Related provisions for CASS 7A.3.9
1 - 20 of 32 items.
A firm must
not hold money other than client money in a client
bank account unless it is:(1) a
minimum sum required to open the account, or to keep it open; or(2) money temporarily in the account in accordance
with CASS 5.5.16 R (Withdrawal of commission and mixed remittance); or(3) interest
credited to the account which exceeds the amount due to clients as
interest and has not yet been withdrawn by the firm.
A firm,
when acting in accordance with CASS
5.3 (statutory trust), must ensure
that the total amount of client money held
for each client in any of the firm'sclient
moneybankaccounts is positive and that no payment
is made from any such account for the benefit of a client unless
the client has provided the firm with cleared funds to enable the payment
to be made.
A firm can
hold client money in either
a general client bank account (CASS 5.5.38 R) or a designated client bank account (CASS 5.5.39 R). A firm holds all client money in general
client bank accounts for its clients as
part of a common pool of money so
those particular clients do
not have a claim against a specific sum in a specific account; they only have
a claim to the client money in
general. A firm holds client money in designated
client bank accounts for those clients who
requested
A firm which
takes advantage of CASS
5.5.14 R will need to consider whether its permission should include the permitted activity of managing
investments. If the firm is
granted a power to manage with discretion the funds over which it is appointed
as trustee under the trust deed required by CASS
5.4 then
it will be likely to need a permission to manage investments. It is unlikely to need
such a permission, however, if it is merely granted a power to invest but
the deed stipulates
(1) Subject
to (4), a 2firm must
in relation to each of its appointed representatives, field representatives and other agents comply
with CASS 5.5.19 R to CASS
5.5.21 R (Immediate segregation) or with CASS 5.5.23 R (Periodic
segregation and reconciliation).(2) A firm must in relation to each representative or other agent keep a record
of whether it is complying with CASS 5.5.19 R to CASS 5.5.21 R or
with CASS 5.5.23 R.(3) A firm is, but without affecting the application
of CASS
(1) A firm must, on a regular basis, and at reasonable
intervals, ensure that it holds in its client
bank account an amount which (in addition to any other amount
which it is required by these rules to
hold) is not less than the amount which it reasonably estimates to be the
aggregate of the amounts held at any time by its appointed
representatives, field representatives,
and other agents.(2) A firm must, not later than ten business days following the expiry of each
period in
(1) In
relation to consumers5, a firm must, subject
to (2), take reasonable steps to ensure that its terms
of business or other client agreements4 adequately explain, and where
necessary obtain a client's informed
consent to, the treatment of interest and, if applicable, investment returns,
derived from its holding of client money and
any segregated designated investments.54(2) In
respect of interest earned on client bank accounts,
(1) does not apply if a firm has
reasonable ground
A firm may
allow another person, such as
another broker to hold or control client money,
but only if:(1) the firm transfers the client
money for the purpose of a transaction for a client through
or with that person; and(2) in
the case of a consumer,5 that customer has been notified (whether through
a client agreement,4terms of business, or otherwise in writing)
that the client money may be
transferred to another person.54
A firm may
open one or more client bank accounts in
the form of a designated client bank account.
Characteristics of these accounts are that:(1) the
account holds money of one or
more clients;(2) the
account includes in its title the word 'designated';(3) the clients whose money is
in the account have each consented in writing to the use of the bank with
which the client money is to
be held; and(4) in
the event of the failure of
that bank, the account is not pooled with any other
(1) A firm may operate as many client accounts
as it wishes.(2) A firm is not obliged to offer its clients the facility of a designated
client bank account.(3) Where
a firm holds money in
a designated client bank account,
the effect upon either:(a) the failure of a bank where any other client bank account is held; or(b) the failure of a third party to whom money has been transferred out of any other client bank account in accordance with CASS 5.5.34 R;(each of which is a secondary
A firm may
hold client money with a bank
that is not an approved bank if
all the following conditions are met:(1) the client money relates to one or more insurance
transactions which are subject to the law or market practice of a jurisdiction
outside the United Kingdom;(2) because
of the applicable law or market practice of that overseas jurisdiction, it
is not possible to hold the client money in
a client bank account with an approved bank;(3) the firm holds the money with
such
A firm owes
a duty of care to a client when
it decides where to place client money.
