• INMA Chapter 5 INMA Chapter 5 Client money

    • INMA Part 5.1 INMA Part 5.1 Client money — introductory

      • INMA 5.1.1 Introduction

        (1) This Chapter sets out the rules about which INMA firms can deal with customers' money in the course of carrying on business in relation to relevant investments. Only an investment business firm (defined in rule 5.1.2) is permitted to hold customers' money.

        Note Relevant investment is defined in the glossary.
        (2) The Chapter covers how such money must be safeguarded and accounted for, including what kinds of bank accounts the firm may establish or use, and what happens if the firm itself or another firm that holds customers' money becomes insolvent.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.1.2 Investment business firms and advisory firms

        (1) An investment business firm is an INMA firm whose authorisation permits it to conduct any 1 or more of the following regulated activities in or from the QFC:
        (a) dealing in investments as agent;
        (b) managing investments;
        (c) operating collective investment schemes;
        (d) providing custody services.
        (2) Any other INMA firm is an advisory firm.

        Note An advisory firm's authorisation would permit it to carry on 1 or more of the following regulated activities, and no other regulated activity:
        •   providing scheme administration
        •   arranging deals in investments
        •   arranging the provision of custody services
        •   arranging financing facilities
        •   advising on investments.
        Amended by QFCRA RM/2015-3 (as from 1st January 2016).

      • INMA 5.1.3 Advisory firms not to hold client money

        An advisory firm must not hold client money.

        Note For what an advisory firm must do if it receives client money — see rule 5.4.1.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.1.4 Chapter 5 application to QFC schemes

        This Chapter does not apply to the independent entity of a QFC scheme that is not a private placement scheme, or to the operator of a QFC scheme that is a private placement scheme, in relation to safeguarding the scheme property.

        Note Independent entity, QFC scheme, private placement scheme, operator and scheme property are defined in the glossary.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

    • INMA Part 5.2 INMA Part 5.2 Client money concepts

      • INMA 5.2.1 When a firm holds money

        An investment business firm holds money if the money is held:

        (a) directly by the firm;
        (b) in an account in the firm’s name; or
        (c) by a person, or in an account in the name of a person, controlled by the firm.

        Note Money is defined in the glossary.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.2.2 Client money

        (1) Client money of an investment business firm is money:
        (a) that the firm receives from or holds for a customer in the course of, or in connection with, conducting investment and advisory business in or from the QFC; or
        (b) that the firm treats as client money in accordance with this Chapter.
        (2) However, money that the firm receives or holds that would otherwise be client money is not client money if an exception in Part 5.3 (Money that is not client money) applies to it.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.2.3 Eligible banks

        In these rules:

        eligible bank means:

        (a) a QFC bank; or

        Note QFC bank is defined in the glossary.
        (b) an entity for which all of the following requirements are satisfied:
        (i) it is incorporated in a jurisdiction outside the QFC;
        (ii) it is regulated as a bank, and principally regulated for prudential purposes, by an overseas regulator in the jurisdiction;
        (iii) the Regulatory Authority has not, by notice, declared that this definition does not apply to the jurisdiction;
        (iv) the entity is required to prepare audited accounts;
        (v) it has assets of QR35 million or more;
        (vi) it had surplus revenue over expenditure for its last 2 financial years;
        (vii) its latest annual audit report is not materially qualified.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.2.4 Eligible third parties

        In these rules:

        eligible third party means:

        (a) an authorised firm (other than an eligible bank); or
        (b) an entity for which all of the following requirements are satisfied:
        (i) it is authorised (however described) under the law of a jurisdiction outside the QFC to carry on any business of a similar nature to investment and advisory business;
        (ii) it is principally regulated for prudential purposes by an overseas regulator in the jurisdiction;
        (iii) the Regulatory Authority has not, by notice, declared that this definition does not apply to the jurisdiction.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.2.5 Approved representative — definition

        (1) An individual who is not an employee of an INMA firm is an approved representative of the firm if:
        (a) he or she is authorised under a contract (approved representative contract) with the firm to perform that function for the firm in or from the QFC;
        (b) he or she has been assessed by the firm as meeting the requirements in INDI, rule 4.1.1 to perform the customer-facing function; and
        (c) the firm has agreed in the approved representative contract to accept responsibility for his or her every act or omission in performing (or purporting to perform) that function for the firm.
        (2) An INMA firm must not enter into an approved representative contract with an individual if the individual is a party to an approved representative contract in force with another authorised firm.
        Inserted by QFCRA RM/2019-4 (as from 1st January 2020).

      • INMA 5.2.6 Non-QFC intermediary — definition

        (1) A body corporate is a non-QFC intermediary of an INMA firm if:
        (a) the body corporate is authorised under a contract (non-QFC intermediary contract) with the firm to act as an intermediary for the firm in the State outside the QFC; and
        (b) the firm has agreed in the non-QFC intermediary contract to accept liability to the client for every act or omission of the body corporate directly applicable to the activity that the body corporate undertakes (or purports to undertake) as an intermediary for the firm in the State outside the QFC.
        (2) An INMA firm must not enter into a non-QFC intermediary contract with a body corporate unless:
        (a) it is lawful for the body corporate to act as its intermediary in the State outside the QFC; and
        (b) every law, rule or regulation of the State applying in relation to the entering into of the contract is complied with.
        Inserted by QFCRA RM/2019-4 (as from 1st January 2020).

