Please note that the following chapter applies only to ShareIn in respect of our firm’s regulatory client money permissions. This chapter does not apply to the activities of our Appointed Representative firms.
11.1 Client Money Definition
‘Client Money’ means money of any currency which, in the course of carrying on investment business activities or IFISA management business, a firm receives from or holds for or on behalf of a client. For these purposes, we treat both investors and issuers as clients.
The firm has permission from the FCA to hold client money and accordingly is required to comply with the requirements set out in Chapter 7 of the Client Assets Sourcebook ("CASS").
When holding and controlling client money, we must make adequate arrangements to safeguard clients' rights and to prevent use of the client money for ShareIn’s own account. We must minimise the risk of the loss or diminution of client money, or of any rights connection to it, as a result of misuse, fraud, poor administration, inadequate record-keeping, or negligence.
ShareIn’s Appointed Representatives must not hold client money, but ShareIn may do so provided it has authority to do so under the client agreement.
ShareIn have Standard Operating Procedures which detail the completion of Client Money activities.
11.2 CASS Firm Type
The application of the CASS rules in part depends on the CASS firm type, which is driven by the total amount of client money held on behalf of our clients.
Accordingly, we are required each year to notify the FCA in writing of the highest total amount of client money held during the preceding calendar year which will result in us either being a CASS large, medium or small firm (the details of which are set out below).
|CASS firm type||Highest total amount of client money held during the firm’s last calendar year or as the case may be that it projects that it will hold during the current calendar year|
|CASS large firm||more than £1 billion|
|CASS medium firm||an amount equal to or greater than £1 million and less than or equal to £1 billion|
|CASS small firm||less than £1 million|
We are currently categorised as a CASS medium firm.
11.3 CASS Operational Oversight
ShareIn is required to allocate to an individual performing a Significant Influence function the CASS operational oversight role (the “CASS Officer”).
This person is responsible for the oversight of our operational compliance with CASS, must report to ShareIn's board with respect to that oversight, and is required to complete and submit the Client Money and Asset Return. ShareIn’s CASS Officer is Jude Cook and the Prescribed Responsibilities are duly allocated to Jude in accordance with the FCA’s Senior Manager Regime.
11.4 Segregation of Client Money
ShareIn is required upon receiving client money to place this money into one or more accounts held with a central bank, a bank authorised and regulated in the EEA or a bank authorised outside the EEA.
ShareIn is required to notify customers in the event of their monies being held in an account with a bank that is based outside of the EEA; however, this is not relevant to ShareIn at this time.
11.5 Due Diligence on the banks holding the client money accounts
The FCA requires firms to exercise due care, skill and diligence when selecting a bank to hold client money accounts.
The FCA has outlined its expectation that this due diligence includes consideration of:
- The expertise and market reputation of the bank; and
- Any legal requirements or market practices relating to the holding of Client Money that might adversely affect our clients' rights.
ShareIn also considers the following factors:
- The need to diversify our concentration risks, by holding client monies across a number of different banks;
- The capital that the bank has in place;
- The amount of client money that we place with the bank as a proportion of the entire deposits;
- The costs of banking;
- The bank’s understanding of the crowdfunding sector;
- The responsiveness and helpfulness of the relationship managers;
- The access to information and records that the bank provides;
- The credit rating of the bank; and
- The bank's third party's risk profile, to the extent that this type of information is available.
ShareIn will record this due diligence, including the date that the third party bank was chosen, and keep that record until five years after we cease to use that third party to hold client money.
11.6 Internal Procedures
On an annual basis, ShareIn will confirm that each bank used to hold client money is not in financial difficulty and has been performing in a satisfactory manner over the period in question.
A formal record of this due diligence is made and retained and can be obtained from the CASS Officer.
11.7 Acknowledgement of client money bank accounts
ShareIn must take the necessary steps to ensure that client money deposited in accordance with the requirements set up is adequately protected by getting the bank's commitment that they will not use any monies in the client money account to offset any deficits or liabilities on the firm's own accounts.
Furthermore, ShareIn must take the necessary steps to ensure that client money deposited in accordance with the requirements set out above is held in an account(s) that is separately identifiable from accounts used to hold ShareIn's own money.
When we open a client bank account, we must request that the bank acknowledges in writing that:
- The monies held in the account are held by us as trustee and the bank is not entitled to combine the account with any other account or to exercise any right of set-off or counterclaim with respect to monies owed to the bank from any other of our accounts; and
- The title of the account should be in a form requested by us and be such that it sufficiently distinguishes that account from any other account held by us at the bank.
