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Client money: Difference between revisions
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===Client Money generally=== | |||
How is client money different to ordinary cash? | |||
It isn’t. cash is cash is cash. “Client money” describes the relationship between the giver and the receiver of cash, not the cash itself. The cash itself, as it moves around, is just cash. You can’t encumber [[cash]], as a matter of basic banking [[ontology]]. [[Cash]] is special. It is unlike any other [[financial instrument]]. You can’t deal with your interests in cash. You can hold it, or pass it, and that’s it. Whoever physically holds cash “owns it” against the rest of the world for all purposes. | |||
So at the moment a client’s [[cash]] hits a [[broker]]’s [[client money]] bank account, ''neither the client nor the broker holds the cash. The bank does''. Therefore: | |||
*As between client and [[broker]] it is [[client money]]. | |||
*As between client and the [[client bank]] it is [[indebtedness]]. | |||
*From the [[client bank]]’s perspective it is [[working capital]] that the bank can lend out as it could any [[cash]] on its [[balance sheet]]. | |||
Then the [[broker]] instructs the [[client money|client money bank]] to pay some cash to an [[intermediary]]. Now: | |||
*As between the [[broker]] (as [[trustee]] for the client) and the [[intermediary]], it is [[indebtedness]]. | |||
*From the intermediary’s perspective it is [[working capital]] the [[intermediary]] can use as it sees fit. | |||
*If the intermediary deposits the cash with its own bank, it as between intermediary and bank it is [[indebtedness]] and in that bank’s own hands [[working capital]] etc. | |||
OK: curly scenario: here the original [[broker]] instructs the [[client money|client money bank]] to pay some cash to an intermediary who is, in turn, subject to its ''own'' client money regime and deposits it with its own separate client money bank.<ref>For example, HK or Singapore.</ref> Here: | |||
*As between [[broker]] and [[intermediary]] is it “local [[client money]]” as neither of them hold it but the local bank does | |||
*As between the local bank and the [[intermediary]] who is acting as trustee for the [[broker]] (who in turn is acting as [[trustee]] for the client) it is [[indebtedness]] | |||
*In the local bank’s hands it is [[working capital]]. | |||
===CASS regime=== | |||
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 {{cassprov|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. | 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 {{cassprov|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]]”). | 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=== | ===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. | 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. | ||
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There are specific exemptions from the obligation to hold as client money relating to delivery versus payment transactions. | There are specific exemptions from the obligation to hold as client money relating to delivery versus payment transactions. | ||
{{ref}} | |||