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Client Money and ‘Approved’ Banks


Jan 16 2013

Client Money and ‘Approved’ Banks

Relevance:                   All firms with permission to hold client money.

Action required:           Ensure the appropriate review and confirmation of banking arrangements is being conducted at least annually.

From time to time we come across items that can easily get overlooked and we feel it is worth reminding firms about. 

In this case it concerns a firm’s obligation concerning the bank they use to hold Client Money. The FSA require that, at least once a year, you need to make an assessment of the bank, or banks, you use to hold Client Money and record it as part of a relevant management or Board meeting minutes. 

According to FSA rules, there is a “duty of care” to its clients when a firm chooses a bank and Client Money must be held with an “approved bank”. Insurer TOBAs also tend to require that you hold their money with an ‘approved’ bank although they do not normally require an annual review.

However, 'bank' is not defined in the Financial Services and Markets Act 2000 and the term ‘approved’ means nothing in terms of financial security.

While the FSA publishes a monthly list that is based on the definition of 'bank' the list is subject to a disclaimer as the FSA will not ‘accept any responsibility for any loss which may arise from reliance by any person on information contained in the list.’

For what it is worth, the list can be accessed at: http://www.fsa.gov.uk/library/other_publications/banks/2012

Fortunately, FSA guidance states that for small firms holding relatively modest amounts of client money due diligence can be satisfied by placing client money with an authorised UK clearing bank or building society.

Any other bank used to hold client money will need to be subject to appropriate due diligence by the firm.  This should happen before an account is opened and utilised.

The FSA’s own “Guide to Client Money for General Insurance Intermediaries” gives points to consider when making such an assessment:

• the capital of the bank;

• the amount of client money placed, as a proportion of the bank’s capital and deposits;

• the credit rating of the bank (if available); and

• if the information is available, the level of risk in the investment and loan activities of the bank and its affiliates.’

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