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===[[Client money]]===
For a general exposition on the glorious topic of [[client money]], go to the [[client money]] page. It’s a trip.
The FCA’s client money rules are designed to minimise client credit exposure to firms which deal in client funds, but which are not appropriately-permissioned (and regulated) to hold client funds themselves. Such firms must deposit client funds with an appropriately-permissioned entity, such as an [[approved bank]] which in turn must hold the funds in the firm’s name but designated for clients that firm, to make it clear that the firm has no proprietary claim on the account. In this way, funds in a client account are isolated from claims of creditors upon the failure of that firm (such a failure a “[[primary pooling event]]”.
 
Firms who are approved banks do not have to offer client money protection – they have a specific exemption from doing so in the CASS rules – but may do so if they wish.
 
Generally, there are two reasons you might pay money to someone else: <br>
'''The general case''': ''Because you are obliged to, under a contract.''
*In some cases (for example a {{tag|CSA}} or even a [[loan]]) the payee might in turn have an obligation to pay some money back to you. But you are exposed to the payee's credit risk in the mean time: you are his '''creditor'''.
*This general case does not involve handling [[client money]]  (see {{tag|CASS}} {{Cassprov|7.11.25}}).
*You could say this is “title transfer” of cash, but you don't need to, because cash is special: title to cash, by definition, passes by delivery. <br>
'''The special case''': ''Because you want your counterparty to look after it for you, in connection with some other service it is providing you.''
*Here, you don't owe the payee anything. The only contract you have arises because it has agreed to look after your money for you.
*This special case is a sort of safekeeping: it is a regulated activity. In the UK it is regulated by the {{tag|FCA}} under the [[Client Asset Sourcebook]] (fondly known as the {{tag|CASS}} rules).
*Now this special case creates a [[Metaphysics|metaphysical]] problem, because when you look after something, you’re not meant to take ownership of it. You’'re just a {{tag|custodian}}. But as noted above, you ''can’t'' "just look after" someone else’s cash: Cash is special. Just by holding it, you own it.
*This necessitates two things:
**''First'': A person agreeing to look after your money can’t keep it: it must pass it on to someone else to look after, and since — hang on: that creates an infinite regression doesn’t it? — therefore...
**''Second'': there needs to be one class of special people who ''are'' allowed to look after your money by keeping it for themselves but promising to pay it back when you want it.
**And so, lo and behold, there are: they are called '''{{tag|bank}}s'''.
**When you deposit your money with a bank you have its credit risk. But, as we all now know, banks are special: they’re carefully regulated, well capitalised and generally designed to be appropriate places to look after your money.
 
{{box|
====In a {{nutshell}} then?====
''Anyone'' can borrow some money off you; only someone special can hold your money for you. Everyone else has to look after your money by giving it to a bank to hold for you in your name. In that case there is no debtor/creditor relationship with the payee as long as the payee promptly transfers the cash on to a bank with whom you will have a debtor/creditor relationship. Note this is also title transfer (you can’t {{isdaprov|not}} title transfer cash), but within a prescribed period, the transfer goes to a third party bank. (if the intermediary were to go insolvent in the mean time it's tough luck).
}}
 
===Banks===
Deposit-taking credit institutions benefit from the general “{{cassprov|banking exemption}}” (CASS {{cassprov|7.10.16}}) from the obligation to hold money on behalf of clients subject to the client money rules.
{{Client money and cash brokerage}}
 
===[[Delivery versus payment]]===
Note that transactions that are settled [[DVP]] do not usually involve the holding money on a client's behalf at all: (instead the client would be paying the broker either as its contractual counterparty, where the broker acts as principal, or in settlement of the client's obligation to reimburse the broker for moneys it jhas already disbursed on the client's behalf (in acquiring the stock in the first place), where the broker acts as agent).
 
Even without the general banking exemption, the obligation to hold fclient money only arises after a certain period (generally longer than the period for which a broker would expect to be holding money in case)
 
There are specific exemptions from the obligation to hold as client money relating to delivery versus payment transactions.  
==={{Anatomy}}===
==={{Anatomy}}===
This is an anatomy of the {{tag|CASS}} Rules in the {{tag|FCA}} Sourcebook.
This is an anatomy of the {{tag|CASS}} Rules in the {{tag|FCA}} Sourcebook.

Latest revision as of 12:27, 28 November 2018

CASS Anatomy™


IMPORTANT: CASS changed quite a bit after MiFID II. This resource therefore may well be out of date, even if it was accurate once, which it might not have been. This is an article about the FCA’s custody and client money rules — client assets — and is fondly known by its chapter in the FCA SourcebookTable of Contents | 1 | 1A | 3 | 5 | 6 (custody rules) | 7 (client money rules) | 7A | 8 | 9 (PBDA) | 10

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For a general exposition on the glorious topic of client money, go to the client money page. It’s a trip.

