Clients' money regulations (effective 1 January 2011 - 31 December 2016)

These regulations apply in relation to all United Kingdom and Ireland offices of Firms and, subject to regulation 29, to the Principals of such Firms. A Firm must receive or hold Clients' Money only in accordance with these regulations.

Where a firm is authorised by the Financial Services Authority, any monies received or held which are Investment Business Clients' Money as defined by the Financial Services Authority's Handbook must be dealt with in accordance with that Handbook, which takes precedence over the requirements of these regulations.

The words listed below shall have the meanings indicated:

Bank means:

• a branch in the United Kingdom or Ireland of:
  • the Bank of England;
  • the Central Bank of Ireland;
  • the Central Bank of another member State of the European Union;
  • a person who has permission under part 4 of the Financial Services and Markets Act to accept deposits; or
  • a building society within the meaning of the Building Societies Act 1986 which has adopted the power to provide money transmission services and has not assumed any restriction on the extent of that power.
• a branch outside the United Kingdom or Ireland of:
  • a bank within the meaning of paragraph (a) above;
  • a bank which is a subsidiary or parent company of such a bank;
  • a credit institution, as defined in the First EU Banking Coordination Directive number 77/780 (EEC), established in a member State of the European Union other than the United Kingdom or Ireland and duly authorised by the relevant supervisory authority in that member State; and
• • a bank on the Island of Guernsey that is registered as a Deposit Taker under the Banking Supervision (Bailiwick of Guernsey) Law 1994;
  • a bank on the Island of Jersey including a registered person under the Banking Business (Jersey) Law 1991;
  • a bank on the Isle of Man including a bank which is licensed under the Isle of Man Banking Act 1998.

Client Bank Account is an account at a bank in the name of the firm separate from other accounts of the firm which may be either a general account or an account designated by the name of a specific client or by a number or letters allocated to that account and which, in all cases, includes the word client in its title.

Council means the Council of the Institute, or any Committee, entity or individual delegated by Council to exercise any powers or discharge any functions on its behalf.

Firm means a sole practitioner who is a Member, or a partnership, or a body corporate or a limited liability partnership comprised in whole or in part of Members, the business of whom or of which includes carrying on the profession of accountancy.

Independent Accountant's Report is a report, (in such form as the Council shall from time-to-time determine) covering such period as the Council or its nominee may require, to the Chief Executive or his nominee, required in terms of regulation 28(b) and commissioned by the firm which the firm must ensure states whether, in the view of the Independent Accountant:

• it has adequate systems so that it can comply with the regulations and make the confirmations necessary in terms of regulation 27;
• it has complied with the Clients' Money Regulations as at the reporting date; and
• while carrying out the work in support of the Report, anything has come to the Independent Accountant's attention which caused him or her to believe that the Firm has failed to comply with the regulations.

Independent Accountant means a firm which is a registered auditor under the Companies Act 2006 or the Companies Act 1990 in the Republic of Ireland and which has satisfied itself that it is independent of the Firm on which the Independent Accountant is reporting, in the terms referred to on Independence - assurance engagements in Section 290 in the Code of Ethics.

Mixed Monies means monies received (whether in the form of cash, cheque, draft or electronic transfer) or held by a firm or Principal in terms of regulation 9 which comprises or includes Clients' Money and money due to the Firm.

(Note: for any Firms authorised by the Financial Services Authority, any monies so received or held which include an element of Investment Business Clients' Money, as defined by the Financial Services Authority's Handbook, must be dealt with in accordance with the Handbook.)

Notice means written notice sent by first-class pre-paid recorded delivery to a firm's place of business or given in person by the Council (or its nominee) to any Principal.

Principal means a Member who is a sole practitioner or who is a partner in a firm which is a partnership or who is a director of a firm which is a body corporate or who is a member of a limited liability partnership.

• Subject to regulation 11 hereof, a Firm which receives or holds Clients' Money or Mixed Monies or money which under regulation 11 hereof the Firm is required to pay into a client account, must immediately open one or more Client Bank Accounts. Any Firm may maintain one or more Client Bank Accounts as appropriate. All money which is Clients' Money must be held in a Client Bank Account.
• On opening a Client Bank Account, a Firm must notify the Bank in writing that:
  • all money standing to the credit of that account is held by the Firm as Clients' Money and that the Bank is not entitled to combine the account with any other account or exercise any right to set off or counterclaim against money in that account in respect of any money owed to it on any other account of the Firms;
  • interest payable on the money in the account must be credited to that account;
  • the Bank must describe the account in its records to make it clear that the money in the account does not belong to the Firm; and
  • the Bank must acknowledge in writing that it accepts these terms.
• For a Client Bank Account in the United Kingdom or Ireland, if the Bank does not provide the acknowledgement required under sub-paragraph (b) above within 20 business days of the Firm sending the notice, the Firm must:
  • withdraw all money from the account;
  • close the account; and
  • deposit the money with another Bank in a Client Bank Account; or
  • as a last resort, return the money to the client.
• A Firm may only hold Clients' Money in a Bank outside the United Kingdom or Ireland if the client is informed in writing:
  • of the country or territory where the account will be held; and
  • either that the Bank has given the acknowledgement required under regulation 9(b)(iv), or where the Bank's acknowledgement has not been received, the Firm has advised the client that the Clients' Money held in that account may not be protected as effectively as it would if held in a Bank in the United Kingdom or Ireland; and
  • the client has agreed in writing to the money being paid into, or remaining in, that Bank.
• A Firm may not hold Clients' Money (or money which would, if held in a Bank (see regulation 6) be Clients' Money) outside the European Union unless:
  • the client is informed in writing of the country or territory where the account will be held; and
  • the client has agreed in writing to the money being paid into, or remaining in, the institution where the money is held; and
  • the client accepts in writing that where money is so held it will not have the protection afforded by these regulations.

