A statutory trust account is the more straight-forward method and does not require a trust deed.

How do you open a client money account? You just open a deposit or current account and inform the bank that it is a client money trust account. You must then write to the bank requesting it to acknowledge the status and the safeguards of the account as a client money trust account .

Firms may have "general" accounts, where clients' money is held in a common pool, and/or "designated" accounts, where it is held in a specific designated account.

With non-statutory trust accounts, the account opening procedure is the same, but there are two key differences between these accounts and statutory:

Firstly, credit may be advanced to clients. This has been a common practice and enables firms to advance credit for premium payments, ahead of cleared funds being received.

Secondly, client money in these accounts can be invested in short-term debt instruments or bond or money market funds, known as designated investments, rather than held in a bank account. This has been a fairly common practice among the larger firms. But there are implications:

  • Unless the firm appropriately delegates the management of these investments, it could be deemed to be acting as an investment manager and would need the necessary FSA permission.
  • Also, the firm could be construed as operating a collective investment scheme, which would require another permission.
  • Furthermore, firms using non-statutory accounts must comply with two additional FSA requirements, reflecting the perceived increased risks in such accounts. These relate to the minimum amount of capital resources and the need to obtain an auditor's confirmation as to the adequacy of the systems and controls over the accounts.

    Also, unlike statutory accounts, non-statutory trust accounts must be set up under a formal trust deed.

  • Brian Hague is a senior consultant at Beachcroft Wansbroughs Consulting