Client Money Handling

Question 1

What guidance is available for CHP?

Answer 1

RICS Professional Statement - Client money handling 1st edition, October 2019

Question 2

What is Client Money?

Answer 2

Money of any currency (whether in the form of cash, cheque, draft or electronic transfer) that an RICS-regulated firm holds for or receives on behalf of another person, including money held by a regulated firm as stakeholder and…

• is not immediately due and payable on demand to the RICS-regulated firm for its own account,

excluding…

• fees paid in advance for professional work agreed to be performed,

unless the fees are for work undertaken as a property agent as defined by the Rules of the RICS Client Money Protection Scheme for Property Agents.

Question 3

What is a Client Money Account?

Answer 3

An account in the name of an RICS-regulated firm, a wholly owned subsidiary company of the firm or an appropriately contracted third-party transaction service provider, holding client money.

Question 4

What types of Client Money Account are there?

Answer 4

A single client of the firm (discrete client money account). More than one client of the firm (general client money account).

Question 5

What are Client Ledgers?

Answer 5

Records of all payments and receipts relating to a client in chronological order. Ledgers provide a running balance that shows the amount of money held by the firm on behalf of that client at all times. Client ledgers are necessary where general client bank accounts are in use.

Question 6

What is Exclusive Control?

Answer 6

A bank mandate or contractual arrangement whereby the firm remains in full control of all money movement in the client money account, including when transaction services are outsourced to third-party service providers.

Question 7

Explain ‘Mixed Monies’.

Answer 7

Receipts that combine client money and office money in a single amount.

Question 8

Overdrawn balances

Answer 8

An overall shortage (or deficit) of client money, for example:

• a balance on a client ledger in a general client account that shows payments have exceeded the amount of money held on behalf of that client
• a cash book balance where the cumulative total of recorded payments exceeds that of accumulated receipts
• a bank account where the position shown by bank statements is overdrawn.

Question 9

What is a Running Balance?

Answer 9

A cash book or client ledger balance that is updated every time a payment is made or a receipt recorded and so always shows the current position.

Question 10

What is a Signatory?

Answer 10

A person nominated by the firm to authorise payments from a client money account.

Question 11

Explain the recent update to the Client Scheme Rules

Answer 11

The scheme was seperated into two components, relating to different services - namely Surveying Services and Property Agents.

Question 12

What RICS Client Money Protection Schemes are available? Which one is relevant to you as a Building Surveyor?

Answer 12

• The RICS Client Money Protection Scheme for Surveying Services, which generally applies for client money held by RICS-regulated firms in the United Kingdom or… - The RICS Client Money Protection Scheme for Property Agents, which meets the specific provisions that apply for property agents from 1 April 2019 for client money held in connection with letting agency work and property management work in England.

Question 13

What are the requirements for RICS regulated firms, with respect to holding client money?

Answer 13

• Exclusive Control - hold all client money in a client money account which the RICS-regulated firm has exclusive control
• Contents - client money account does not contain any sums other than:
  
  • the whole or any part of client money paid into it, or…
  • any sums needed to replace money that has been withdrawn from the account by error, with accrued interest on such amounts
• Office Monies - not hold office money in a client money account unless it is a receipt of mixed monies where the office money is awaiting transfer
• Title - all client money accounts include the word ‘client’ and name of firm in the account title, and that discrete client money accounts include an identifier (e.g. the client or property name) in the title of the account.
• Availability - money held in a client account is immediately available even at the sacrifice of interest, unless other arrangements are in the best interests of the client and the client has given express instructions in writing
• Penalties and withdrawel consent - where the client has given instructions to hold monies in a high interest account with penalties for instant access, penalties are only paid out of the client account if:
  
  • the client has provided specific informed consent and…
  • this will n_ot result in an overdrawn balance_​otherwise the bank must be instructed that penalties are to be applied to the office account.
• Bank operating conditions - confirm the bank operating conditions in writing with the bank that holds the client money account, including:
  
  • acknowledgement from the bank that monies in the client money account will not be combined with or transferred to any other account maintained by the firm –
  • the bank is not entitled to exercise any set-off or counterclaim against money in that client money account for any sum owed to it for any other account of the firm
• Client Account Access - ensure that where a client requests that money is held in an account to which it and the firm has access, this is a bank account set up by the client, not a firm bank account.

Question 14

What information should RICS regulated firms, provide to clients?

Answer 14

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

• Bank Account Details - confirmation that client money will be held in a client money account including bank account details, that the RICS-regulated firm has exclusive control over the client money and whether the account is in the name of the regulated firm, a wholly owned subsidiary or an appropriately contracted third-party transaction service provider.
• Fees in advance not covered CMPS - advice to clients who pay fees in advance for surveying services (but not property agent services in England) that this money is not covered by the Client Money Protection scheme.
• Disclosure of Commissions - disclosure of all commissions earned by the firm while managing their property.
• Unidentified Fund Procedures - inform how unidentified funds are dealt with.
• Firms written procedures - a copy of the firm’s written procedures for handling client money.