    • INMA Part 5.3 INMA Part 5.3 Money that is not client money

      • INMA 5.3.1 Money that is not client money — money payable to firm

        (1) Money is not client money of an INMA firm in relation to a customer if it is (or becomes) payable immediately by the customer to the firm for the firm’s own account.
        (2) Without limiting subrule (1), money is payable to the firm for the firm’s own account if it is paid by the customer to the firm, or deducted by the firm from money held by it for the customer, in settlement of:
        (a) a fee or charge that is payable by the customer to the firm;
        (b) an amount payable by the customer to the firm in relation to an amount paid by the firm:
        (i) for the purchase of an investment by or for the customer; or
        (ii) in settlement of a margin payment made for the customer; or
        (c) an amount payable by the customer to the firm for an unpaid purchase of an investment by or for the customer, if the investment has been delivered to the customer or credited to the customer’s account.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.3.2 Money that is not client money — cheques sent to regulated financial institutions

        (1) Client money of an INMA firm does not include a cheque received from a customer that is payable to a regulated financial institution, if:
        (a) the cheque is not collected or paid in the QFC; but
        (b) the firm sends it to the financial institution, in accordance with the customer's instructions, as soon as practicable (but no later than 2 business days after the day when the firm receives it).
        (2) An investment business firm must make and retain:
        (a) a record of every cheque to which subrule (1) applies; and
        (b) a copy of each such cheque.
        (3) The record of such a cheque must include the following details:
        (a) the customer's name;
        (b) the name of the financial institution;
        (c) the date on which the firm received the cheque;
        (d) the date on which the firm sent it to the financial institution.
        (4) In this rule:

        regulated financial institution means an entity that is not an authorised firm but is authorised or licensed in a jurisdiction other than the QFC to carry on a financial service.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.3.3 Money that is not client money — money to which client money protection rules do not apply

        Money held by an INMA firm is not client money of the firm if, under Part 5.6 (Disapplication of client money protection rules), the client money protection rules do not apply to the money.

        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.3.4 Money that is not client money — money held by QFC bank

        (1) Money held in an account with a QFC bank is not client money of the firm if the firm has notified the customer concerned, in writing, that:
        (a) money belonging to the customer will be held by the QFC bank as a bank and not as trustee; and
        (b) such money will not be subject to the client money protection rules.
        Note QFC bank is defined in the glossary.
        (2) The notification may be in the firm's terms of business.

        Note Under CIPR, Parts 4.4, 5.2 and 5.3, an INMA firm must give a customer a statement, in writing, of the terms and conditions on which the firm will conduct investment and advisory business for the customer.
        Amended by QFCRA RM/2019-4 (as from 1st January 2020).

      • INMA 5.3.5 Money that is not client money — money held in guaranteed account

        (1) Money held in an account with an INMA firm itself is not client money of the firm if:
        (a) all of the firm’s obligations to repay the money to the customer concerned (or to the customer’s order) have been fully, unconditionally and irrevocably guaranteed by an eligible bank; and
        (b) the firm has complied with subrule (2).
        (2) For subrule (1) (b), the firm:
        (a) must notify the customer in writing that:
        (i) the firm’s obligations to repay money belonging to the customer have been fully, unconditionally and irrevocably guaranteed by an eligible bank; and
        (ii) such money is not subject to the client money protection rules; and
        (b) must give the customer a copy of the guarantee from the bank.
        (3) The notification required by paragraph (2) (a) may be in the firm’s terms of business.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.3.6 Money that is not client money — money from associate

        (1) Money received from an associate of an INMA firm is not client money of the firm.

        Note Associate means another firm in the same corporate group — see the glossary.
        (2) However, money received from an associate of an INMA firm is client money if the associate notifies the firm in writing that the money is to be held by the firm on behalf of a person who is not in the same corporate group as the firm.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.3.7 Money that is not client money — money for issue or redemption of units in QFC schemes

        (1) Money received by an INMA firm or banking business firm (within the meaning given by BANK) that is the operator of a QFC scheme in a delivery-versus-payment transaction in relation to units in the scheme is not client money of the firm if:
        (a) subject to subrule (2), the firm receives it from a customer in relation to the firm's obligation to issue the units; or
        (b) the money is held in the course of redeeming the units and the proceeds of that redemption are paid to a customer within the time allowed by COLL to do so.
        (2) If the price of the units has not been determined by the close of business on the next business day after the day on which the firm received the money from the customer (or, if the customer paid the money to an approved representative of the firm, the day on which the firm received the money from the representative), subrule (1) does not apply (and the firm must treat the money as client money).
        (3) If the firm draws a cheque to pay the customer under subrule (1) (b) and the cheque is drawn within the time allowed by COLL for paying the customer, rule 5.7.1(3) (Payments to be in accordance with Part 5.7) does not apply.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