• the Firm is required to make such payment under these regulations; or
• the money is the Firm's own money and:
  • it is required to be so paid for the purpose of opening and maintaining the account and the amount is the minimum amount required for that purpose; or
  • it is so paid in order to restore in whole or in part any money paid out of the account in contravention of these regulations.

(Note: The Client Bank Account in this regulation must be a separate account, rather than a memorandum account in the Firm's books. In other words, the account will be for that client (or clients acting jointly) only.)

• place Clients' Money in an interest-bearing account unless the interest earned would not be material (see Explanatory Note 5 below); and
• ensure that a fair rate of interest (see Explanatory Note 5 below) on the money is earned; and
• ensure that all interest earned is paid or credited to the client, or as the client instructs in writing.

• • money, not being Clients' Money, paid into a Client Bank Account for the purpose of opening or maintaining the account; or
  • the element of Mixed Monies which are not Clients' Money;
• money paid into a Client Bank Account contrary to these regulations or which would have been so but for regulation 12;
• money required to be withdrawn under regulation 19;
• interest which the client has agreed in writing should not be paid to him (see regulation 16);
• money properly required for a payment to a client;
• money properly required for or towards payment of a debt due to the Firm from a client otherwise than in respect of fees earned by the Firm;
• money withdrawn in accordance with regulation 22, for or towards payment of fees payable to the Firm by the client;
• money drawn on a clients written authority or in conformity with any written contract between the Firm and the client;
• money which may be properly transferred into another Client Bank Account or into a bank account in the name of an individual client or clients acting jointly (see regulation 18);
• money withdrawn and paid to a registered charity in accordance with regulation 32 or 33.

Any withdrawal from a Client Bank Account may only be made where an authority in respect of that withdrawal has been signed by a Principal of the Firm or by an employee of the Firm to whom authority in writing has been delegated from the Principals of the Firm. (See explanatory Note 12 below.)

• the precise amount thereof has been agreed by the client or has been finally determined by a court or arbiter; or
• the fees have been accurately calculated in accordance with a formula agreed in writing by the client on the basis of which the amount thereof can be determined; or
• thirty days have elapsed since the date of delivery to the client of a statement of fees and the client has not questioned the amount therein specified as due.

• details of all money paid into and out of all Client Bank Accounts;
• entries of all Clients' Money paid direct to the client, or, on the clients instructions, paid to a third party, identifying that person;
• entries of all cheques received and endorsed over by the Firm to the client or, on the clients instruction, endorsed over to a third party, identifying that person;
• entries of all electronic transfers received or made of money and transferred direct to the client or, on the clients instructions, transferred to a third party, identifying that person; and
• details of all transactions on each clients ledger account which will easily identify the balance held for each client and which will reconcile to the total of Clients' Money held in the Client Bank Accounts.
• details of all unclaimed monies withdrawn from the Client Bank Account in accordance with regulation 32 or 33, including the name and contact details of the recipient of those monies.

• at least once every five weeks, reconcile the total balances on all its Client Bank Accounts with the total corresponding credit balances in respect of its Clients, as recorded by it, and where any difference arises, correct it immediately; and
• at the same time as carrying out the reconciliation under sub-paragraph (a) above, reconcile the balance on each Client Bank Account, as recorded by it, with the balance on that account as set out in the statement issued by the Bank and, where any difference arises, correct it immediately, unless the difference arises solely as a result of timing differences.

• confirm that their Firm meets the requirements of these regulations and shall supply such evidence as these regulations and/or Council may require to support such confirmation; and
• ensure that their Firm conducts a review at least annually, to consider whether systems it has maintained have been adequate to enable it:
  • to comply with these regulations;
  • to carry out the reconciliations in accordance with regulation 25; and
  • to prepare any return required under regulation 27(a) and to confirm its compliance with these regulations.

Where possible the review should be conducted by a Principal who is not involved in the handling of Clients' Money.

Significant breaches of these regulations require to be reported by the Firm to the Institute or its nominee.

