance (i.e. part client money and part other money). The commission element of the premium must then be paid out of the client bank account as soon as reasonably practical and in any event within 25 business days of the payment clearing the client bank account.

Often, the terms of business of the insurance company to whom the premium is to be paid may not specify when the commission element of the premium will become due. In these cases, for the purposes of our rules, a firm may assume that commission will become immediately due on receipt of the premium from the client.

Where commission becomes due some time after receipt of the premium from the client or premium finance firm (e.g. 25 days or 30 days), it must be identified as no longer being client money at the point the regular client account calculation is undertaken (see paragraph 2.5 below), in line with CASS 5.5.63(1). The commission should be withdrawn from the client bank account by close of business on the day on which the calculation is performed, unless the firm determines on reasonable grounds in line with CASS 5.5.63(2)(b), that it is prudent to maintain a positive margin in the account.

CASS 5.5.17(3) explains that where a client makes payments of a premium to a firm in instalments, the commission payable on each instalment may only be drawn down when it is due to the firm.

A firm may pass a premium to a second firm provided, in accordance with CASS 5.5.34:

1. (1)

   it does so for the purposes of effecting the client's transaction; and

2. (2)

   if the client is a retail customer, the client has been notified in the first firm's terms of business that his money may be transferred in this manner.

CASS 5.5.7 explains that in such a case the second firm will treat the first as its client (if it is also a FSA regulated firm) and will in turn be required to segregate the premium it receives into a statutory or non-statutory trust.

CASS 5.5.33 explains that when a firm transfers a premium to a third party, it will not automatically discharge its duties to its client as trustee, albeit that the premium will be shown in the firm's client ledgers as having been paid to the third party. So if your firm pays a premium to a third party firm, the premium will remain client money of your firm until it reaches the insurance company (matched by the right to have the third party account for the sum). Similarly, the premium will be client money of the third party firm held on behalf of its client, your firm, until it reaches the insurance company. That is unless during its transit to the insurance company the money is held, at any time, by a firm who is authorised to hold that insurance company's money as agent, at which point that premium becomes the insurance company's money.

Firms are reminded in CASS 5.5.81(3) that they should also exercise appropriate skill, care and judgment in their selection of third parties to whom they transfer client money.

In the settlement of a claim or the return of a premium, money passed from an insurance company to your firm may subsequently be transferred to a third party firm before payment to the policyholder. In these circumstances the claim or premium refund will remain client money of your firm only until it reaches your client (the third party firm).