RMA C: Client money and assets
Q: What is client money?
A: Client money is defined in the Glossary of the Handbook but it generally includes money that a firm receives and holds for its clients in the course of carrying on designated investment business or insurance distribution activity.
Q:What are the differences between a statutory and non-statutory trust client bank account?
A: The formalities for setting up the different types of bank account are different:
- Statutory trust
The trust status of a statutory trust arises automatically as a result of CASS 5.3.2R – no deed or equivalent formal document needs to be executed. As trustee of the statutory trust client bank account, a firm must not make advances of credit to its clients from the client bank account. This means a firm must not pay an insurer’s premium from the client bank account until it has received that premium from the client. Likewise a firm may not pay out a claim from the client money bank account until it has received the claim money from the insurer. A firm is not, however, prevented by CASS from extending credit using its own money (which does not fall under the statutory trust).
CASS 5.5 sets out more detail on the requirements relating to operating client bank accounts.
- Non statutory trust account (NST)
A properly executed trust deed or equivalent formal document is required for a non-statutory trust. A non-statutory trust account can, if it provides for it in accordance with CASS 5.4.8R (1), enable the firm to extend credit to clients and insurers.
CASS 5.4 provides more detail on the requirements for operating a NST account.
Please note that the FCA rules impose different capital requirements on firms operating statutory and non-statutory client money trusts. Please refer to CASS 5.4 and MIPRU for further information.
Q: What is Risk Transfer
A: An insurer may agree to let a firm hold money as an agent on its behalf. A written agreement must be in place between the firm and the insurer stating that premiums, and if permitted by the insurer, claims and premium refunds are held as agent. These agreements are often referred to as risk transfer agreements.
Since the insurer is accepting the risk of a firm holding money as agent on its behalf, the firm will not need a requirement on its permission allowing it to hold client money if the firm only holds money in this way.
CASS 5.2 provides more details on the requirements for holding money as agent of an insurance firm.
Further information is also available in the Guide to Client Money for General Insurance Intermediaries page 7, which includes a checklist of questions to help firms decide whether they are acting within the terms of their agreement(s).
Q: What is ‘co-mingling’
A: If a firm wants to ‘co-mingle’ (mix) money held as agent of an insurer with client money held in a statutory or non-statutory trust client bank account it must have the insurer’s agreement to do so.
That agreement:
- must be in writing
- must sub-ordinate the interests of the insurer to the interests of the firm’s other clients
Without this written agreement in place, money held as agent of the insurer may not be mixed with other client money. Instead, a firm may have to have a separate account to hold money as agent of the insurer that conforms to the terms of the agreement with the insurer.
Where the insurer has permitted mixing client money and money held as agent of the insurer, all monies should be treated as client money and are subject to CASS 5 requirements.
Q: Performing the client money calculation
A: The client money calculation is done as often as necessary; however it must be done a minimum of every 25 business days. This is so that the firm can verify that the amount of client money segregated in the client money account(s), and held at third parties, is enough to meet its obligations to clients.
Firms can use one of two methods: either an ‘accruals’ or a ‘client balance’ method. Whichever method is chosen, the firm can only use one method during each annual accounting period and record in writing the method it has chosen.
For further information on the client balance method please refer to: CASS 5.5.66R – 5.5.67R
For further information on the accruals method please refer to: CASS 5.5.68R – 5.5.69R
For further information on performing the client money calculation please refer to: CASS 5.5.62G -5.5.65R
Q: How do I calculate the client money resource and requirement?
A: The client money resource is the amount of client money segregated in the appropriate accounts.
The client money requirement is the amount of money a firm has to segregate to meet its obligations to clients.
Please refer to CASS 5.5.62G to 5.5.68R which provide guidance and rules on how to perform the client money calculation and how to calculate the client money resource and requirement.
Q: What’s the difference between highest client money requirement and highest account balance?
A: The highest client money requirement is an amount calculated during the period. This would be taken from the firm’s client money calculations performed during the period. Only a single figure should be entered, not the aggregate of the client money requirements calculated during the period.
