Client Money

The Codes of Practice originating in 2001 contain some high level obligations such as segregation of client money. However, Guernsey needed to implement the client money aspects of the more recent international standard - The Group of International Finance Centre Supervisors’ Standard on the Regulation of Trust and Company Service Providers.

What’s new?

• Definitions of “Client Bank Account” and “Client Entity Bank Account” in Rule 6.1 – illustrated in the diagram below

• Restrictions on pooling client money in Rule 2.5.5, and on withdrawals in Rule 2.5.6

• No profit rule in Rule 2.3(2)(e)

What’s familiar?

• The underlying aims, to protect clients against loss, through the insolvency of a fiduciary holding funds in its name, through fraud or through uncontrolled mixing with other assets

• This is achieved by stringent segregation, ring-fencing from the fiduciary’s own funds, clear designation as client money, dual signatory controls etc

Easy hits

• Many fiduciaries need to articulate their current approach to what Fiduciary Client Money is and how it’s handled - a good start although it won’t cover all the Rules

• It may be possible to cover some areas, such as disclosure of the terms on which client money is held for Rule 2.5.3, through website notices

• Account designations and bank acknowledgements may be more of a check than a change

Tricky bits

• What does the “control” aspect of Fiduciary Client Money mean in Rule 2.5.1(2) - providing all or the majority of directors and/or acting as authorised signatory?

• Reconciliations to meet Rule 2.5.8 - “appropriate frequency” principle sits above guidance summarised in the table below; processes and resources are required

• Annual independent review of client money controls to meet Rule 2.5.9- although this does not bite on Client Entity Bank Accounts, it’s a demanding review which internal compliance teams may not be resourced or prepared to do

• Obtaining agreement of relevant clients to pooling under Rule 2.5.5(3) - this clearly can’t be achieved by simple disclosure, and who are the clients for this purpose under the guidance to Rule 2.5.1?

Here we’ve flagged some key points for different types of account - as the middle columns show, these are in decreasing order of requirements or protection:

* more depending on transactions