COBS 14.4.6 Failure of third parties: pooling and distribution

Past version: effective from 21/10/2015 - 20/10/2015
To view other versions open the versions tab on the right

(a) This section applies to third parties, which includes:
(i) a bank (where one or more general Client Accounts are held under one or more Statutory Trusts or separate Statutory Trusts); and
(ii) an intermediate broker, settlement agent or OTC counterparty.
(b) If a Secondary Pooling Event occurs as a result of the Failure of such a third party where one or more Client Accounts are held under different Statutory Trusts, then:
(i) in relation to every Client Account of the Authorised Person maintained in respect of a particular Statutory Trust, Rule 14.4.7 will apply.
(c) Money held in each general Client Account of the Authorised Person under a Statutory Trust or separate Statutory Trusts must be treated as pooled into a single Statutory Trust ("the relevant pool") and:
(i) any shortfall in Client Money held, or which should have been held in the general Client Accounts for the relevant pool, that has arisen as a result of the Failure of the third party, must be borne by all the Clients of that relevant pool, rateably in accordance with their entitlements;
(ii) a new Client Money entitlement must be calculated for each Client of the relevant pool to reflect the requirements in (i), and the Authorised Person's records must be amended to reflect the reduced Client Money entitlement;
(iii) the Authorised Person must make and retain a record of each Client's share of the Client Money shortfall at the Failed third party until the Client is repaid; and
(iv) the Authorised Person must use the new Client Money entitlements, calculated in accordance with (ii), for the purposes of reconciliations pursuant to Rules 14.2.12(a) to 14.2.12(d) for the relevant Clients in (ii).
(d) The term "which should have been held" is a reference to the Failed third party's Failure to hold the Client Money at the time of the Pooling Event.
(e) Any Client Money held under a particular Statutory Trust, in relation to a Designated Client Account at a third party (other than the Failed third party) is not pooled with any other Client Money held in that particular Statutory Trust or any other Statutory Trusts.
(f) Any Client Money held under a Statutory Trust, no part of which is at the Failed third party,
(g) is not pooled with any Client Money of other affected Statutory Trusts.
(h) Any shortfall in Client Money held under a particular Statutory Trust affected by a Secondary Pooling Event must be borne by all the Clients whose Client Money is held in such a Statutory Trust, rateably in accordance with their Client Money entitlements.
(i) A new Client Money entitlement must be accordingly and the Authorised Person's records must be amended to reflect each Client's new Client Money entitlement.
(j) the Authorised Person must make and retain a record of each Client's share of the Client Money shortfall at the Failed third party until the Client is repaid; and
(k) the Authorised Person must use the new Client Money entitlements, calculated in accordance with (i), for the purposes of reconciliations pursuant to Rules 14.2.12(a) to 14.2.12(d) for the relevant Statutory Trust(s).
(l) A Client whose Money was held, or which should have been held, in a Designated Client Account or Designated Client Fund with a Failed third party is not entitled to claim in respect of that Money against any other Client Account of the Authorised Person;