The highest account balance during the reporting period refers to money held as CASS 5 client money under either a statutory trust(s) or non-statutory trust(s). The amount should be taken from the firm’s own records and should include client money held as agent of the insurer which is co-mingled with other client money in a client money account. If your firm operates both statutory and non-statutory trust accounts, you should enter two balances: one for the highest balance in statutory trust accounts and one for the highest balance in non-statutory trust accounts.If your firm segregates designated investments under a non-statutory trust (see CASS 5.5.14R), you should also include the value of these investments in the RMA-C.
Q: Where can I find further guidance on CASS 7.10.3R
A: A firm that receives or holds money for its MiFID business (or designated investment business that is not MiFID business) in accordance with CASS 7 and also holds money in the course of, or in connection with, its insurance distribution activity in accordance with CASS 5, may make an election under CASS 7.10.3R to comply with CASS 7 for all the money it receives, including money it receives in the course of, or in connection with, its insurance distribution activity.
Further information can be found at: https://www.handbook.fca.org.uk/handbook/CASS/7/10.html
Q: How do I remove my requirement to hold client money?
A: The firm will need to complete a Variation of Permission Form (VoP) using our Connect system. The following link provides further information on the VoP process and length of time it takes to process the application:
https://www.fca.org.uk/firms/variation-permission/apply
It is the firm’s responsibility to ensure its scope of permissions is accurate and up-to-date.
Q: What are the notifiable breaches and how do I notify the FCA?
A: The CASS 5 chapter includes the following notification requirements. The firm should notify the FCA using the notification form in the Connect system.
- Notification to the FCA: failure of a bank, broker or settlement agent:
CASS 5.5.61R: On the failure of a third party with which client money is held, a firm must notify the FCA:
- as soon as it becomes aware, of the failure of any bank, other broker or settlement agent or other entity with which it has placed, or to which it has passed, client money; and
- as soon as reasonably practical, whether it intends to make good any shortfall that has arisen or may arise and of the amounts involved.
- Failure to perform calculations and reconciliation
CASS 5.5.76R: A firm must notify the FCA immediately if it is unable to, or does not, perform the client money calculation required by CASS 5.5.63R (1).
CASS 5.5.77R: A firm must notify the FCA immediately it becomes aware it may not be able to make good any shortfall identified by CASS 5.5.63R (1) by the close of business on the day the calculation is performed.
Q: Do I need an external client money audit
A: A client money audit is required of all general insurance intermediaries which:
- hold client money in a non-statutory trust client bank account; or
- have held more than £30,000 in a statutory trust client money bank account at any time during the audit reporting period
SUP 3.1.2 sets out when this audit requirement applies and certain exemptions from the requirement.
Q: When does the external client money audit report need to be completed by?
A: The end date is not prescribed but it must not be more than 53 weeks:
- from the last report; or
- from the date the firm became authorised (if it is the first report)
The client money report must be issued to the firm within 4 months of the end of the relevant reporting period audit period.
Q: Is there a client money exemption for property management firms?
A: Property management firms that comply with the Royal Institute of Chartered Surveyors (RICS) Members’ Accounts rules or the client money scheme that exists under Section 42 of the Landlord and Tenant Act (LTA) 1987 are not required to comply with the detailed requirements of the FCA client money rules, provided that they satisfy the requirements of CASS 5.5.49R to the extent that the firm will hold money as trustee or otherwise on behalf of its clients.
Q: Where can I find further information?
A: The CASS 5 rules can be accessed at: https://www.handbook.fca.org.uk/handbook/CASS/5/?view=chapter
Further information is available in the Guide to Client Money for General Insurance Intermediaries. The guide includes information about setting up and managing client accounts, audit and reporting requirements and guidance for firms with appointed representatives.
Q: Where can I find information on how to complete the RMA-C?
A: Guidance on how to complete the RMA-C can be found in our Handbook: SUP 16 annex 18B.
Q: The RMA-C return starts from question 11: are there questions missing?
A: No because of the consequential impacts of renumbering altered forms, the RMA-C starts with question number 11.
Q: I don’t hold client money, how can I complete a nil return?
A: In the first instance the firm must establish whether it receives or holds money in connection with insurance distribution activity (Q11 on the RMA-C).
If the answer to Q11 is ‘no’ then the firm can proceed to complete Q28 with a ‘no’ and this will allow a firm to complete a nil return.
However firms which operate under Risk Transfer only and do not hold client money under CASS 5 must still complete column C ‘agent of insurer’ in the RMA-C.