    • INMA Part 5.4 INMA Part 5.4 Receipt of client money by advisory firms

      • INMA 5.4.1 Advisory firms receiving client money

        (1) An advisory firm must immediately return to the customer any money that it receives from a customer if none of the exceptions in Part 5.3 (Money that is not client money) applies to the money.
        (2) The firm must make and retain:
        (a) a record of all money to which subrule (1) applies; and
        (b) for a payment made by cheque — a copy of the cheque.
        (3) The record must include the following details:
        (a) the customer's name;
        (b) the date on which the money was received by the firm;
        (c) the date on which the money was returned to the customer.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

    • INMA Part 5.5 INMA Part 5.5 Client money protection rules

      • INMA Division 5.5.A INMA Division 5.5.A Client bank accounts

        • INMA 5.5.1 Client bank account

          A client bank account of an investment business firm is a bank account maintained by the firm with an eligible bank as a bank account for client money received from 1 or more of the firm's customers.

          Note Advisory firms are not allowed to hold client money (see rule 5.1.3).

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.2 Firms must open client bank account

          An investment business firm must open 1 or more client bank accounts before it receives client money.

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.3 Client bank account requirements

          (1) A client bank account:
          (a) must be a current or deposit account in an eligible bank in the name of the investment business firm that maintains the account; and
          (b) must have the words ‘client bank account’ in its name.
          (2) The account’s name must otherwise sufficiently distinguish it from an account that holds money belonging to the firm.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.4 Requirements before firm can pay client money into client bank accounts

          (1) An investment business firm must not pay client money, or permit client money to be paid, into its client bank account unless:
          (a) under the law applying to the money and the bank account, the money will be taken to be segregated from, and will not form part of, the firm's assets in its insolvency;
          (b) after making an appropriate assessment, the firm is satisfied, on reasonable grounds, that the bank is suitable to hold the money in the account; and
          (c) the bank has given the confirmation required by subrule (3).
          (2) In assessing whether an eligible bank is suitable to hold the money in the account, the firm must take into account all the relevant circumstances, including:
          (a) the bank's credit rating, capital and financial resources;
          (b) the regulatory and insolvency regimes of the jurisdiction in which the bank is located;
          (c) the bank's reputation; and
          (d) the bank's regulatory status and history.
          Note Eligible bank is defined in rule 5.2.3; jurisdiction is defined in the glossary.
          (3) The bank must give the firm the confirmation in writing. The confirmation must state:
          (a) that all money standing to the credit of the account is held by the firm as trustee;
          (b) that the bank is not entitled:
          (i) to combine the account with any other account; or
          (ii) to exercise any right of set-off or counterclaim or any security interest against money in the account for any debt or other obligation owed to it on any other account of the firm; and
          (c) that the name of the account includes the words 'client bank account' and sufficiently distinguishes it from an account that holds money belonging to the firm.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA Division 5.5.B INMA Division 5.5.B Terms of holding client money

        • INMA 5.5.5 Client money — creation of trust and terms of holding

          (1) Client money held by an investment business firm is subject to a trust.
          (2) The firm is the trustee of the trust. The firm holds the client money on the following terms:
          (a) that the money is held for the purposes, and on the terms, of the client money protection rules and client money distribution rules;
          (b) that the money is held for customers, according to their respective interests in it;
          (c) that, on the failure of the firm, the money will also be held for the payment of costs attributable to the distribution of the money;
          (d) that, after all valid claims and costs under paragraphs (b) and (c) have been met, the money is held for the firm itself.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.6 Fiduciary duties of firm

          (1) The fiduciary duties of an investment business firm over client money continue until the money ceases to be client money under rule 5.7.2 (Certain payments out of client bank account to discharge fiduciary duties).
          (2) However, the fiduciary duties of a firm over client money do not cease if the money is transferred to an eligible third party.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.7 Accounting for client money

          (1) An investment business firm must ensure that it can promptly and accurately account for client money that it receives or holds.
          (2) Without limiting subrule (1), the firm must have procedures:
          (a) to enable it to identify and trace client money that it receives (electronically, by post, through an agent or by any other means) or holds;
          (b) to promptly record the receipt of all client money;
          (c) to ensure that, except as permitted by these rules, client money is not mixed with other money; and
          (d) to enable it to produce accurate accounting records showing how much client money has been transferred to customers and other persons.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.8 Duty to keep money segregated

          (1) Except as provided in this Part, an investment business firm must not pay its own money into a client bank account.
          (2) If an investment business firm considers it prudent to do so, the firm may pay its own money into a client bank account to protect client money in the account.
          (3) An investment business firm may hold money (other than client money, or the firm's own money) in a client bank account if (and only if) the money:
          (a) is a minimum sum required to open the account or to keep it open;
          (b) is temporarily in the account in accordance with rule 5.5.10(3) (which relates to mixed remittances);
          (c) is excess interest that has not been paid out of the account; or
          (d) is to meet any shortfall.
          Example

          An investment business firm may pay money into a client bank account for bank fees and charges payable on the account.
          (4) Any money paid into a client bank account under subrule (3) becomes client money for the purposes of the client money protection rules and the client money distribution rules.

