Clients' money regulations (effective 1 January 2011 - 31 December 2016)
Firms that receive or hold clients' money must do so in accordance with these regulations.
These regulations have been updated. You can find the updated PDF regulations on the Clients' Money page.
Effective from 1 January 2011.
Clients' money regulations
- Clients' money
- Client identification
- Opening a client bank account
- Payment into a client bank account
- Withdrawal from a client bank account
- Records and reconciliation
- Returns and reports
- The responsibility of a principal
- Unidentified and untraced clients
- Explanatory notes
Clients' money regulations
|1.||These regulations are made by the Council of ICAEW, pursuant to clause 16 of the Supplemental Royal Charter of 1948. They come into force on 1 January 2004. The regulations dated 1 April 1992 remain applicable after this date only in respect of actions or omissions or acts prior to the coming into force of these regulations.|
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.
|3.||Clients' Money means money of any currency (whether in the form of cash, cheque, draft or electronic transfer) which a Firm holds or receives for or from a client, including money held by a Firm as stakeholder, and which is not immediately due and payable on demand to the Firm for its own account. Clients' Money must be held in the currency in which it was received unless the client instructs otherwise in writing.|
|4.||Where a Firm has a power or control over the clients own account, though not meeting the definition of Clients' Money, it must ensure that it has the specific written authority of the client acknowledged by the Bank before exercising that authority, and it must maintain adequate records of the transactions it undertakes.|
|5.||Fees paid in advance for professional work agreed to be performed and clearly identifiable as such shall not be regarded as Clients' Money for the purposes of these regulations. A cheque or draft received by a Firm, which is drawn in favour of a client or third party, does not constitute Clients' Money.|
The words listed below shall have the meanings indicated:
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:
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.
|7.||References in these regulations to any statutory provision or European legislation shall include any statutory modification or re-enactment thereof and any amendment thereto.|
|8.||Before holding any Clients' Money on behalf of a client the Firm must first verify the identity of the client. (See Explanatory Note 8 below.)|
Opening a client bank account
Payment into a client bank account
|10.||Clients' Money or Mixed Monies received by a Firm or by any Principal must be paid immediately into a Client Bank Account, or to the client.|
|11.||A Firm must only pay money into a Client Bank Account, if:
|12.||A Firm shall not be regarded as having breached regulations 10 and 11 simply because it transpires that money which the Firm paid into a Client Bank Account in the reasonable belief that it was required so to do under these regulations should not have been paid into such an account, provided that immediately upon discovering the error the Firm takes the necessary steps to withdraw the money which has been paid into such account in error.|
|13.||Where money of any one client in excess of £10,000 is held or is expected to be held by the Firm for more than 30 days, the money must be paid into a Client Bank Account designated by the name of the client or by a number or letters allocated to that account.
(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.)
|14.||Subject to regulations 15 and 16, a Firm must:
|15.||Regulation 14 shall not apply to Clients' Money held by a Firm as stakeholder though a Firm may not itself earn interest on it unless regulation 16 applies.|
|16.||The Firm and the client may agree in writing different arrangements for the payment of interest on Clients' Money held. This agreement may be in the engagement letter with the client.|
|17.||It shall be a breach of these regulations if a Firm fails to comply with any of the terms of any such agreement as is referred to in regulation 16.|
|18.||For the purposes of regulations 14 to 17 Clients' Money held by a Firm for two or more clients acting together in one or more transaction must be treated as though held for a single client.|
Withdrawal from a client bank account
|19.||When a cheque or draft including money which is not Clients' Money is paid into a Client Bank Account, the money which is not Clients' Money must be withdrawn as soon as the cheque or draft is cleared.|
|20.||A Firm may withdraw from a Client Bank Account:
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.)
|20A.||Clients money must be returned to the client promptly as soon as there is no longer any reason to retain those funds.|
|21.||The Firm must ensure that at all times the sum of the credit balances held for all clients is at least equal to the total balance held in all Client Bank Accounts and that no amount may be withdrawn from the bank account for any client which is greater than the credit balance held for that client.|
|22.||Money may only be withdrawn from a Client Bank Account for or towards payment of fees payable by the client to the Firm if:
|23.||Monies which, in terms of regulation 20, are payable to the Firm, shall be withdrawn as soon as reasonably practicable.|
Records and reconciliation
|24.||A Firm must keep Clients' Money records (including the notice and acknowledgement under Regulation 9(b)(iv)) which show:
|25.||A Firm must:
|26.||Records kept in accordance with regulations 24, 25 and 27(a) shall be preserved for at least 6 years from the date on which they were made and the Firm shall hold them available for inspection.|
Returns and reports
Significant breaches of these regulations require to be reported by the Firm to the Institute or its nominee.
