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Ethics > Client Money > Flashcards

Client Money Flashcards

1
Q

What document governs client money handing?

A

The RICS Professional Statement on Client Money Handling

The PS reinforces the importance of ensuring that RICS members and regulated firms comply with their professional requirements and that client funds are properly protected

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2
Q

How does the RICS Professional statement on Client Money Handling link to the Rules of Conduct?

A

Rules of Conduct for firms

  • Rule 8
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3
Q

What are the objectives of ensuring good client money handling?

A
  • Client money is kept safe
  • Client money is used for appropriate purposes only
  • RICS regulated firms have the appropriate controls and procedures to safeguard client money
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4
Q

Is a firm still responsible for client money if the money is held by a third-party on behalf of the company?

A

Yes, the firm and its principals remain responsible for holding client money securely in compliance with the professional statement

Must ensure that all records and information relating to client money are available to RICS upon request

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5
Q

What must a RICS regulated firm do in regards to holding client’s money?

A
  • hold CM in a bank account of which the firm has exclusive control
  • Ensure the CM account only holds client money
  • Not hold office money in a CM account unless it is a receipt of mixed monies where the office money is awaiting transfer
  • CM accounts include ‘client’ + ‘name of firm’ (discrete CM accounts to also include an identifier e.g. name of client or project)
  • Ensure CM is immediately available on request (ensure request in writing from client); penalties for instant access are only paid from CM with instruction otherwise paid by office account
  • Confirm operating conditions with bank in writing including acknowledgement that the CM is held seperatley and will not be used to pay any fees that the office is liable for
  • Ensure if the client wants to open a shared account between C and firm, this is opened by the client
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6
Q

What must a RICS regulated firm do in regards to information to clients?

A

RICS regulated firms must provide the following information in writing to the client:

  • Confirmation from the firm that the CM will be held in a CM account, CM account details, and who the CM account is in the name of (firm, third party, etc)
  • Advice that fees paid in advance arent covered by the RICS Money Protection Scheme
  • Disclosure of all commissions earned by the firm whilst managing CM
  • How unidentified funds are dealt with
  • A copy of the firms written procedures for handling client money
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7
Q

What must a RICS regulated firm do in regards to receipts of client money?

A

RICS regulated firms must:
- Ensure all money received is paid in to CM account promptly

  • Mixed monies received is separated and paid promptly
  • Upon request to hold part of a payment, the whole payment is transferred to account then paid out promptly
  • Account for interest / other benefits accruing from client money to the client (unless agreed otherwise)
  • Take prompt action to identify unidentified CM, after 3 years its paid to a charity (receipt and indemnity for all money paid to charity)
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8
Q

What if client money is unidentifiable?

A

I should take prompt action to try and identify the owner of the client money

Where the owner cannot be identified after 3 years from receipt and all avenues have been exhausted, pay this money from the CM account to a registered charity

Obtain a receipt and an indemnity for all client money paid to a registered charity that would reimburse the firm for payment of the monies if the beneficiary is identified

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9
Q

What must a RICS regulated firm do in regards to payments from a client money account?

A

RICS regulated firms must:
- use clients money only for the client’s matters

  • Pay CM to client once there is no reason to hold it
  • ensure all payments from CM account are made to or on behalf of the client
  • When fees are due, send invoice to client before withdrawing funds
  • Check that sufficient funds are held by client before making payments from CM account
  • Obtain written permission for standing orders / direct debits
  • Obtain written agreement from the client before bank costs are recharged to client bank accounts
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10
Q

What must a RICS regulated firm do in regards to accounting records and controls when holding client money?

A

RICS regulated firms must:
- keep all records and accounts of dealings with the client money

  • Have appropriate systems in place to ensure payments to and transfers from client account are in accordance with pre-agreed instructions
  • Complete regular client bank account reconciliations and demonstrate these are reviewed by a principal or senior staff member
  • Publish written procedures for handling CM
  • Prevent overdrawn balances by the firms systems and controls
  • Have protection in place to protect accounting systems such as firewalls, back-ups and recovery systems
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11
Q

What must a RICS regulated firm do to ensure compliance with the client money handling procedures?