          Note Client money protection rules and client money distribution rules are defined in the glossary.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.9 INMA 5.5.9 Client money received in different currency

          If an investment business firm receives client money in a currency other than the currency in which the firm’s client money account is denominated, the firm must convert the money into the currency of the account within 1 business day after receiving it.

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

          • INMA 5.5.9 Guidance

            Firms should not speculate with client money on the currency markets.

            Amended by QFCRA RM/2019-4 (as from 1st January 2020).

        • INMA 5.5.10 Payment of client money into client bank accounts

          (1) If an investment business firm holds client money it must ensure, unless this Part provides otherwise, that the money is paid into a client bank account as soon as possible and in any event within 1 business day after receipt.
          (2) If the money is received by the firm in the form of an automated transfer, the firm must take reasonable steps to ensure that:
          (a) the money is received directly into a client bank account; or
          (b) if the money is received directly into the firm's own account, the money is transferred into a client bank account within 1 business day after receipt.
          (3) If an investment business firm receives a mixed remittance (that is, one that is partly client money and partly other money), the firm:
          (a) must pay the full sum into a client bank account in accordance with subrule (1); and
          (b) must transfer that part of the payment that is not client money within 1 business day (in the jurisdiction in which the account is held) after the day on which it would normally expect the remittance to be cleared.
          (4) An investment business firm must take reasonable steps to ensure that it is notified promptly if it receives client money in the form of client entitlements.

          Examples of client entitlements

          •   dividends
          •   coupon payments
          •   other distributions with similar characteristics.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.11 Approved representatives and non-QFC intermediaries — payment into client bank accounts

          An investment business firm must take reasonable steps to ensure that client money received by an approved representative or non-QFC intermediary of the firm is paid into a client bank account of the firm as soon as possible after it is received but within 1 business day after the day on which it is received.

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.12 INMA 5.5.12 Segregating client money in other currencies

          An investment business firm may segregate client money in an account denominated in a different currency from that of receipt, provided that the firm ensures that the amount held is adjusted each day so that the amount held remains at least equal to the amount received, in the original currency (or the currency in which the firm has its liability to its customer, if different), converted at the previous day’s closing spot exchange rate.

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

          • INMA 5.5.12 Guidance

            Rule 5.5.12 is intended to cater for investment business firms that receive money in a currency that they do not usually receive and for which they do not have a client bank account. Firms should not view this rule as an opportunity to speculate with client money on the currency markets.

            Amended by QFCRA RM/2019-4 (as from 1st January 2020).

        • INMA 5.5.13 When client money need not be paid into client bank account

          (1) The requirement to pay client money into a client bank account does not apply to client money received in the form of a cheque until the investment business firm concerned receives the proceeds of the cheque.
          (2) That requirement does not apply to client money temporarily held by the firm before forwarding it to a person nominated by the customer concerned.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.14 Procedures to identify client money

          An investment business firm must have procedures to identify client money received and to promptly record receiving it. The procedures must cover client money received by any means, including through the mail, electronically and by way of an agent of the firm.

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.15 Suitability of eligible third parties

          When assessing the suitability of an eligible third party, an investment business firm must have regard to all the relevant circumstances including:

          (a) the third party's credit rating, capital and financial resources;
          (b) the regulatory and insolvency regimes of the jurisdiction in which the third party is located;
          (c) the third party's reputation;
          (d) its regulatory status and history; and
          (e) the other members of its corporate group and their activities.

          Note Eligible third party is defined in rule 5.2.4.

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.16 When client money payable to eligible third party

          (1) Except as otherwise provided in these rules, an investment business firm may pay client money into an account with an entity that is not an eligible bank, or permit the payment of client money into such an account, only if the entity is an eligible third party.
          (2) An investment business firm may pay client money to a third party account, or permit the payment of client money into such an account, only if the money is to be used:
          (a) for a transaction or series of transactions for the customer concerned; or
          (b) to meet an obligation of the customer.
          (3) An investment business firm may pay client money into a third party account, or permit the payment of client money into such an account, only if:
          (a) under the laws applying to the money and the account, the money will be recognised as segregated from, and will not form part of, the firm's assets in its insolvency; and
          (b) after making an appropriate assessment, the firm is satisfied, on reasonable grounds, that the third party is a suitable person to hold the money in a third party account.

