Client Money

Client money refers to the money or margin – which may be any currency in the form of cash, check, draft, or electronic transfer – that a firm receives or holds for a client.

Money held by a firm in the form of a stakeholder, which is are not payable on demand or immediately due, also refers to client money.

The definition of client money does not apply to money held by businesses that operate in its own name on behalf of a client.

Although the client does have to be in agreement before this arrangement is made.

Who Owns Client’s Money?

When clients transfer complete ownership of money to a firm with the intention of covering present or future, contingent or actual or prospective obligations, that money is no longer seen as client money once it is transferred out of the account to the firm.

When a firm acquires full ownership of money through a collateral agreement, the firm has also taken an obligation to repay the client although distributed funds upon agreement completion are not considered to be client money.

This transfer of full ownership of money is an example of a title transfer financial collateral arrangement under the Financial Collateral Directive, were once transferred that client’s money is no longer considered client money.

Should a firm enter an arrangement with a client where a commission is rebated, those rebates are not considered client money until they become due with the terms of the agreements set forth between both parties.

Firms are required to operate with the client’s best interest rule, which means that they are required to act professionally, honestly, and fairly.