A
  • ensure compliance with anti-money laundering legislation
  • Ensure compliance with the RICS PS on B, C, ML and TF
  • Obtain any certification required under legislation currently in force and follow the guidelines for display / publication
  • Ensure investigation of any breach / prompt remedy
  • Record any breach of the RICS PS in writing as well as consideration whether to inform RICS and whether any client has been affected
  • Inform RICS and the insurers of the RICS regulated firm immediately if client money is misappropriated for any reason
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12
Q

What are the requirements for RICS members in relation to client money?

A

RICS members must:
- ensure compliance with PS on B, C, ML and TR

  • ensure compliance with PS on Client Money
  • ensure compliance with anti ML legislation
  • follow RICS and company procedures
  • not override any CM protection controls in place
  • make appropriate disclosures to a senior member of the firm immediately if they become aware of a risk or actual misappropriation of client money and keep a written record of that disclosure
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13
Q

What accounting systems should a firm have in place for client money?

A

Accounting systems and procedures should be appropriate to the nature and volume of the client account transactions

Accounting records should include a cash book detailing all payments and receipts with a running balance for all client money accounts held

RICS regulated firms should retain copies of client money account statements, reconciliations and supporting documents (RICS recommends 6 years)

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14
Q

What if a RICS regulated firm holds more than 3 client bank accounts?

A

A central list of all client accounts should be maintained

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15
Q

How should a firm deal with cash and cheques received?

A

All cash and cheques received should be logged and there should be procedures in place to check that all funds received are banked

Upon cash being received directly from a client a receipt should be given

Appropriate systems to ensure cash and cheques are safe until they are banked

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16
Q

What does a firm need to do when holding clients money?

A

Firm’s systems in place

  • qualified individuals to oversee client accounting
  • Accounting systems to be secure, controlled and protected
  • Computer systems to be backed up and have firewalls
  • Ensure adequate cover if principal is away

Client bank account

  • Client money held separately
  • made available on demand
  • Title includes ‘Client’ + name of firm
  • Must inform client of bank details (codes, address)
  • Must obtain written consent if the firm is to retain interest

Client Accounting

  • Show details of all money received / paid
  • Identify all receipts and payments from client ledgers
  • Overdrawn balance to be avoided and rectified immediately if it does occur
  • Funds held longer than 3 years may be donated
17
Q

What if you donate unidentified money to a charity?

A

The charity should offer the firm an indemnity so that the money can be retrieved if the owner comes forward

18
Q

Why might you be requested to hold client money?

A
  • Arbitration fees
  • Fee money taken in advance
  • Tenant deposit
  • Service charges
19
Q

What are the written procedures that firms are required to publish under the Client Money Protection Scheme?

A

A requirement for firms under the Client Money Protection Scheme to publish written procedures on handling client money and to provide a copy to clients on request

The published written procedures should include a reference to the professional statement as well as references to:

  • how and where client money is held
  • restricted access to senior members / principals only
  • timescales for payment of cash / cheques to account
  • controls for authorisation of payments from account
  • how interest and bank charges are handled
  • information about reconciliation of accounts
  • what information will be provided to clients and frequency of reports

The RICS firm should consider whether any other information is required in their written procedures to ensure clarity for the client

20
Q

What is a reconciliation? How often should they be carried out?

A

Reconciliation of the cashbook, ledger and bank statement balances; any errors found must be rectified immediately

Reconciliations should be carried out once per calendar month and no later than 6 weeks after the date of the previous reconciliation

If there are only 1 or 2 transactions per month, a quarterly basis is enough

21
Q

What is a client ledger?

A

A record of all the amounts owed or two a client

a record of all payments and receipts relating to a client in chronological order

Provides a running balance to show the amount of money held by the firm on behalf of the client at all times

22
Q

What if there is a discrepancy between the RICS PS on Client Money and the Client Money Protection Scheme Rules?