Question 15

What are the requirements for RICS regulated firms, with respect to ‘Receipts of client money’?

Answer 15

• Timely manner - all client money received is paid into a client money account promptly.
• Separation of Mixed Monies - when mixed monies are received the receipt is paid into a client money account and the office money is transferred into the office account promptly.
• Holding Part of Payment - where client instructions are to hold only part of a payment the whole payment is placed into a client money account before transferring the relevant part out promptly.
• Accrued interest - account for interest or other benefits accruing from client money to the client, unless otherwise agreed in writing.
• Unidentified money - take prompt action to attempt to identify the owner of any u_nidentified client money received_ and where the owner cannot be identified after three years from receipt and all avenues of investigation have been exhausted pay this from a client money account to a registered charity
• Unidentified money to 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 a beneficiary is subsequently identified.

Question 16

What should you do if you receive mixed monies?

Answer 16

ensure that when mixed monies are received the receipt is paid into a client money account and the office money is transferred into the office account promptly.

Question 17

Who benefits from accrued interest?

Answer 17

account for interest or other benefits accruing from client money to the client, unless otherwise agreed with the client in writing.

Question 18

If you received client money from an unidentified source, how would you approach this?

Answer 18

Unidentified money - take prompt action to attempt to identify the owner of any unidentified client money received and pay this from a client money account to a registered charity where the owner cannot be identified after three years from receipt and all avenues of investigation have been exhausted. Unidentified money to 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 a beneficiary is subsequently identified.

Question 19

If a Client gives you money for payment of a Contractor, and the money is more than required. How should you approach this?

Answer 19

Holding Money for Payment - ensure that where client instructions are to hold only part of a payment the whole payment is placed into a client money account before transferring the relevant part out promptly. Ensure that client money is returned to the client immediately as soon as there is no longer any reason to retain those funds.

Question 20

What are the requirements for RICS regulated firms, with respect to ‘Payments from client account’?

Answer 20

• Use - use each client’s money only for that client’s matters
• Return excess - client money is returned to the client immediately as soon as there is no longer any reason to retain those funds, and any further payments received (e.g. by refund) are paid to the client immediately
• Payment to or on behalf of client - all payments from client money accounts are made to or on behalf of a client and on that client’s written instructions or as agreed in the management agreement.
• Fees - when fees are due and payable, unless the client has given written authorisation for deduction of agreed fees without prior notification, send an invoice or other written notification of the costs incurred to the client before withdrawing money from a client money account for payment of the firm’s fees, and then transfer those monies out of the client account promptly.
• Sufficient funds? - check sufficient funds are held for the relevant client before making any payments on their behalf. CANNOT GO INTO OVERDRAFT!!
• Written Consent - obtain written permission from clients for any direct debits and standing orders on general and discrete client bank accounts
• Bank Costs - obtain written agreement from the client before bank costs are recharged to client bank accounts.

Question 21

Mixed monies - What are some examples of Office money?

Answer 21

• Interest - interest on general client accounts that by agreement with the client does not accrue to the client – the bank or building society should be instructed to credit such interest to the office account.
• Surveyor Fees - payments received for fees due to the RICS member or RICS-regulated firm against a bill or written notification of costs incurred, which has been given or sent
• Disbursements - disbursements already paid or disbursements incurred but not yet paid by the RICS member or RICS-regulated firm
• Advanced Payments for Surveying Services - money paid in advance in respect of an agreed fee for surveying services (but not property agent work in England).

Question 22

Mixed monies - What are some examples of Client money?

Answer 22

• a payment on account of costs generally
• rents and service charges
• interest credited to a client account (unless the firm retains interest by agreement)
• arbitration fees
• client money held but due to be paid to contractors
• auction sale proceeds where the firm is acting as an agent not as a principal
• commission received on the placement of insurance for members of the designated professional body scheme for general insurance distribution activity where the client has not given the RICS member or RICS-regulated firm informed consent to retain the commission.

Question 23

What are the requirements for RICS regulated firms, with respect to ‘Accounting records and controls’?

Answer 23

• Records and accounts - keep records and accounts that show all dealings with the client money and demonstrate that all client money held by the firm is held in a client money account.
• Measures ensure compliance with agreement - have appropriate systems, procedures and controls to ensure payments into and transfers or withdrawals from a client account are in accordance with instructions agreed with the client.
• Reconciliations - complete regular client bank account reconciliations and demonstrate that these are reviewed by a principal or senior staff member of the RICS-regulated firm.
• Publish procedures - publish written procedures for handling client money on the firm’s website (if any), and provide a copy of these to RICS or to any person who may reasonably require a copy free of charge.
• Avoidance of overdrawn balance - ensure that overdrawn balances are prevented by the firm’s systems and controls, and if these do occur investigate and rectify them immediately.
• Firewall - control and protect accounting systems and client data and adequately protect computer systems for access, firewalls, back-ups and disaster recovery.

