• 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).