A

Client Money Protection Scheme Rules takes precedence

23
Q

What are RICS professional assurance auditors?

A

RICS members who carry out routine checks on firms handling clients money to ensure its held in accordance with Rule 8 and to provide advice and to help firms back to compliance wherever possible

24
Q

What is the RICS Client Money Protection Scheme?

A

A scheme offered to RICS regulated firms to offer protection for clients’ money held by firms

25
Q

What is the purpose of the RICS Client Money Protection Scheme?

A
  • to allow RICS firms to offer protection (once all other avenues have been exhausted)
  • to compensate clients for losses resulting from the firm failing to properly account the client money
  • only applies to registered firms
  • a firm should repay the client from its own resources (even if it means selling assets) - if the firm cant reimburse the client the CMPS will cover
  • Membership of the scheme forms part of the package of provisions which apply to RICS firms
26
Q

Liability for loss of client money under the RICS Client Money Protection Scheme?

A

In the event that a member (a regulated firm) fails to account for client money properly, then the Scheme’s administrator shall pay the client the money lost out of the schemes funds.

It ONLY COVERS DIRECT LOSS, does not cover any indirect or consequential loss which the client may suffer

There may be a cap on liability per year (if the scheme administrator thinks it is appropriate)

27
Q

What are the compensation limits under the RICS Client Money Protection Scheme?

A

Cover for direct loss only, no indirect or consequential loss

Limit per claim = £50,000

Cap on liability of the shceme as a whole in respect of any single financial year = £10.3m

28
Q

What are the exclusions of cover from the RICS Client Money Protection Scheme?

A
  • Loss of client money that is partly the clients fault
  • Loss that occurred anyway other than the Great Britain
  • Consequential loss
  • Penalties, fines
  • Loss arising from the bank or deposit taker
  • Loss due to investment
  • Loss occasioned by war, invasion, acts of foreign enemies, hostilities, civil war, revolution, insurrection, military etc.
  • Loss directly or indirectly caused by terrorism
29
Q

How would a RICS member / firm inform of a claim to the Client Money Protection Scheme?

A
  • issue notice in writing of any potential claim as soon as practicable giving all supporting information
  • agree to cooperate fully with RICS investigation by Scheme Administrator
  • produce all additional info as requested
  • respond to all communications promptly
  • take every reasonable effort to minimise any clent money loss and to take appropriate measures immediately if they are required to reduce any claim
30
Q

How would a client make a claim for loss of client money?

A

Fill out RICS Client Money Protection Claims form and issue to the RICS contact details on the form

Made within 12 months of loss occuring (to match the governments requirements)

31
Q

What are my requirements for money handling (as a firm and a member)?

A

Prevent misappropriation
Insolvency
Death

32
Q

What would you do if a client wanted to pay you up front for fees?

A

Hold in a client account and named
Establish process for withdrawals
Record and receipt all payments
Provide a cashflow for drawdowns

33
Q

What would you do to withdraw money from a clients account?

A

Understand how to withdraw
Bank confirmation
Inform client of withdrawals
Reconcile any funds withdrawn

34
Q

What does the money handling Professional Statement say?

A

Professional Statement on:

Holding client money
Information to clients
Receipt of client money
Payments from client account
Accounting records and controls
Compliance
35
Q

What are the requirements for holding clients money?

A
  • In a named client money account (incl the word client)
  • authorised person to manage
  • insure
  • only contains the sum paid into it
  • readily available to the client
  • clear process of instruction
  • acknowledgement from bank that monies will not be combined or transferred
36
Q

What must RICS members do with regard to client money?

A

Comply with anti-money laundering legislation
Comply with professional statement on bribery and corruption
Follow all internal procedures
Inform immediately of any misappropriation

37
Q

Your client offers to pay you in cash, what would you do?

A

I am aware in the Bribery Act maximum cash payments are around £8.4k. However,

I would decline and request they make payment through a cheque or bank transfer

Ethics (12 decks)

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