Chapter 2: Segregation

When is a fund service provider deemed to hold investor money

Subscriptions

  1. Money received prior to the cash transfer cut off time for the investment fund on the dealing date is considered investor money. On the cash transfer cut off time on the dealing date, this money should be transferred to the investment fund and entrusted to the depositary. Where money is received from an investor on/after the cut off time on the dealing date, this money should not be held in a third party collection account. This money is not investor money and should be dealt with in accordance with the legal arrangement between the fund service provider and the investment fund.
  2. If circumstances arise where an investment fund is investing money as an ‘investor’ into another investment fund and lodges this money into a third party collection account held by a fund service provider, the investing fund will fall under the definition of ‘investor’ under the Regulations.

    Redemption proceeds / Dividends

  3. A fund service provider will be deemed to hold investor money when money is received by the fund service provider from an investment fund and is deposited into a third party collection account for onward transmission to the investor. This would apply in the case of a redemption of the investment fund or where an investment fund pays a dividend.

    How a fund service provider should hold investor money

    Investor money denominated in another currency

  4. The Central Bank expects a fund service provider to receive money into a third party collection account from the investor in the currency of the transaction as instructed by the investor or in the base currency of the investment fund. Where the fund service provider has no third party collection account denominated in that currency and it would be unduly burdensome for it to open such an account, the fund service provider may convert investor money on receipt and hold it in a third party collection account in a different currency.

    Mixed Remittances

  5. Examples of mixed remittances include, but are not limited to, the following:
    • Commission;
    • Transaction Charges;
    • Performance Fees;
    • Management Fees; and
    • Contingent Deferred Sales Charges.
  6. As part of the process provided for in Regulation 81(5), when addressing instances of mixed remittances in the Investor Money Management Plan (IMMP) (i.e. the steps a fund service provider would follow in assessing how to deal with the receipt of investor money in this manner), consideration of other regulations/legislation should be taken into account, e.g. anti-money laundering obligations.
  7. A fund service provider should consider adopting cut-off time limits for the collection of the missing investor documents. The timeframe adopted should be reflective of the level of importance of documents omitted by the investor, ensuring the adoption of such timeframes will not result in the fund service provider breaching any other regulations/legislation.
  8. A fund service provider should seek legal advice if it is in any doubt such assessment should be made without delay, but in any event, a fund service provider should ensure it takes action in order to act in accordance with Regulation 81(5).
  9. A fund service provider should have clear procedures in place to ensure that the unallocated money is monitored and reconciled each working day. All such investor money should be included in the fund service provider’s daily reconciliation and daily calculation.
  10. An investment firm should ensure that funds facilities agreements and financial instruments facilities agreement are signed and duly executed by individuals with the appropriate authority, so that a legally binding agreement exists between the investment firm and the third party.
  11. If an investor pays investor money into an incorrect bank account in error (e.g., the fund service provider’s own firm bank account), the fund service provider should transfer that investor’s money into a third party collection account promptly, but in any event no later than one working day in accordance with Regulation 81(3) of the Regulations.
  12. A fund service provider should not ignore such an occurrence and, if such an exception occurs, the fund service provider should:
    • investigate as to why an investor’s money was deposited into the incorrect bank account;
    • put in place a procedure to prevent such an event from re-occurring; and
    • reflect this procedure in the fund service provider’s IMMP.

    Holding and Depositing Investor Money

  13. As part of the assessment provided for in Regulation 81(6), the Central Bank expects a fund service provider to take into account how investor rights would be affected in the event of the insolvency of the fund service provider, or the third party, or both.
  14. The Central Bank expects a fund service provider to clearly document in its IMMP the procedures it would follow to carry out the review required by Regulations 81(6) and 81(7).

Issued: 4 July 2023

Last revision: 4 July 2023