SIFA 9.16 Custody and client money
How can you avoid inadvertently holding client money and custody assets?
COB 9.1.9 (3)COB 9.1.9(3) states that when a firm temporarily holds a designated investment belonging to a client (other than in bearer form) it is exempt from the custody rules if it takes certain steps as set out in the Rule. You should not rely on this rule as a matter of course, and should only retain a designated investment for as long as is strictly necessary.
There is no equivalent exemption for client money. An example of where a firm may need to act to avoid holding client money is where a customer sends a cheque intended for the purchase of a product made payable to the firm rather than the product provider. In this case you should not cash the cheque if you want to avoid holding client money instead you should return the cheque to the client with a request for an amended cheque.
A further potential client money issue is that of rebated commission. If a firm makes it clear in its agreement with the client that any commission remains the firm's until actually paid into the account of the client, then the client money rules should not apply. However, as soon as a firm agrees that a part of its commission will belong to the client, then on receipt it will be part client money and part firm money and the client money rules may need to be applied.
Mandates
The rules seek to ensure that firms establish and maintain records and internal controls to prevent misuse of the authority granted by the client. Mandates include a firm's authority over a client's bank account to make direct debits in favour of the firm, and a firm holding a client's credit card details.
New developments
We are introducing a new sourcebook - the Client Assets sourcebook (CASS). This will bring together in one sourcebook the existing client assets rules from the Conduct of Business sourcebook (COB chapter 9), and the proposed client money rules from the Insurance and Mortgage Conduct of Business sourcebooks (ICOB and MCOB).
Details of the proposals are in CP199: Miscellaneous amendments (September 2003). We will publish comprehensive Destination and Derivation tables, and there will be automatic links on the electronic version of the Handbook from COB chapter 9 to the relevant sections of CASS. (The COB rules will not change, they will just be re-numbered).