The review required by CASS 5.5.43 R is intended to ensure that the risks inherent
in placing client money with
a bank are minimised or appropriately diversified by requiring a firm to consider carefully the bank or banks
with which it chooses to place client money.
For example, a firm which is
likely only to hold relatively modest amounts of client
money will be likely to be able to satisfy this
Subject to CASS 5.5.41 R,
a firm that holds or intends
to hold client money with a
bank which is in the same group as
the firm must:(1) undertake
a continuous review in relation to that bank which is at least as rigorous
as the review of any bank which is not in the same group,
in order to ensure that the decision to use a group bank
is appropriate for the client;(2) disclose
in writing to its client at
the outset of the client relationship
(whether by way of a client agreement,4terms
of
A firm must
not hold, for a consumer5, client money in
a client bank account outside
the United Kingdom, unless
the firm has previously disclosed
to the consumer5 (whether in its terms of business, client
agreement11 or otherwise in writing):5511(1) that
his money may be deposited in
a client bank account outside
the United Kingdom but that
the client may notify the firm that he does not wish his money to be held in a particular jurisdiction;(2) that
in such circumstances, the
If a client has
notified a firm in writing before
entering into a transaction that client money is
not to be held in a particular jurisdiction, the firm must
either:(1) hold
the client money in a client bank account in a jurisdiction to
which the client has not objected;
or(2) return
the client money to, or to the
order of, the client.
If a client has
notified a firm before entering
into a transaction that he does not wish his money to
be passed to another broker or settlement
agent located in a particular jurisdiction, the firm must either:(1) hold
the client money in a client bank account in the United
Kingdom or a jurisdiction to which the money has
not objected and pay its own money to
the firm's own account with
the broker, agent or counterparty; or(2) return
the money to, or to the order
of, the clien
On the failure of
a third party with which client money is
held, a firm must notify the FSA:(1) as
soon as it becomes aware, of the failure of
any bank, other broker or settlement agent or
other entity with which it has placed, or to which it has passed, client money; and(2) as
soon as reasonably practical, whether it intends to make good any shortfall that has arisen or may arise and
of the amounts involved.
The client
money resource, for the purposes of CASS
5.5.63 R (1)(a),2 is:(1) the
aggregate of the balances on the firm's client money
bank accounts, as at the close of business on the previous business day and, if held in accordance with CASS
5.4, designated investments (valued
on a prudent and consistent basis) together with client
money held by a third party in accordance with CASS 5.5.34 R;
and(2) (but
only if the firm is comparing
the client money resource with
its client's
The purpose of CASS 5.5.80 R to CASS 5.5.83 R is to set out those situations in which a firm will
have fulfilled its contractual and fiduciary obligations in relation to any client money held for or on behalf of its client, or3 in relation to the firm's ability to require repayment of that money from a third party3.
When a bank fails and the firm decides not to make good the shortfall in the amount of client money held at that bank, a secondary pooling event will occur in accordance with CASS 7A.3.6 R. The firm would be expected to reflect the shortfall that arises at the failed bank in its records of the entitlement of clients and of money held with third parties.
If a secondary pooling event occurs as a result of the failure of a bank where one or more general client bank accounts are held, then:(1) in relation to every general client bank account of the firm, the provisions of CASS 7A.3.8 R, CASS 7A.3.13 R and CASS 7A.3.14 R will apply;(2) in relation to every designated client bank account held by the firm with the failed bank, the provisions of CASS 7A.3.10 R, CASS 7A.3.13 R and CASS 7A.3.14 R will apply;(3) in relation to each designated
Money held in each general client bank account and client transaction account of the firm must be treated as pooled and:(1) any shortfall in client money held, or which should have been held, in general client bank accounts and client transaction accounts, that has arisen as a result of the failure of the bank, must be borne by all the clients whose client money is held in either a general client bank account or client transaction account of the firm, rateably in accordance with
For each client with a designated client bank account held at the failed bank:(1) any shortfall in client money held, or which should have been held, in designated client bank accounts that has arisen as a result of the failure, must be borne by all the clients whose client money is held in a designated client bank account of the firm at the failed bank, rateably in accordance with their entitlements;(2) a new client money entitlement must be calculated for each of the relevant
Money held in each designated client fund account with the failedbank must be treated as pooled with any other designated client fund accountsof the firm which contain part of the same designated fund and:(1) any shortfall in client money held, or which should have been held, in designated client fund accounts that has arisen as a result of the failure, must be borne by each of the clients whose client money is held in that designated fund, rateably in accordance with their entitlements;(2)
On the failure of a third party with which money is held, a firm must notify the FSA:(1) as soon as it becomes aware of the failure of any bank, intermediate broker, settlement agent, OTC counterparty or other entity with which it has placed, or to which it has passed, client money; and(2) as soon as reasonably practical, whether it intends to make good any shortfall that has arisen or may arise and of the amounts involved.