Anatomy™

This is an anatomy of the CASS Rules in the FCA Sourcebook.

1 - Application and General Provisions

1.1 Application and Purpose (General)
1.2 General application: who? what?
1.3 General application: where?
1.4 Application: particular activities
1.5 Application: electronic media and E-Commerce

1A - CASS firm classification and operational oversight

1A.1 Application
1A.2 CASS Firm Classification
1A.3 Responsibility for CASS operational oversight

3 - Collateral

3.1 Application and Purpose
3.2 Requirements

5 - Client money: insurance mediation activity

5.1 Application
5.2 Holding money as agent of insurance undertaking
5.3 Statutory trust
5.4 Non-statutory client money trust
5.5 Segregation and the operation of client money accounts
5.6 Client money distribution
5.7 Mandates
5.8 Safe keeping of client's documents and other assets
5 - Annex 1 Segregation of designated investments: permitted investments, general principles and conditions

6 - Custody rules

6.1 Application
6.2 Holding of client assets

6.2.1 Requirement to protect clients' safe custody assets
6.2.2 Requirement to have adequate organisational arrangements
6.2.3 Registration and recording of legal title
6.2.4 (Nominee companies)
6.2.5 Recording title to safe custody assets
6.2.6 (Adequate investigations)
6.2.7 (documents of title to bearer assets)

6.3 Depositing assets and arranging for assets to be deposited with third parties

6.3.1 - Criteria for depositing assets with a third party
6.3.2 - Considerations when discharging obligations under this part
6.3.3 - Issues firms should address in their agreements with third party custodians
6.3.4 - Suitable jurisdictions for the deposit of safe custody assets
6.3.4A - Third-party custody agreements
6.3.4B - Third-party custody agreements
6.3.5 - Agreements with third party custodians not to contain security interests ...
6.3.6 - ... er, except in the following cases
6.3.7 - When a firm is considered to be acting on the instructions of a professional client
6.3.8 - Safe custody asset includes client money
6.3.9 - And don't think this provision allows a right of set-off

6.4 Use of safe custody assets
Template:CASS Section 6.5 TOC 6.6 Template:Records, accounts and reconciliations (From 1/6/2015)

6.6.54 Treatment of shortfalls

7 - Client money rules

7.1 Application and Purpose

Banking exemption: 7.1.8A | 7.1.8B

Template:CASS Section 7.2 7.3 Organisational requirements: client money
Template:CASS Section 7.4 7.5 Transfer of client money to a third party
7.6 Records, accounts and reconciliations
7.7 Statutory trust
7.8 Notification and acknowledgement of trust
7.10 Application and purpose

7.10.3 Opt-in to the client money rules
7.10.8 Money that is not client money
7.10.9 Professional client opt-out
7.10.11 Opt-outs for non-IMD business

Credit institutions and approved banks

7.10.16 R The banking exemption
7.10.17 G
7.10.18 G
7.10.19 R Disclosure required where held under banking exemption
7.10.20 R Disclosure required where money ceases to be held under banking exemption
7.10.21 G
7.10.22 R
7.10.23 G
7.10.24 R

7 - Annex 1

7A Client money distribution

7A.1 Application and purpose
7A.2 Primary pooling events
7A.3 Secondary pooling events

Failure of a bank, intermediate broker, settlement agent or OTC counterparty: secondary pooling events:7A.3.1 | 7A.3.2 | 7A.3.3
Failure of a bank: 7A.3.4 | 7A.3.5
Failure of a bank: pooling: 7A.3.6 | 7A.3.7 | 7A.3.8 | 7A.3.9 | 7A.3.10 | 7A.3.11 | 7A.3.12
Client money received after the failure of a bank: 7A.3.13 | 7A.3.14 | 7A.3.15
Failure of an intermediate broker, settlement agent or OTC counterparty: Pooling: 7A.3.16 | 7A.3.17
Client money received after the failure of an intermediate broker, settlement agent or OTC counterparty: 7A.3.18
Notification to the FCA: failure of a bank, intermediate broker, settlement agent or OTC counterparty: 7A.3.19

8 - Mandates

8.1 Application
8.2 Definition of mandate (Comes into force on 01/01/2013)
8.3 Records and internal controls (Comes into force on 01/01/2013)

9.0 - Prime brokerage

9.1 Application
9.2 Prime broker's daily report to clients
9.3 Prime brokerage agreement disclosure annex
9.4 Information to clients concerning custody assets and client money

Schedule: Transitional Provisions and Schedules

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