          Note Rule 5.5.15 applies to the making of an assessment for subrule (3) (b).
          (4) The firm must have systems and controls to ensure that:
          (a) the requirement in subrule (3) (a) continues to be met; and
          (b) the assessment made for subrule (3) (b) remains correct.
          (5) An investment business firm may pay, or permit the payment of, client money to a third party account, only if:
          (a) the title of the account includes the words “client account”; and
          (b) the firm:
          (i) has notified the relevant eligible third party in writing that:
          (A) all money standing to the credit of the account is held by the firm as trustee; and
          (B) the third party is not entitled to combine the account with any other account, or to exercise any right of set-off or counterclaim against money in the account in relation to any sum owed to it on any other account of the firm; and
          (ii) has requested the third party to give it a written acknowledgement of the matters set out in subparagraph (i).
          (6) If an eligible third party does not provide the acknowledgement referred to in subrule (5) (b) (ii) within 1 month after the firm requests it, the firm may continue to hold client money with the third party if the firm:
          (a) promptly gives notice in writing to any customer to whom the firm owes client money that the third party has not accepted that it has no right of set-off or counterclaim against client money in relation to sums owed to it by the firm; and
          (b) ensures that any notification that it subsequently sends under this rule includes a statement that the third party has not accepted that it has no such right of set-off or counterclaim.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.17 Excess client money to be held no longer than necessary

          An investment business firm must not hold excess client money in a third party account for longer than necessary to effect the relevant transaction or satisfy the relevant obligation.

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.18 Firms to have systems and controls

          An investment business firm must maintain systems and controls to identify money that is in a client bank account or third party account but is not permitted to be in the account, and for transferring such money out of the account without delay.

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.5.19 Record-keeping

          (1) An investment business firm must maintain records that enable it:
          (a) to demonstrate to its auditors and the Regulatory Authority that it complies with this Chapter; and
          (b) to demonstrate and explain all entries of money held or controlled in accordance with this Chapter.
          (2) An investment business firm must maintain a master list of every client bank account and third party account. The master list must set out:
          (a) the name of the account;
          (b) the account number;
          (c) the location of the account;
          (d) whether the account is currently open or closed; and
          (e) the date on which it was opened and if applicable, the date on which it was closed.
          (3) The details of an account must be documented and maintained in the master list for at least 6 years after the account is closed.
          Inserted by QFCRA RM/2015-1 (as from 1st July 2015).

    • INMA Part 5.6 INMA Part 5.6 Disapplication of client money protection rules

      • INMA 5.6.1 When client money protection rules do not apply — business customers and market counterparties

        (1) The client money protection rules do not apply to money held by an investment business firm on behalf of a business customer if:
        (a) the customer has opted-out of the protection conferred by those rules; and

        Note For how to opt-out — see rule 5.6.2.
        (b) the firm has notified the customer in writing:
        (i) that the customer's money will not be subject to the protections conferred by those rules;
        (ii) that the customer's money will not be segregated from the firm's money;
        (iii) that the customer will rank only as a general unsecured creditor of the firm for that money; and
        (iv) if the firm proposes to provide discretionary investment management services to the customer:
        (A) that the firm will have significant control over the amount of unsecured credit risk that the customer is taking on the firm; and
        (B) that the customer should consider that risk carefully before commencing business on that basis with the firm.
        (2) The notification required by paragraph (1) (b) may be in the firm's terms of business.

        Note Under CIPR, Parts 4.4 and 5.2, an investment business firm must give a customer a statement, in writing, of the terms and conditions on which the firm will conduct investment business for the customer.
        (3) The client money protection rules do not apply to money held by an investment business firm on behalf of a customer that is an eligible counterparty, unless the firm has agreed to treat money held by or on behalf of the customer in accordance with those rules.
        Amended by QFCRA RM/2019-4 (as from 1st January 2020).
        Amended by QFCRA RM/2020-1 (as from 15th August 2020)

      • INMA 5.6.2 How business customers opt-out of protections

        A business customer of an investment business firm opts-out of the protections conferred by the client money protection rules by giving the firm a written acknowledgement of the firm's notification under rule 5.6.1(1)(b).

        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.6.3 When client money protection rules do not apply — delivery-versus-payment transactions through commercial settlement systems

        (1) Subject to subrule (3), the client money protection rules do not apply to money received from a customer of an investment business firm in relation to a delivery-versus-payment transaction through a commercial settlement system if:
        (a) the firm has elected not to treat money from that customer as client money;
        (b) the firm has given the customer a notification under rule 5.6.1(1)(b);
        (c) in the case of a customer purchase, the money will be due to the firm within 1 business day after the firm delivers the investments; and
        (d) in the case of a customer sale, the money will be due to the customer within 1 business day after the customer delivers the investments.
        (2) The notification required by subrule (1) (b) may be in the firm's terms of business.
        (3) Money about which an election has been made in accordance with subrule (1) (a) must be treated as client money if the delivery or payment by the firm does not occur within 3 business days after the date of the payment or delivery of the investments by the customer.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

    • INMA Part 5.7 INMA Part 5.7 Payments out of client bank accounts

      • INMA 5.7.1 Payments to be in accordance with Part 5.7

        (1) An investment business firm must have procedures to ensure that every payment out of a client bank account is authorised and made in accordance with this Part.
        (2) An investment business firm may pay money out of a client bank account if (and only if):
        (a) the money is not client money;
        (b) the money has been paid into the account in error;
        (c) the money is to be paid into another client money account of the firm;
        (d) the money is to be paid immediately to a customer or the duly authorised representative of a customer;
        (e) the money is to be paid into:
        (i) the customer's own account (not an account that is also in the name of the firm); or
        (ii) a client bank account of an eligible third party as part of a transfer or series of transfers to eligible third parties;
        (f) the money is to be paid on the instructions, or with the consent, of a customer;

        Example

        Payment to meet an obligation of the customer for professional fees
        (g) the money is to be paid to the firm for the firm's own account, under rule 5.3.1 (Money that is not client money — money payable to firm); or

        Guidance for paragraph (g)

        An investment business firm may deduct money to pay an investment business firm's commission or fees in relation to a customer from client money received from the customer after the payment has cleared and the client money calculation has been completed. For the calculation see rule 5.9.1.