(1) CASS
5.6 (the client money (insurance)
distribution rules) applies to a firm that
in holding client money is subject
to CASS
5.3 (statutory trust) or CASS
5.4 (Non-statutory trust) when
a primary pooling event or a secondary pooling event occurs.(2) In
the event of there being any discrepancy between the terms of the trust as
required by CASS
5.4.7 R (1)(c) and the provisions of CASS
5.6,
the latter shall apply.
(1) The client money (insurance) distribution rules have
force and effect on any firm that
holds client money in accordance
with CASS
5.3 or CASS
5.4. Therefore, they may apply to a UK branch of a non-EEA
firm. In this case, the UK branch of the firm may
be treated as if the branch itself
is a free-standing entity subject to the client
money (insurance) distribution rules.(2) Firms that act in accordance with CASS
5.4 (Non-statutory trust) are reminded that the client
money (insurance)
A primary
pooling event occurs:(1) on
the failure of the firm; or(2) on
the vesting of assets in a trustee in accordance with an 'assets requirement' imposed under section 48(1)(b)of the Act; or(3) on
the coming into force of a requirement for
all client money held by the firm; or(4) when
the firm notifies, or is in
breach of its duty to notify, the FSA, in accordance with CASS 5.5.77 R1, that it is unable correctly to
identify and allocate in its records all valid claims arising
If a primary
pooling event occurs:(1) client money held in each client
money account of the firm is
treated as pooled;(2) the firm must distribute that client
money in accordance with CASS 5.3.2 R or,
as appropriate, CASS 5.4.7 R, so that each client receives
a sum which is rateable to the client money entitlement
calculated in accordance with CASS 5.5.66 R; and(3) the firm must, as trustee, call in and make demand
in respect of any debt due to the firm as
trustee, and must liquidate
Client
money received by the firm (including
in its capacity as trustee under CASS
5.4 (Non-statutory trust)) after
a primary pooling event must
not be pooled with client money held
in any client money account
operated by the firm at the
time of the primary pooling event.
It must be placed in a client bank account that
has been opened after that event and must be handled in accordance with the client money rules, and returned to the relevant client without delay, except to the
If a secondary
pooling event occurs as a result of the failure of
a bank where one or more general client bank
accounts are held, then:(1) in
relation to every general client bank account of
the firm, the provisions of CASS 5.6.22 R and CASS 5.6.26 R to CASS 5.6.28 G will apply;(2) in
relation to every designated client bank account held
by the firm with the failed bank, the provisions of CASS 5.6.24 R and CASS 5.6.26 R to CASS 5.6.28 G will apply; and(3) any money held at a
Money held
in each general client bank account of
the firm must be treated as
pooled and:(1) any shortfall in client
money held, or which should have been held, in general client bank accounts, that has arisen
as a result of the failure of
the bank, must be borne by all the clients whose client money is held in a general
client bank account of the firm,
rateably in accordance with their entitlements;(2) a
new client money entitlement
must be calculated for each client by
the firm,
For each client with
a designated client bank account held
at the failed bank:(1) any shortfall in client
money held, or which should have been held, in designated client bank accounts that has
arisen as a result of the failure,
must be borne by all the clients whose client money is held in a designated
client bank account of the firm at
the failed bank, rateably in
accordance with their entitlements;(2) a
new client money entitlement
must be calculated for each of the relevant
Money held
in each general client bank account of
the firm must be treated as
pooled and:(1) any shortfall in client
money held, or which should have been held, in general client bank accounts, that has arisen
