Insolvency officers including liquidators, examiners, receivers etc. do not have recourse to client money or client financial instruments or title to them held on behalf of a client by an investment firm, until all proper claims of clients or their heirs and successors against the money concerned have been satisfied in full.
Recourse may be had to such assets in relation to functions under the Investment Compensation Act and to meet reasonable expenses incurred in distribution of client money and financial instruments to clients where the assets of the firm have been exhausted. An application is to be made Court to determine any such entitlement.
A person who is a director, officer or employee of an investment firm shall not misappropriate fraudulently any money or financial instruments held on behalf of a client.
For the purpose of safeguarding client’s rights in relation to financial instruments and funds belonging to them, investment firms must comply with the following requirements:
- they must keep records and accounts as are necessary to enable them at any time and without delay to distinguish assets held for one client from those of another and from their own assets.
- they must maintain records and accounts in such a way that ensures their accuracy and that it corresponds to the financial instruments and funds held.
- they must conduct on a regular basis, reconciliations between internal accounts and records and those of any third parties by whom the assets are held.
- they must take the necessary steps to ensure that any client financial instruments deposited with a third party, are identified separately from the financial instruments belonging to the firm, by reason of different titled accounts on the books of the third party or other equivalent measures that achieve the same level of protection.
- they must take the necessary steps to ensure that client’s funds deposited in a bank, credit institution or a Bank authorised are held in an account identified separately from any accounts used to hold funds belonging to the firm.
- they must introduce adequate organisational arrangements to minimise the risk of loss or diminution of client’s assets or rights in connection with those assets, as a result of misuse of the assets, fraud, poor administration or inadequate record-keeping or negligence.
Investment firms may deposit financial instruments held by them on behalf of their clients into an account opened with a third party, provided the firm exercises due care and skill in the selection, appointment and review of the third party or of the arrangements for the holding and safekeeping of those instruments and takes into account the expertise and market reputation of the third party as well as legal requirements or market practices relating to the holding of those financial instruments which could adversely affect the clients’ rights.
An investment firm shall not deposit financial instruments held on behalf of clients with a third party in a third country that does not regulate the holding and safekeeping of financial instruments for the account of another person unless the following conditions are met:
- the nature of the financial instruments or investment services connected with those instruments requires them to be deposited with a third party in that country;
- where the financial instruments are held on behalf of a professional client, the client requests the firm in writing to deposit them with a third party in that third country.
An investment firm, on receiving client fund, shall without delay deposit them in accounts opened with a bank; an authorised credit institution; or a qualifying money market fund.
An investment firm shall not enter into arrangements for securities financing transactions in respect of financial instruments held by the firm on behalf of a client or otherwise use such financial instruments for their own account or the account of another client, unless the following conditions are met:
- the client must have given prior express consent to the use of the instruments on specified terms, as evidenced, in the case of a retail client, by the client’s signature;
- the use of the client’s financial instruments must be restricted to the specified terms to which the client consents.
Investment firms shall not enter into arrangements for securities financing transactions in respect of financial instruments which are held on behalf of a client in an omnibus account or otherwise use financial instruments held in such an account for their own account unless, in addition to the above conditions, at least one of the following conditions are met:
- each client whose financial instruments are held in the omnibus account has given express prior consent;
- the investment firm has in place systems and controls which ensure that only financial instruments belonging to clients which have given express consent are so used.
The investment firm shall ensure that the records of the firm include details of the client on whose instructions the use of the financial instruments has been effected, and the number of financial instruments used belonging to each client who has given consent, so as to enable the correct allocation of loss.
The Central Bank may arrange for publication of warning notes in newspapers circulating in the State, where it reasonably believes that a company registered in the State or other person operating without authorisation.