|28.||To enable Council to ascertain whether or not these regulations are being complied with, it:
The responsibility of a principal
|29.||Every Principal shall be responsible for any breach of these regulations on the part of his Firm unless he proves that responsibility for the breach was entirely that of another Principal or Principals.|
|30.||Where as a result of any disciplinary proceedings which may arise out of a breach of these regulations a Firm is ordered to pay a fine, monetary penalty or costs all Principals of the Firm shall be jointly and severally liable for the payment thereof and regulation 29 shall have no application to such liability.|
|31.||A Firm (which term includes a sole practitioner) which is wholly owned and/or controlled, whether directly or indirectly, by a single member may not receive or hold Clients' Money unless it has arrangements with another appropriately qualified firm or person to enable the proper distribution or processing of Clients' Money held by the Firm in the event of the incapacity or death of the member. Notification of such arrangements must be made in writing before or immediately following the first receipt of Clients' Money by the firm, or notified via the firm's next annual return to ICAEW and immediately following any change (including cancellation) in the arrangement. (See Explanatory Note 10 below.)|
Unidentified and untraced clients
|32.||A Firm may cease to treat as client monies, any monies, when after taking reasonable steps to trace the client and return the monies, those monies remain unclaimed. (Guidance on 'reasonable steps' is included in explanatory note 13).Such monies must then be paid by the member to a registered charity, subject to the following conditions:
|34.||Any sums not paid to a registered charity in accordance with regulation 32 or 33 must be retained on deposit for the benefit of the unidentified or untraced client.|
(These notes do not form part of the regulations)
|1.||For convenience only, these regulations have been drafted in terms of the duties imposed on firms. However, disciplinary proceedings can be brought against members, affiliates or firms under regulation 29 and attention is drawn to that regulation.|
|2.||A cheque or draft which is not clients' money shall be forwarded to the payee or dealt with in accordance with the clients written instructions. (See definition of clients' money.)|
|3.||Money held by a firm as stakeholder is governed by these regulations (regulation 3) but the payment of interest provisions do not apply (regulation 15).|
|4.||Unless the firm agrees otherwise with a client (regulation 16) a client bank account must be an interest bearing account if material interest would be likely to be earned within the meaning of regulation 14 and any interest thereby received, or which ought to have been received, shall in the absence of such agreement be paid to the client in accordance with regulation 14.|
|5.||Interest would be material under regulation 14 if the money is likely to be held for at least the number of weeks shown in the left hand column of the following table and the minimum credit balance of the client equals or is more than the sum in the right hand column (see regulation 18 for aggregated clients' money).
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.
|6.||Interest on clients' money received by way of cheque should be calculated either from the day it is received or cleared. Both payments and withdrawals must be treated in the same way. If the firm chooses to credit interest from the date the cheque is cleared, and wants to include interest in a payment to a client, it should assume that the cheque will clear on the fifth business day after the cheque is sent to the client.|
|7.||Whereas these regulations govern the treatment and withdrawal of fees from monies held in a client bank account, they do not relate to commissions received by the firm. In this respect, the attention of members is drawn to Conflicts of interest and confidential information in Section 220 in the Code of Ethics.|
|8.||The Fédération des Experts Comptables Européens, of which the Institute is a member, is a signatory to the EUs Charter for the European Professional Associations in support of the fight against organised crime. To comply with the obligations under the charter, firms should verify the identity of a client before any money is held on behalf of that client.
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.
|9.||Members are reminded to consider any income tax implications relating to interest received and paid on client bank accounts.|
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:
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.
|11.||Insolvency practitioners are reminded that these regulations apply when they receive money in pre-insolvency situations. If, subsequent to an insolvency appointment, monies are received as payable to the firm, it should either be endorsed over to the insolvency appointment or banked in a Clients' Money account and withdrawn as soon as the cheque clears.|
|12.||Regulation 20 sets out the various circumstances in which money can be withdrawn from a firms client bank account. It requires such withdrawals to be authorised by a Principal or an employee of the firm provided that in the latter case the extent of the delegation from the principals is recorded in writing. The written delegation should also detail any restrictions on the use of this delegated authority.
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.
|13.||Regulation 32 enables firms to pay unclaimed clients' money to a registered charity. There is no requirement to do so - funds not paid to a registered charity must be retained on deposit for the benefit of the unidentified or untraced client in accordance with regulation 34. Before any payment to a charity is made, reasonable steps to trace the client must have been taken. Any steps taken should be proportionate to the sums involved, but could include, writing to the client at their last known address, conducting searches of the electoral roll or at Companies House, advertising in a local newspaper and employing tracing agents. Obviously, more effort should be made to trace a missing client if the sums involved are material. The firm will remain liable to repay any monies paid to a registered charity.
There is no requirement to take steps to trace the client when a firm is ceasing to trade - see regulation 33. The ICAEW Foundation www.icaew.com/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.