as a result of the failure,
must be borne by all the clients whose client money is held in a general
client bank account of the firm,
rateably in accordance with their entitlements;(2) a
new client money entitlement
must be calculated for each client by
the firm, to reflect
(1) 1A firm may deposit
safe custody assets2
held by it on behalf of its clients into an account or accounts opened with a third party, but only if it exercises all due skill, care and diligence in the selection, appointment and periodic review of the third party and of the arrangements for the holding and safekeeping of those safe custody assets.222(1A) A firm which arranges the registration of a safe custody investment through a third party must exercise all due skill, care
In discharging its obligations under this section, a firm should also consider, together with any other relevant matters:(1) once a
safe custody asset2
has been lodged by the firm with the third party, the third party's performance of its services to the firm;2(2) the arrangements that the third party has in place for holding and safeguarding the safe custody asset;22(3) current industry standard reports, for example Financial Reporting and Auditing Group (FRAG) 21 report or
(1) A firm must only deposit
safe custody assets2
with a third party in a jurisdiction which specifically regulates and supervises the safekeeping of
safe custody assets2
for the account of another person with a third party who is subject to such regulation.22(2) A firm must not deposit
safe custody assets2
held on behalf of a client with a third party in a country that is not an EEA State (third country) and which does not regulate the holding and safekeeping of
safe custody
A primary pooling event occurs:(1) on the failure of the firm;(2) on the vesting of assets in a
trustee
in accordance with an 'assets requirement' imposed under section 48(1)(b)of the Act;(3) on the coming into force of a requirement for all client money held by the firm; or(4) when the firm notifies, or is in breach of its duty to notify, the FSA, in accordance with
CASS 7.6.16 R
(Notification requirements), that it is unable correctly to identify and allocate in its records
If a primary pooling event occurs:(1) client money held in each client money account of the firm is treated as pooled; and(2) the firm must distribute that client money in accordance with CASS 7.7.2 R, so that each client receives a sum which is rateable to the client money entitlement calculated in accordance with CASS 7A.2.5 R.
2The regulated activity of safeguarding and administering investments covers both the safeguarding and administration of assets (without arranging) andarranging the safeguarding and administration of assets, when those assets are either safe custody investments or custody assets. A safe custody investment is, in summary, a designated investment which a firm receives or holds on behalf of a client. Custody assets include designated investments, and any other assets that the firm
(1) A firm need not treat this chapter as applying in respect of a delivery versus payment transaction through a commercial settlement system if it is intended that the
safe custody asset2
is either to be: 2(a) in respect of a client's purchase, due to the client within one business day following the client's fulfilment of a payment obligation; or(b) in respect of a client's sale, due to the firm within one business day following the fulfilment of a payment obligation;unless
2When a trustee firm or depositary acts as a custodian for a trust or collective investment scheme and:
- (1)
the trust or scheme is established by written instrument; and
- (2)
the trustee firm or depositary has taken reasonable steps to determine that the relevant law and provisions of the trust instrument or scheme constitution will provide protections at least equivalent to the custody rules for the trust property or scheme property;
the trustee firm or depositary need comply only with the custody rules listed in the table below.
