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{{anat|cass|}}
{{a|cass|{{image|CASS Garb|png|A [[CASS operational oversight function|CASS officer]]’s ceremonial [[mithril]] gown, yesterday.}}
===Client Money generally===
}}The [[FCA]]’s [[client money rules]] are designed to minimise credit exposure to firms which hold client funds, but who are not themselves 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. Therefore, the [[client money]] account is isolated the firm’s creditors on the firm’s insolvency (such a failure a “[[primary pooling event]]”). It is not isolated, however, from the [[client money bank]]’s creditors.
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:
===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 [[broker]] it is [[client money]].
*As between client and the [[client bank]] it is [[indebtedness]].
*As between client and the [[client bank]] it is [[indebtedness]].
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*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]]
*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]].
*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.
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?===
===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>
Generally, there are two reasons you might pay money to someone else: <br>


'''The general case''': ''Because you owe it under a contract.''  
'''The general case, where [[client money]] does ''not'' apply''': ''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'''.  
*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}}).
*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 all delivery of cash it title transfer. There ''is'' no title to cash. <br>
*You could say this is “title transfer” of [[cash]], but you don’t need to, because all delivery of cash it title transfer. There ''is'' no title to cash. <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.''  
'''The special case where [[client money]] ''might'' apply''': ''Because you want your counterparty to look after it for you, in connection with some other service — {{fcaprov|designated investment business}} for example (there are many others) — it is providing you.'' As to this, see CASS {{cassprov|7.10.1}}, the applicability of the client money rules. The key phrase is not “in connection with designated investment business”, but “money received for and on behalf of a client”. That implies an agency, trust or banking kind of role, and is quite different from “money ''owed'' to a client”, which implies an outright contractual obligation. Agency, trust and banking doesn’t happen all that often in connection with designated investment business — ''unless you are acting as an [[agent]], [[trustee]] or [[bank]]''.
*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.  
*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).
*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.  
*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.  
*This necessitates two things:
*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...
**''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...
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**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.
**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.


====In a {{nutshell}}====
{{client money and banks}}
A normal bank deposit is an unsecured liability of the bank’s to repay an amount of money: it is a form or loan, repayable on-demand. a bank deposit does is not any kind of right over any money deposited by the bank: it can’t be.
{{client money and cash brokerage}}
 
Only banks are entitled to hold deposits. Everyone else to whom you give cash, apropos nothing, must deposit it with a bank. The bank will record that the account is in the name of the depositor as trustee for its client. 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).
}}
 
===[[Bank]]s===
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]]===
===[[Delivery versus payment]]===
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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.
{{sa}}
*[[Mithril]]
*[[Cash]]
*[[Bitcoin]]
{{ref}}
{{ref}}
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