        Note Under rule 5.3.1, money that is (or becomes) payable immediately by the customer to the firm for the firm's own account is not client money.
        (h) the money is surplus that is to be paid to the firm under rule 5.9.2(b).
        (3) Money paid out of a client bank account by cheque must remain in the account (and must continue to be treated as client money) until the cheque is presented to the customer's bank and cleared by the paying agent.
        (4) An investment business firm must not overdraw its client bank account.
        (5) An investment business firm must ensure that no payment is made from its client bank account for a customer before sufficient funds have been paid into the account for the customer and have been cleared.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.7.2 Certain payments out of client bank account to discharge fiduciary duties

        (1) Client money that is paid out of a client bank account ceases to be client money if it is paid:
        (a) to a customer or the duly authorised representative of a customer;
        (b) on the instructions, or with the consent, of a customer;
        (c) into the customer's own account (not an account that is also in the name of the firm);
        (d) to the firm for the firm's own account under rule 5.3.1 (Money that is not client money — money payable to firm); or
        (e) to the firm as surplus under rule 5.9.2(b) (What to do if CM resource is less than or more than CM requirement).
        (2) However, if client money is paid out of a client bank account by cheque, the money ceases to be client money after the cheque is presented to the customer's bank and cleared by the paying agent.

        Note An investment business firm's fiduciary duties over client money cease if the money is paid in accordance with this rule (see rule 5.5.6 (1)).
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.7.3 Firms not to use money for other purposes

        Nothing in these rules allows an investment business firm to use client money otherwise than in accordance with this Chapter.

        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

    • INMA Part 5.8 INMA Part 5.8 Customer notifications about client money

      • INMA 5.8.1 Manner of giving notice

        A notice to be given under this Part may be given in the firm's terms of business or any other document.

        Amended by QFCRA RM/2019-4 (as from 1st January 2020).

      • INMA 5.8.2 Firms must notify customers of certain matters

        (1) Before, or as soon as reasonably practicable after, an investment business firm receives client money from a customer, the firm must notify the customer about the following matters:
        (a) that the money:
        (i) will be held by the firm, as trustee, on the terms of the client money protection rules; and
        (ii) will be segregated from money belonging to the firm;
        (b) that, in case of failure of the firm, the money will be subject to the client money distribution rules;
        (c) whether interest on the money is payable to the customer and, if so, the terms and frequency of the payments;
        (d) that, despite the client money protection rules, the customer may be taking an unsecured credit risk on:
        (i) the eligible bank into which the money is paid; or
        (ii) any eligible third party to whom the money is paid; and
        Note In relation to the priority ranking after a firm-related distribution event — see rule 5.10.4.
        (e) if the firm intends to pay the money into a client bank account with an eligible bank that is in the same corporate group as the firm or maintained by an eligible third party that is in the same group as the firm:
        (i) a statement of that fact; and
        (ii) the name of the bank or third party.
        Note Corporate group is defined in the glossary.
        (2) If the firm intends to pay the money into a client bank account outside the QFC, the firm:
        (a) must obtain the customer's consent; or
        (b) must notify the customer in writing:
        (i) that client money might be paid into a client bank account outside the QFC;
        (ii) that the legal, insolvency and regulatory regimes that apply to the account may be different from those that would apply to it in the QFC; and
        (iii) that if the bank were to fail the money might be treated differently from how it would have been treated in the QFC;
        and must include in the notification an adequate explanation of the implications of holding money outside the QFC.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA 5.8.3 Firms must comply with customers' instructions

        (1) Despite anything else in this Chapter, a customer of an investment business firm may at any time instruct the firm in writing not to pay client money of the customer into a client bank account:
        (a) outside the QFC;
        (b) with an eligible bank that is in the same corporate group as the firm; or
        (c) with an eligible third party that is in the same corporate group as the firm.
        (2) The firm must comply with the customer's instructions from the date on which the instructions are given or any later date specified in them.
        Derived from QFCRA RM/2014-4 (as from 1st January 2015).