Reference |
Rule |
CASS 6.1.1 R to CASS 6.1.9 G and CASS 6.1.15 G to CASS 6.1.16C R |
Application |
Trustees and depositaries |
|
General purpose |
|
Protection of clients' safe custody assets |
|
Registration and recording |
|
Holding |
|
Use of safe custody assets |
|
Records, accounts and reconciliations |
1A firm must, when holding
safe custody assets2
belonging to clients, make adequate arrangements so as to safeguard clients' ownership rights, especially in the event of the firm's insolvency, and to prevent the use of
safe custody assets2
belonging to a client on the firm's own account except with the client's express consent.[Note: article 13(7) of MiFID]22
If a firm holds money as agent of an insurance
undertaking then the firm'sclients (who are not insurance
undertakings) will be adequately protected to the extent that
the premiums which it receives
are treated as being received by the insurance
undertaking when they are received by the agent and claims money and premium refunds
will only be treated as received by the client when
they are actually paid over. The rules in CASS
5.2 make provision for agency agreements between firms
(1) A firm must not agree to:(a) deal in investments as agent for an insurance undertaking in connection with insurance mediation; or(b) act
as agent for an insurance undertaking for
the purpose of settling claims or handling premium refunds;
or(c) otherwise
receive money as agent of an insurance undertaking;unless:(d) it
has entered into a written agreement with the insurance
undertaking to that effect; and(e) it
is satisfied on reasonable grounds that the terms of the policies
A firm may
operate on the basis of an agency agreement as provided for by CASS 5.2.3 R for
some of its clients and with
protection provided by a client money trust
in accordance with CASS
5.3 or CASS
5.4 for other clients.
A firm may also operate on either
basis for the same client but
in relation to different transactions. A firm which
does so should be satisfied that its administrative systems and controls are
adequate and, in accordance with CASS 5.2.4 G, should ensure that
Section 139(1) of the Act (Miscellaneous ancillary matters) provides that rules may make provision which results in client money being held by a firm on trust (England and Wales and Northern
Ireland) or as agent (Scotland only). CASS 5.3.2 R creates a fiduciary relationship
between the firm and its client under which client
money is in the legal ownership of the firm but
remains in the beneficial ownership of the client.
In the event of failure of the firm,
costs relating to the
A firm (other
than a firm acting in accordance
with CASS
5.4) receives and holds client money as
trustee (or in Scotland as agent) on the following terms:(1) for
the purposes of and on the terms of CASS
5.3, CASS
5.5 and
the client money (insurance) distribution
rules;(2) subject
to (4),1 for the clients (other than clients which
are insurance undertakings when
acting as such)1 for whom that money is
held, according to their respective interests in it;(3) after
all valid claims
(1) A
firm which holds client money can discharge its obligation
to ensure adequate protection for its clients in
respect of such money by complying
with CASS
5.3 which provides for such money to
be held by the firm on the terms
of a trust imposed by the rules.(2) The
trust imposed by CASS
5.3 is limited to a trust in respect of client money which a firm receives
and holds. The consequential and supplementary requirements in CASS
5.5 are
designed to secure the proper segregation
A firm that receives or holds a client's assets under an arrangement to which this chapter2 applies and which exercises its right to treat the assets as its own must ensure that it maintains adequate records to enable it to meet any future obligations including the return of equivalent assets to the client.2
When appropriate, firms that enter into the arrangements covered in this chapter with retail clients2 will be expected to identify in the statement of custody assets sent to the client in accordance with CASS 2.3.12 R (Production and despatch of client statements) details of the assets which form the basis of the arrangements. Where the firm utilises global netting arrangements, a statement of the assets held on this basis will suffice. 2
Discussions with the FSA are particularly relevant where the firm has to discharge obligations to its customers or policyholders before it can cease carrying on a regulated activity. This may be the case, for example, where the firm is an insurer, a bank or, as is often the case, holding client money or customer assets.
