Client Money Acknowledgment Letter

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 This resource therefore may well be out of date, even if it was accurate once, which it might not have been.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 Sourcebook Table of Contents \| 1 \| 1A \| 3 \| 5 \| 6 (custody rules) \| 7 (client money rules) \| 7A \| 8 \| 9 (PBDA) \| 10

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The Client Money Acknowledgment Letter is a letter that a CASS firm must get from any subcustodian it appoints to hold client assets on its behalf. It requires the custodian

To acknowledge that the assets are the CASS firm's client assets related to transactions the client is entering;
To agree that moneys in the account are only payable to the CASS firm as trustee, and that the subcustodian has no recourse to that money for claims owed by the CASS firm.

Note this is a different thing from the requirement a custodian has no security interest over client assets under CASS 6.3.5 and 6.3.6. That doesn't require a letter per se, though there are those in the CASS firm community who like to get one nonetheless. Because, why not add another useless piece of paper to the stack and increase your operational burden for no good reason.

Anyway, it goes something like this:

We refer to the following transaction accounts which [name of CASS firm], regulated by the Financial Conduct Authority (Firm Reference Number [FRN]), (“us”, “we” or “our”) has opened or will open with [name of counterparty] (“you” or “your”): [insert the account titles, the account unique identifiers (for example, as relevant, account number, reference code or pool ID) and (if applicable) any abbreviated names of the accounts as reflected in the counterparty’s systems] (collectively, the “Client Transaction Accounts“).

In relation to each of the Client Transaction Accounts identified above you acknowledge that we have notified you that:

(a) we are under an obligation to keep money we hold belonging to our clients separate from our own money;

(b) we have opened, or will open, the Client Transaction Account for the purpose of placing money with you on behalf of our clients in connection with carrying out one or more transactions with or through you; and

(c) you are instructed to promptly credit to this Client Transaction Account any money you receive in respect of any transaction that we have notified to you as being carried out on behalf of our clients.

In relation to each of the Client Transaction Accounts identified above you agree that:

(d) all money standing to the credit of the Client Transaction Account is payable to us in our capacity as trustee under the laws applicable to us[, except where, in accordance with your default management procedures in respect of a default by us, you transfer money credited to the Client Transaction Account to anyone other than us in accordance with articles 4(4) or 4(5) of Commission Delegated Regulation (EU) No 149/2013 of 19 December 2012];

(e) you do not have any recourse or right against money credited to the Client Transaction Account in respect of any sum owed to you, or owed to any third party, on any other account (including any account we use for our own money), and this means for example that you do not have any right to combine the Client Transaction Account with any other account and any right of set-off or counterclaim against money in the Client Transaction Account; and

(f) you will title, or have titled, the Client Transaction Account as stated above and that such title is different to the title of any other account containing money that is payable to us in a capacity other than as trustee or that is payable to any third party.

You and we agree that:

(g) the terms of this letter shall remain binding upon the parties, their successors and assigns, and, for the avoidance of doubt, regardless of any change in name of any party;

(h) this letter supersedes and replaces any previous agreement between the parties in connection with the Client Transaction Account, to the extent that such previous agreement is inconsistent with this letter;

(i) in the event of any conflict between this letter and any other agreement between the parties in connection with the Client Transaction Account, this letter agreement shall prevail;

(j) no variation to the terms of this letter shall be effective unless it is in writing, signed by the parties and permitted under the rules of the Financial Conduct Authority;

(k) this letter shall be governed by the laws of [insert appropriate jurisdiction] [firms may optionally use this space to insert additional wording to record an intention to exclude any rules of private international law that could lead to the application of the substantive law of another jurisdiction]; and

(l) the courts of [insert same jurisdiction as previous] shall have non-exclusive jurisdiction to settle any dispute or claim arising out of or in connection with this letter or its subject matter or formation (including non-contractual disputes or claims).

Please sign and return the enclosed copy of this letter as soon as possible. We remind you that, pursuant to the rules of the Financial Conduct Authority, we are not allowed to permit you to hold any money belonging to our clients on the Client Transaction Account until you have acknowledged and agreed to the terms of this letter.