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{{anat|cass}} | |||
===[[Client money]]=== | |||
The FCA’s client money rules are designed to minimise credit exposure to firms which hold client funds, but who are not authorised to hold client deposits themselves (in otherwords, are not regulated banks). Such firms must deposit client funds with an [[approved bank]] which record the deposits in the firm’s name but belonging to the firm’s clients, so it is clear that the firm has no proprietary claim on the account. | |||
In this way, the client account is isolated the firm’s creditors on the firm’s insolvency (such a failure a “[[primary pooling event]]”). | |||
===Banks=== | |||
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. But they may well find it is quite painful and difficult to do. | |||
===When do client money obligations arise?=== | |||
In a nutshell, when you give someone money ''apropos'' nothing in particular. Generally, there are two reasons you might pay money to someone else: <br> | |||
'''The general case''': ''Because you owe it under a contract.'' | |||
*In some cases (for example a {{tag|CSA}} or even a [[loan]]) the payee might in turn have to pay some money back to you at a later date. But you are exposed to the payee’s credit risk in the mean time: you are a '''creditor'''. | |||
*This general case does '''not''' involve [[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. | |||