If an insureror a bank wishes to cease carrying on all regulated activities for which it has Part IV permission, it will usually be necessary to wind down the business over a long term period which is normally more than six months. This may also be the case for a firm holding client money or customer assets. In these circumstances, it will usually be appropriate for the firm to apply for variation of its Part IV permission before commencing the wind-down. A firm should only make
(1) Specific guidance on the additional procedures for a firm winding down (running off) its business in the circumstances discussed in SUP 6.2.8 G is in SUP 6 Annex 4.(2) The guidance in SUP 6 Annex 4 applies to any firm that is applying for variation of Part IV permission before it applies for cancellation of Part IV permission to enable it to wind down (run off) its business over a long term period of six months of more. It will apply to most insurers and banks and, in some
A firm may
not handle client money in accordance
with the rules in this section
unless each of the following conditions is satisfied:(1) the firm must have and maintain systems and controls
which are adequate to ensure that the firm is
able to monitor and manage its client money transactions
and any credit risk arising from the operation of the trust arrangement and,
if in accordance with CASS 5.4.2 R a firm complies
with both the rules in CASS
5.3 and CASS
5.4, such systems and
The deed referred to in CASS 5.4.6 R must
provide that the money (and,
if appropriate, designated investments)
are held:(1) for
the purposes of and on the terms of:(a) CASS
5.4;(b) the
applicable provisions of CASS
5.5; and(c) the client money (insurance) distribution rules(2) subject
to (41), for the clients (other than clients which
are insurance undertakings when
acting as such) 1for whom that money is
held, according to their respective interests in it;(3) after
all valid
(1) 3A firm will, subject to (3), be deemed to comply
with CASS 5.3 to CASS
5.6 if it receives or holds client
money and it either:2(a) in relation to a service charge,
complies with the requirement to segregate such money in accordance with section
42 of the Landlord and Tenant Act 1987 ("the 1987 Act"); or2(b) in relation to money which is clients'
money for the purpose of the Royal Institution of Chartered Surveyors' Rules
of Conduct ("RICS rules") in force as at 14 January
3CASS
5.1.5 R (1)(b) and CASS
5.1.5 R (2) do not apply, and hence money is client money, in any case where:(1) in relation to an activity specified
in CASS 5.2.3 R (1)
(a) to CASS 5.2.3 R (1) (c), the insurance undertaking has agreed that the firm may treat money which
it receives and holds as agent of the undertaking,
as client money and in accordance
with the provisions of CASS
5.3 to CASS
5.6; and(2) the agreement in (1) is in writing
and adequate to show that the insurance
Additional guidance for a firm carrying on insurance business, accepting deposits or which holds client money or customer's assets is given in SUP 6 Annex 4. As noted in SUP 6.2.9 G, it will usually be appropriate for a firm to apply for variation of its Part IV permission while winding down (running off) its regulated activities and before applying to cancel its Part IV permission.
1Activity |
Products/Sectors |
Is there an appropriate examinationrequirement? |
|
Designated investment business carried on for a retail client |
|||
Providing basic advice |
1. |
Stakeholder products excluding a deposit-based stakeholder product |
No |
Advising |
2. |
Securities which are not stakeholder pension schemes or broker funds |
Yes |
3. |
Yes2 |
||
4. |
Packaged products which are not broker funds |
Yes2 |
|
5. |
Friendly Societylife policies where the employee is not reasonably expected to receive a remuneration of greater than £1000 a year in respect of such sales |
No2 |
|
6. |
Friendly Society tax-exempt policies |
Yes2 |
|
7. |
Yes2 |
||
8. |
Investments in the course of corporate finance business |
Yes2 |
|
9. |
Yes2 |
||
Undertaking the activity in column 2 |
10. |
Yes |
|
11. |
Yes2 |
||
Advising and dealing |
12. |
Securities which are not stakeholder pension schemes or broker funds |
Yes |
13. |
Yes2 |
||
Managing |
14. |
Yes |
|
Overseeing on a day-to-day basis |
15. |
Operating a collective investment scheme or undertaking the activities of a trustee or depositary of a collective investment scheme |
Yes |
16. |
Safeguarding and administering investments or holding client money |
Yes2 |
|
17. |
Administrative functions in relation to managing investments |
Yes2 |
|
18. |
Administrative functions in relation to effecting or carrying out contracts of insurance which are life policies |
Yes2 |
|
19. |
Administrative functions in relation to the operation of stakeholder pension schemes |
Yes2 |
|
Regulated mortgage activity and reversion activity carried on for a customer |
|||
Advising |
20. |
Regulated mortgage contracts for a non-business purpose |
Yes |
21. |
Yes2 |
||
Designing scripted questions for non-advised sales |
22. |
Yes |
|
Overseeing non-advised sales on a day-to-day basis |
23. |
Yes |
|
Non-investment insurance business carried on for a consumer |
|||
Advising |
24. |
No |
|
Notes: |
|||
1. |
In the Appendix the heading and types of business specified in the headings are to be read in conjunction with the paragraphs appearing beneath them. |
||
2. |
Thus, for example, paragraph 24, under the final heading, refers only to advice on non-investment insurance contracts given to a consumer. |
||