Chapter 1: Segregation 

  1. An investment firm may deposit client assets in an individual third party client asset account (e.g. ‘XYZ Ltd client asset account - Joe Bloggs’), or an omnibus account (e.g. ‘XYZ Ltd client asset account’).
  2. Where an investment firm deposits client assets in an omnibus account, accounting segregation must be maintained. An investment firm should maintain accurate and detailed internal records in order to be in a position to identify the balance of client assets held on behalf of each client in that omnibus account and any movements in that balance.
  3. The principle of segregation applies to client assets held by or with a nominee. An investment firm that holds client assets through a nominee is subject to the same obligations for the safeguarding of those client assets and should comply with the Client Asset Requirements (CAR) in respect of client assets held in this manner.
  4. Where an investment firm enters into pledge, charge or security arrangement over money held in a third party client asset account, that money would still be client funds as there would be no absolute transfer of title.

    Holding and depositing client funds

  5. Client funds should be deposited directly into a third party client asset account.
  6. Investment firms should ensure that clients and third parties make transfers and payments of any money that will be client funds directly into the investment firm's third party client asset accounts.
  7. Investment firms should develop, implement and maintain systems, controls and processes designed to ensure that client funds are deposited directly into a third party client asset account.
  8. An investment firm should ensure that any money other than client funds that is deposited in a third party client asset account is promptly paid out of that account unless such money is a minimum sum required to open the account, or to keep the account open.
  9. Where a client transfers money to the investment firm but has yet to make an investment decision with respect to that money, the investment firm should exercise prudence by holding the money as client funds. Where the client subsequently decides to use that money for an activity which is not a regulated financial service, it should be removed from the client asset account without delay.
  10. It is acknowledged that client funds may not be deposited directly into a third party client asset account in a limited range of circumstances such as:
    • Where a client deposits client funds into an investment firm’s own bank account in error;
    • Where a mixed remittance is received into an investment firm’s own bank account in error; and
    • Where money is received on behalf of clients into the investment firm’s own bank account in the course of the trade settlement process.

    Where applicable, an investment firm should document these circumstances in its Client Asset Management Plan (CAMP).

  11. Where client funds are deposited into an investment firm’s own bank account as in the circumstances outlined in paragraph 10, the investment firm should:
    • Have a process in place to ensure that such client funds are identified and promptly deposited into a third party client asset account in accordance with Regulation 50(3) of the CAR;
    • Investigate why the client funds were deposited initially into the investment firm’s own bank account;
    • Where possible, put a process in place to prevent such an event re-occurring; and
    • Document or include a link to this process in the investment firm’s CAMP.
  12. If an investment firm has agreed in writing to pay interest to clients, such interest is client funds when the interest is paid into the third party client asset account.

    Cheques

  13. Investment firms should develop a process to ensure that client funds received in the form of cheques are accounted for in the investment firm’s books and records immediately upon receipt and deposited into a third party client asset account promptly in accordance with Regulation 50(3), to ensure the highest level of protection for the client. This process should be documented in the CAMP.
  14. Where an investment firm receives a cheque after the third party’s deposit cut-off time, the investment firm should ensure that the cheque is stored in a secured location (e.g. a vault), accounted for in the investment firm’s books and records (e.g. in a cheque log), and deposited with the third party promptly.
  15. As part of business continuity planning, investment firms should consider how the receipt processing and onwards deposit of cheques into third party client asset accounts will be managed in the event that the office is closed unexpectedly.
  16. Funds sent to a client by way of cheque or other payable order do not cease to be client funds until the cheque or other payable order is presented and paid by the relevant credit institution.
  17. Where the scenario described in Regulation 50(6) of the CAR arises and an investment firm receives or identifies that it is holding money and it is not clear if that money is client funds, the investment firm should consider other regulations/legislation as relevant, (e.g., anti-money laundering obligations). An investment firm should have clear procedures in place to ensure that such money is monitored and included in the investment firm’s client funds reconciliation and client funds calculation.

    Currency

  18. The Central Bank expects an investment firm to deposit client funds in the currency of receipt unless the investment firm has no third party client asset account denominated in that currency and it would be unduly burdensome for it to open such an account. In this case, the investment firm may convert the funds and deposit them in a third party client asset account in a different currency.
  19. An investment firm should inform clients in its terms of business of the list of currencies in which it can maintain a deposit of client funds and explain that where client funds are received in another currency, the funds will be exchanged in accordance with the exchange rate policy which it is required to disclose to clients under Regulation 59(1)(b) of the CAR.

    Due diligence of third parties

  20. As part of the process to select and review its arrangements for depositing client funds with a third party, an investment firm should consider how clients’ rights would be affected in the event of the insolvency of the investment firm or the third party or both.

    Unregulated activity

  21. Money related to an activity that is not a regulated financial service should not be deposited in a client asset account. If an investment firm chooses to operate a segregation regime for its non-regulated business, the Central Bank does not have an objection. However, it is critical the investment firm clearly explains to its clients that assets held in connection with an activity that is not a regulated financial service:
    • Are held separately from client assets;
    • Will not be protected as client assets; and
    • Will not be covered under the Investor Compensation Scheme.

    Holding and depositing client financial instruments

  22. If client financial instruments are deposited into an investment firm’s own account, the investment firm should transfer those client financial instruments into a client asset account promptly. The process and timeframe an investment firm should follow when client financial instruments are transferred in this manner should be documented in the CAMP.
  23. Where the scenario described in Regulation 51(8) of the CAR arises and an investment firm receives or identifies that it is holding a financial instrument and it is not clear if it is a client financial instrument, the investment firm should consider other regulations/legislation as relevant (e.g. anti-money laundering obligations). An investment firm should have clear procedures in place to ensure that any such financial instruments are monitored and included in the client financial instrument reconciliation and calculation.

    Physical client financial instruments

  24. Investment firms should ensure that physical client financial instruments are stored in a secured location (e.g. a vault) and accounted for in the investment firm’s books and records upon receipt to ensure the highest level of protection for the client.
  25. The Central Bank expects an investment firm to ensure that the physical arrangements for holding physical client financial instruments include adequate controls designed to safeguard them from damage, misappropriation or other loss.
  26. With regard to Regulation 51(5) of the CAR, an investment firm should, at a minimum, maintain a log to record the movement of physical client financial instruments (e.g. share certificates) as part of the monitoring process. Details of the client financial instrument(s) should be entered into the log on the day of receipt. The log should be updated when an investment firm receives or transfers physical client financial instrument(s).

    Due diligence of third parties

  27. As part of the process of selecting and reviewing its arrangements for depositing client financial instruments with a third party, an investment firm should give consideration to the following:
  • The extent to which client financial instruments that the investment firm deposits with a third party outside the State would be protected under an investor compensation scheme in the relevant jurisdiction;
  • The arrangements that the third party has in place for holding and safeguarding client financial instruments;
  • Whether the third party has the appropriate regulatory permissions; and
  • The third party’s familiarity with the principles of the CAR and MiFID II safeguarding of client asset rules.

Issued: 4 July 2023

Last revision: 4 July 2023