    • INMA Part 5.9 INMA Part 5.9 Reconciliation of client money

      • INMA Division 5.9.A INMA Division 5.9.A Calculation and reconciliations

        • INMA 5.9.1 Duty to perform client money calculation

          (1) An investment business firm must carry out a calculation (client money calculation) at least once a month to ensure that, as at the close of business on the day before the calculation is carried out (the cut-off date), the firm's client money resource (CM resource) is at least equal to its client money requirement (CM requirement).
          (2) The client money calculation is carried out as follows:
          Step 1

          Calculate the firm's CM resource by adding the following amounts (as at the cut-off date):

          •    the amount in the firm's client bank accounts;
          •    the amount transferred to eligible third parties;
          •    any amount immediately payable to the firm by customers and other persons.
          Step 2

          To calculate the firm's CM requirement, add the following amounts of client money (as at the cut-off date):

          •   unearned fees or unearned commissions payable to the firm;
          •   the amount transferred to eligible third parties;
          •   any money held by approved representatives or non-QFC intermediaries of the firm;
          •   any amounts immediately payable to customers and other persons by the firm.

          Note Under rule 5.7.1(3), an amount paid by cheque must remain in the client bank account until the cheque is presented to the customer's bank and cleared by the paying agent.
          Step 3

          Compare the CM resource and the CM requirement to see whether they are equal.

          (3) If the firm's CM resource is less than its CM requirement, the firm has a shortfall and must pay money into the client bank account to which the shortfall relates in accordance with rule 5.9.2(a).
          (4) If the firm's CM resource is greater than its CM requirement, the firm has a surplus and must pay the surplus out of the client bank account to which the surplus relates in accordance with rule 5.9.2(b).
          (5) Within a reasonable period after carrying out the client money calculation, the firm must also:
          (a) match its CM resource to its CM requirement for each customer; and
          (b) achieve a match for a majority of its customers and transactions.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.9.2 INMA 5.9.2 What to do if CM resource is less than or more than CM requirement

          If an investment business firm's client money calculation shows that its CM resource is less than, or more than, its CM requirement, the firm must ensure that:

          (a) if the CM resource is less than the CM requirement — the amount of that shortfall is paid into the client bank account to which it relates by the close of business on the day on which the shortfall is discovered; or

          Note For an investment business firm's obligation to notify the Regulatory Authority if it might not be able to pay-in the shortfall on time — see rule 5.9.8.
          (b) if the CM resource is more than the CM requirement — the amount of that surplus is paid out of the client bank account to which it relates by the close of business on the day on which the surplus is discovered, unless the firm considers that it is prudent to keep the money in the account to protect other money in the account.

          Example of when it might be prudent to keep surplus

          An investment business firm might want to keep money in the account if there are unreconciled items in its business ledgers as at the date of the calculation, and the firm wants to ensure that the client money in the account is protected.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

          • INMA 5.9.2 Guidance

            1 An investment business firm should not pay money from the client bank account for the firm's own account before the client money calculation has been carried out. See rule 5.7.1(2)(g) and the guidance to that rule.
            2 Rule 5.5.8(3) allows money (other than client money) to be kept in a client bank account if the amount is the minimum amount necessary to open the account or keep it open. Rule 5.5.8(2) allows a firm to pay its own money into a client bank account if the firm considers it prudent to do so to protect client money in the account.
            Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.9.3 INMA 5.9.3 Duty to reconcile accounts

          Within 10 business days after the day on which an investment business firm carries out a client money calculation, the firm must reconcile the balance, as recorded by the firm, on each of its client bank accounts with the balance on that account in the statement or confirmation given by the bank with which the account is maintained.

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

          • INMA 5.9.3 Guidance

            When reconciling bank statements, firms should be aware that cheques that have been drawn but not presented and cleared might create an apparent surplus in the client bank account, and that if the amount of such a cheque is paid out of the account after the calculation, a shortfall might result.

            Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.9.4 Duty to review calculation and reconciliation

          (1) An investment business firm must ensure that a calculation or reconciliation under this Division is reviewed by an employee of the firm who has sufficient seniority.
          (2) The employee must state in writing whether the calculation or reconciliation was carried out in accordance with this Division.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.9.5 Duty to rectify discrepancies

          (1) An investment business firm must investigate and rectify any discrepancy discovered by a calculation, reconciliation or review under this Division unless the discrepancy is solely because of timing differences between the accounting systems of the firm and the bank concerned.
          (2) If appropriate, the firm must rectify such a discrepancy by paying money into or out of the relevant client bank account. The firm must do so as soon as possible, but within 1 business day after the discrepancy is discovered.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA Division 5.9.B INMA Division 5.9.B Terms of holding client money

        • INMA 5.9.6 Duty to notify significant discrepancies

          An investment business firm must notify the Regulatory Authority immediately if the firm discovers a significant discrepancy by a calculation, reconciliation or review under Division 5.9.A (Calculation and reconciliations) and the discrepancy is not rectified within 1 business day after the day on which it is discovered.

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.9.7 Duty to notify failure to carry out calculation or reconciliation

          An investment business firm must notify the Regulatory Authority immediately if it cannot or does not carry out a calculation, reconciliation or review required by Division 5.9.A.

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.9.8 Duty to notify inability to pay-in shortfall

          An investment business firm must notify the Regulatory Authority immediately if it becomes aware that it may not be able to pay-in a shortfall by the close of business on the day the shortfall is discovered.

