Investment Business (Client Money) Regulations 2004

Summary

These Regulations, made under the Investment Business Act 2003, set out detailed rules for how investment providers must handle client money. They came into operation on 1 March 2005 and have since been amended by BR 85/2022. They apply to all investment providers holding money on behalf of clients, other than a bank licensed under the Banks and Deposit Companies Act 1999 insofar as it holds client money in an account with itself.

• Segregation and accounts: Client money must be kept separate from the investment provider's own money and paid into a designated client bank account with an approved bank, whose title must distinguish it from the provider's own accounts.
• Bank acknowledgement: When opening a client bank account, the provider must obtain written acknowledgement from the bank that funds are held as trustee and are not subject to set off against the provider's other liabilities.
• Payment timing: Client money received must generally be paid into a client bank account no later than the next day, with specific rules for automated transfers and mixed remittances.
• Fiduciary and trust structure: Client money is held on trust for clients according to their respective shares, with a pooling mechanism triggered by defined 'pooling events' such as default of the provider, an intermediary, or an approved bank, or a direction from the Authority.
• Sophisticated persons: Money held for a 'sophisticated person' can be excluded from client money protections only if specific warnings, written consent, and Authority consent requirements are met; providers must act on a sophisticated person's instruction to switch treatment within 10 days.
• Interest, accounting and reconciliation: Providers must clarify interest terms in writing, account properly for client money (including daily balance calculations), reconcile client bank accounts at least monthly and within 10 days of the relevant date, and correct discrepancies promptly.
• Client money controls review: Providers must implement client money controls appropriate to their business and have these reviewed annually by a qualified person, with the resulting report kept for at least five years and made available to the Authority on request.
• Record keeping: Accounting records for each client bank account must be retained for at least five years from the date of the relevant transaction.

The Regulations also establish a default regime (Part III) governing pooling of client money among clients if the provider, an intermediary, or an approved bank defaults, and a separate pooling mechanism for money held by a defaulting bank or intermediary (Part III, regulations 13 to 15).

Key obligations

• Investment providers must keep client money separate from their own money and pay it into a client bank account with an approved bank (regulations 7 and 8).
• Investment providers must obtain written acknowledgement from the approved bank that client bank account funds are held as trustee and not subject to set off (regulation 8(2)).
• Client money must be paid into a client bank account no later than the next day after receipt, or otherwise dealt with so it ceases to be client money (regulation 9).
• Mixed remittances must be paid in full into the client bank account, with non client money portions paid out within one day of expected clearance (regulation 9(3)).
• Providers must implement client money controls proportionate to the nature, scale and complexity of their business, and have these reviewed annually by a qualified person, with the report retained for at least five years and available to the Authority on request (regulation 4(2)-(5)).
• Providers must give sophisticated persons a clear written warning before treating their money outside the Regulations, obtain written consent from the client and the Authority's consent, and act on a client's instruction to switch treatment within 10 days of receipt (regulation 6).
• Providers must inform the Authority and all affected clients of any pooling event as soon as practicable after its occurrence (regulation 13(4)).
• Providers must clarify in writing with each client whether interest is payable on client money and on what terms (regulation 16).
• Providers must account properly and promptly for client money, calculate each client's credit balance daily, and make up any deficit themselves without withdrawing the make up funds until the responsible client repays it (regulation 17).
• Providers must reconcile client bank account balances at least monthly, complete the reconciliation within 10 days of the relevant date, and correct discrepancies forthwith (regulation 18).
• Providers must retain accounting records for each client bank account for at least 5 years from the date of the transaction (regulation 19).

Applies to

investment providers, intermediaries, approved banks, market intermediaries

Deadlines

• 1st March 2005: Commencement date of the Regulations.
• within 10 days of receipt of instruction: Investment provider must treat a sophisticated person's money as client money or return it, following that person's instruction.
• not later than the next day: Client money received must be paid into a client bank account by the next day after receipt (or otherwise dealt with under regulation 10).
• within one day: Non client money portion of a mixed remittance must be paid out of the client bank account within one day of expected clearance.
• annually: Client money controls must be reviewed annually by a qualified person, who prepares a report.
• not less than five years: Qualified person's report on client money controls, and accounting records for each client bank account, must be retained for at least five years.
• not less frequently than once a month: Reconciliation of client bank account balances must be performed.
• within 10 days: Reconciliation referred to in regulation 18(1) must be performed within 10 days of the date to which it relates.
• within one month after the pooling event: Client money in the hands of an intermediary at the time of a pooling event should be returned within this period, or provision made for distributions if it cannot be.

Related documents

• This document commences Investment Business Act 2003
• This document is made under Investment Business Act 2003
• Consultation Paper - Proposed Enhancements to the Investment Business Regime: Regulations and Rules (2021-09-17) repeals this document