When the client bank account is held in a bank in the United Kingdom, the bank must return the above written acknowledgement within twenty business days, or else ShareIn is required to remove any monies and deposit them in a client bank account at another bank as soon as possible.
We must ensure that the acknowledgement received from the bank contains the wording specified above and is signed by an individual with authority to commit the bank.
It is essential that we retain a copy of the acknowledgement letter securely, as we will be expected to produce these letters to our external auditors and the FCA on request.
A record of the acknowledgement letters received can be obtained from the compliance officer.
11.8 Segregation Method
ShareIn uses the normal approach to client money segregation, which means that all client money it receives is paid directly into a client money account, rather than being first received into the firm’s own account and then segregated.
Where the money received includes non-client money, such as fees payable to ShareIn or its appointed representatives, the non-client money should be paid out of the client money account by the end of the following business day at the latest.
11.9 Client Money Reconciliations
ShareIn must perform a calculation to determine whether there is sufficient client money resource (i.e. money in the client money bank accounts) to meet the client money requirement (i.e. the client money entitlement of each client).
This means keeping a record of each payment receipt, anticipated payment and anticipated receipt and checking that the bank statements match the internal records.
11.9.1 Internal Client Money Reconciliation
The internal client money reconciliation entails reconciling ShareIn’s own internal records of (1) the amount of client money ShareIn actually holds for each client with (2) the client money ShareIn should be holding. The internal client money reconciliation should be performed separately on each client money bank account. Remember, an account is set up for each corporate client/AR, but a “client” for the purposes of the reconciliations relates to each underlying investor or issuer.
ShareIn must maintain its records so that, at any time, it is able to promptly determine the total amount of client money it should be holding for each client and each investor. The figures recorded in ShareIn’s internal records as at the close of business on a given business day should accurately reflect the corresponding balances on the client bank accounts without the need to undertake any additional steps.
In respect of each client account, the reconciliations should be performed on each business day based on the records as at the close of the previous business day.
ShareIn have a Standard Operating Procedure for completing the daily Internal Reconciliations.
11.9.2 External Client Money Reconciliation
The external reconciliation entails reconciling its internal records of client money entitlements with the bank’s records (i.e. online bank statements).
The external client money reconciliation entails a reconciliation of its own internal records with:
- the balance (currency by currency, if relevant) on each client bank account as set out in the most recent bank statement; and
- the corresponding balance on each client transaction account maintained by any regulated third party involved in executing the transaction.
ShareIn does not anticipate using third parties to maintain transaction accounts, which is associated with dealing in listed securities. Accordingly, its external reconciliations are limited to reconciliations with bank records.
External reconciliations must generally be performed each business day, using the records from the previous business day. If the CASS Officer believes less frequent reconciliation is appropriate in respect of a particular account, they may authorise a frequency of up to one month provided they maintain a record of the reasons why in accordance with CASS 7.15.24.
ShareIn have a Standard Operating Procedure for completing the daily External Reconciliations.
11.10 Correction discrepancies arising from the client money reconciliations
The client money calculation methodology adopted provides for the reasons for the shortfalls or excessed identified by the calculation to be identified.
We should always ensure that any shortfall identified by an internal reconciliation is made good (i.e. money from the firm's own account is paid into the client money bank account) by the close of business on the day that the reconciliation is performed.
11.11 Record-keeping for Client Money
ShareIn keeps records of the client money calculations performed for a period of 5 years.
11.12 Client Agreements
Client money is money held in connection with providing designated investment business services or ISA management services to clients. Accordingly, where ShareIn holds client money, it should enter into a client agreement with the investor and the issuer, either as ISA manager or in relation to the arrangement of investment transactions on behalf of the relevant party as investor or issuer. This will typically be achieved through adding ShareIn as a party to ShareIn’s AR contract with the relevant party.
Records of each client agreement should be kept for 5 years after the client relationship terminates.
11.13 Client Money and Asset Return
As ShareIn is classified as a CASS medium firm, ShareIn is required to submit to the FCA within 15 business days of each month a Client Money and Asset Return.
The CASS Officer is responsible for compiling the information needed for the CMAR.
11.14 CASS Resolution Pack
ShareIn is required to maintain a CASS Resolution Pack. The purpose of the CASS Resolution Pack is to ensure that ShareIn maintains and is able to retrieve information that would, in the event of insolvency, assist an administrator, receiver, trustee, liquidator or equivalent officer appointed by the courts to help achieve a timely return of client money to clients.
Dedicated individuals within the team will be responsible for the ongoing assessment and monitoring of the CASS resolution pack requirements. Any change that renders the information contained in this document together with the information that is signposted in this document to be inaccurate must be updated within 5 business days of the change being affected.