          Note For the obligation to pay-in a shortfall — see rule 5.9.2(a).

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

    • INMA Part 5.10 INMA Part 5.10 Client money distribution rules

      • INMA Division 5.10.A INMA Division 5.10.A Client money distribution rules — general

        • INMA 5.10.1 Firm-related distribution event

          Each of the following is a firm-related distribution event for an investment business firm:

          (a) the appointment of a liquidator, receiver or administrator or of a trustee in bankruptcy;
          (b) an event in any jurisdiction equivalent to an appointment mentioned in paragraph (a);
          (c) the withdrawal of the firm’s authorisation;
          (d) the imposition or variation of a condition, restriction or requirement on the firm’s authorisation so that it is no longer permitted to hold client money.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.10.2 Third-party-related distribution event

          Each of the following is a third-party-related distribution event for an eligible bank or eligible third party:

          (a) the appointment of a liquidator, receiver or administrator or of a trustee in bankruptcy;
          (b) an event in any jurisdiction equivalent to an appointment mentioned in paragraph (a).
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.10.3 Duty to notify distribution events

          An investment business firm must have procedures to ensure that the Regulatory Authority and the firm’s customers are promptly informed of:

          (a) any firm-related distribution event; or
          (b) any third-party-related distribution event in relation to:
          (i) an eligible bank with which the firm maintains a client bank account for money received from those customers; or
          (ii) an eligible third party to which the firm pays client money of those customers.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA Division 5.10.B INMA Division 5.10.B Distribution after firm-related distribution events

        • INMA 5.10.4 Firm-related distribution events — order of distribution

          (1) After a firm-related distribution event in relation to an investment business firm (whether the firm is incorporated in the QFC or otherwise), the firm must distribute client money as set out in this rule.
          (2) All client money held in a client bank account or third party account must be pooled and distributed:
          (a) first, to pay the costs of distributing it in accordance with paragraph (b); and
          (b) secondly, to customers for whom it is held, proportionately in accordance with the amount of their respective valid claims against the firm for client money.
          (3) Any client money remaining in the firm’s client bank accounts and third party accounts after the satisfaction of all the claims referred to in subrule (2) must be distributed:
          (a) if a liquidator, receiver, administrator, or trustee in bankruptcy has been appointed over the firm — in accordance with the applicable insolvency or bankruptcy laws; or
          (b) in any other case — as the Regulatory Authority directs.
          (4) If the amount of client money held in the firm’s client bank accounts and third party accounts is not enough to satisfy all its customers’ valid claims for client money, all the firm’s other beneficially-owned assets may be used to satisfy those claims in priority to all of the firm’s other creditors (other than creditors that have a prior ranking security interest in such assets).
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.10.5 Client money received after firm-related distribution event

          (1) If an investment business firm receives client money after a firm-related distribution event:
          (a) the money must not be pooled with client money held in a client bank account that was opened before the event; and
          (b) either:
          (i) the money must be returned to the relevant customer without delay; or
          (ii) if the money cannot be returned without delay — the money must be paid into a client bank account opened after the event, and must be held in the account until it can be returned to the customer.
          (2) However, client money received by an investment business firm after a firm-related distribution event need not be returned to the customer to the extent that:
          (a) the money relates to a transaction that had not been completed at the time of the event and the firm has decided to use it to complete the transaction; or
          (b) it is due from the customer to the firm at the time of the event.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

      • INMA Division 5.10.C INMA Division 5.10.C Third-party-related distribution events

        • INMA 5.10.6 Firms' continuing fiduciary duties

          An investment business firm is not responsible for any deficit in client money arising as a result of, or in connection with, a third-party-related distribution event if the firm:

          (a) used appropriate skill, care and judgement in selecting the eligible bank or eligible third party concerned, and in subsequently monitoring the bank or third party; and
          (b) complied with its other fiduciary duties.
          Note Third-party-related distribution event, client money, eligible bank and eligible third party are defined in the glossary.

          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.10.7 Firms may make good deficit

          (1) If an investment business firm is not responsible for a deficit in client money that arose as a result of, or in connection with, a third-party-related distribution event, rule 5.10.6 does not prevent the firm from choosing to make good the deficit.
          (2) If the firm chooses not to make good the deficit:
          (a) the deficit must be borne by customers who have valid claims against the firm for client money owed to them by the firm, in proportion to the respective value of their claims; and
          (b) the firm must promptly notify each affected customer in writing of the amount of the deficit and the customer's share in it.
          (3) As soon as is practicable after the deficit is known, the firm must make and retain a record of each customer's share in the deficit.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).

        • INMA 5.10.8 Client money received after third-party-related distribution event

          (1) If an investment business firm receives client money after a third-party-related distribution event, the firm must not pay the money to the eligible bank or eligible third party that suffered the event unless the customer concerned gives written instructions after the event to pay the money to the bank or third party to meet an obligation to the bank or third party.
          (2) If the firm does not receive any such instructions, it must pay the money into a client bank account, opened after the event, with another eligible bank or eligible third party.
          Derived from QFCRA RM/2014-4 (as from 1st January 2015).