• may appoint a person or persons to inspect the books and records of the Firm or any of its Principals. Notice given by Council or on behalf of Council, the Firm or any of its Principals shall be signed by the Chief Executive, or his nominee; or
• may require the Firm to provide an Independent Accountant's Report;

• The client must have remained untraced for 5 years.
• Sums of below £10,000 (per client) may be paid to any registered charity.
• For sums of £10,000 and above (per client), the registered charity must provide an indemnity against any claim subsequently made by the client for the money.

• Where a Firm is ceasing to practise, payment of any unclaimed clients' money to a registered charity must be on the following terms:
  • That the registered charity provides an indemnity for all sums paid whatever the amount.
  • There is no requirement for the client to have remained untraced for 5 years.
• On cessation the Firm must inform the Institute in writing of all sums paid to a registered charity in accordance with this regulation. The information to be provided must include:
  • the clients name and last known contact details, and
  • the sum paid, and
  • the name and contact details of the recipient registered charity.

This is merely a guide. The obligation of the firm is to take reasonable steps to ensure that the client does not lose material sums of interest because the money remains in low or non-interest bearing accounts. There may be circumstances, for example, where money should be placed on overnight deposit.

The fair rate of interest earned must be at least the minimum deposit rate offered publicly by a bank for small deposits.

To avoid potential embarrassment, it is suggested that firms verify a clients identity when a professional relationship is first established, rather than later when any clients' money may be first received. Guidance on suitable procedures to verify a clients identity can be found in anti-money laundering guidance.

Members are advised that converting or concealing criminal property or terrorist funds, for example by allowing them to be passed through the clients' money account, is a criminal offence under the money laundering legislation. However, the offence is not committed if a prompt report is made to the law enforcement authorities and their permission obtained to continue the transaction. More guidance on the recognition of when this might be the case, and advice on reporting money laundering suspicions, is contained in statement 9.5.

Where client money is held for the first time after the implementation date of these regulations on behalf of an entity who was already a client at that date, the firm should consider carefully if it has sufficient evidence of the clients identity through the course of past dealings.

It is now a requirement of the Money Laundering Regulations that firms should verify the identity of all new clients which would then deal with the identification requirements outlined above.

Regulation 31 requires firms which are directly or indirectly wholly owned or controlled by a single member to have an arrangement with another person to provide the clients with access to their money held by the firm in the event of the incapacity or death of that member. Such firms could be a limited company with a single director and no company secretary, or a LLP where one member is an individual and the other member is a company, and the individual is the sole director of that company. However, firms may adopt different structures but still be controlled by a single member and it is not possible for this guidance to outline every situation whereby an alternate will be required under regulation 31. A firm which is a partnership of individuals but which only has a single equity partner would not need to make arrangements under regulation 31 as other ‘partners’ are able to deal any client money held by the firm. The regulation details when these arrangements have to be in place. The arrangement could most easily be with another firm where there is already an alternate or consultation arrangement in place.

There is no requirement that this arrangement has to be with another chartered accountant, but when selecting an alternate, the member should consider:

• If the alternate is to be a firm, whether that firm is itself subject to similar client money requirements, such as a solicitor, or is otherwise capable of undertaking the task.
• If the alternate is to be an individual, whether he or she has the appropriate experience to deal with these responsibilities.

In either case, the member needs to be convinced of the integrity of the proposed alternate and that the alternate understands the Client Money Regulations and what the alternate may be required to do. If you are unsure about the suitability of a particular person for this role, contact the Ethics Advisory Services’ helpline for assistance.

Whoever is chosen, it would be best practice to inform clients of the identity of this person.

The Advisory Service has a help sheet on general alternate arrangements that can be adapted for the purposes of these regulations. Visit www.icaew.com/helpsheets and click on 'Practice helpsheets' for the helpsheet on alternate arrangements; click on 'Ethics helpsheets' for the helpsheet on clients' monies.

Details of the arrangements, and any changes, should be sent to the Professional Conduct Department, ICAEW, Metropolitan House, 321 Avebury Boulevard, Milton Keynes, MK9 2FZ. Although there is no requirement to use it, there is a standard form on our website which forms part of the clients’ money helpsheet and may be obtained as noted above.

In deciding who can have this authority, the principals should consider the trust that is being placed in the individual and their ability to carry out this function with due care and integrity.

The principals should note that they are responsible for the firms compliance with the Clients' Money Regulations, regardless of any delegation that may have been made. Regulation 27 requires the principals to review the firms compliance with the regulations and this review should include the operation of any delegated powers.

There is no requirement to take steps to trace the client when a firm is ceasing to trade - see regulation 33. The ICAEW Foundation (a registered charity number 313983) has indicated that it will normally accept funds on an indemnity basis. The level of indemnity will depend on the sums paid and whether the firm has ceased to trade, see regulations 32 and 33.

To avoid such a situation arising, it may be appropriate before accepting funds from clients to make a written arrangement with them should such circumstances arise. For example, the firm either in its engagement letter or on acceptance of the funds, could detail the means by which monies which subsequently become unclaimed would be dealt with.