Question 24

What is Reconciliation?

Answer 24

Formally documents the agreement of the bank statement balance to the total of client money held recorded by the cash book balance.

N.B. For the general client account, to the total of the individual client balances as recorded by the client ledger.

Explanation should be set out for any differences!

Question 25

What are 'Reconciling items'?

Answer 25

**Receipts and payments recorded in the cash book that have not yet cleared the client bank account**, usually: 1. unpresented cheques and outstanding deposits 2. items that have appeared on the bank statements but are not yet recorded in the client accounting records such as unidentified client money or... 3. items recorded in the cash book and not yet entered into the client ledgers.

Question 26

What are the requirements for RICS regulated firms, with respect to 'Compliance'?

Answer 26

* **Anti-money Laundering (Legislation)** - _compliance with all anti-money laundering legislation,_ rules and regulations for all receipts of client money. * **Anti-money Laundering (RICS PS)** - _compliance_ with the mandatory requirements of the latest edition of the _RICS professional statement_ Countering bribery and corruption, money laundering and terrorist financing. Statutory * **Compliance and Certification** - obtain any _certification required under legislation currently in force_ and _follow any requirements in the legislation for display or publication._ * **Breach remediation** - breach of these requirements is _investigated_ and _remedied promptly on discovery_, including the replacement of any money improperly withheld or withdrawn from a client account. * **Record** - _Record any breach_ of the _mandatory requirements of this professional statement in writing in sufficient detail_ including any consideration of whether to inform RICS and any client affected by the breach. * **Misappropriation** - inform RICS, the client and the insurers of the RICS-regulated firm immediately if client money is misappropriated by any person.

Question 27

What are the requirements for RICS Members in relation to Client Money Handling?

Answer 27

* **Anti-money Laundering (Legislation) -** _compliance with all anti-money laundering legislation, rules and regulations_ for all receipts of client money. * **Anti-money Laundering (RICS PS)** - ensure _compliance with the mandatory requirements of the latest edition of the RICS professional statement_ Countering bribery and corruption, money laundering and terrorist financing. * **Comply with firm procedures** - _follow all procedures for handling client money at the firm where they work._ * **Comply with firm procedures** - _do not override any controls in place_ to protect client money. * **Disclose** - _make appropriate disclosures to a senior member of the firm or a regulator immediately if they become aware of any risk_ _of or actual misappropriation_ of client money and to _keep a written record of that disclosure._

Question 28

What would be your approach for paying fees using office monies, on behalf of your client?

Answer 28

Where the firm places office money into a client money account to fund a payment on behalf of a client, the advance sum becomes client money on payment into the client account. It can only be repaid to the firm when funds are received from or on behalf of the client to enable the repayment.

Question 29

How are charges and interest levied in respect of a general client account dealt with?

Answer 29

The should not be debited from the client account. They should be debited from the office account.

Question 30

How should interest payable for monies held be dealt with?

Answer 30

They should be credited into the client account.

Question 31

If your firm charges commission on payments made to contractors, how should this be approached?

Answer 31

The commission charges should be easily identifiable on statements to clients, to ensure they are fully aware of the total commissions transferred from the client bank accounts.

Question 32

If a member or regulated firm acts for a principal and their spouse, who is not jointly a partner in the practice, how is any money received on their behalf classified?

Answer 32

Any money received on their joint behalf is client money because the transaction is on behalf of a principal and a third party.

Question 33

If an RICS member or RICS-regulated firm conducts a personal or office transaction for a principal (or principals), how is money held or received classified?

Answer 33

Office money

Question 34

What is a LPA receiver?

Answer 34

The Law of Property Act 1925 (LPA) details the rights and responsibilities of lenders and borrowers who use property as collateral or security for a loan. If terms of the loan are breached, the act sets out options for lenders to take to recover the loan and ‘LPA receivers’ can be appointed to deal with the case. - Takes liability away from the lender - Manages the efficient sale and management of the property to recover debts

Question 35

What powers do LPA recievers have, with respect to client money?

Answer 35

Monies held by an LPA receiver will usually be placed in a discrete receivership account in the name of the receiver and will not therefore be client money held by the firm. The LPA receiver will have personal responsibility for the security of this money. However, the LPA receiver may choose to pay money into a firm’s client account. It will then be client money, but the LPA receiver will have the rights of a client to give instructions to the firm.

Question 36

How can misdirected electronic payments from a client or paying third party be prevented / managed?

Answer 36

Through ensuring: * **Systems** - appropriate systems to ensure compliance * **Instructions** - appropriate instructions were given to the client or paying third party and * **Prompt Remediation** - the client's or paying third party's mistake is remedied promptly on discovery and appropriate steps taken to avoid future errors by the client or paying third party.

Question 37

How should a firm / member deal with client money received, but the source cannot be identified?

Answer 37

The firm should have a detailed listing of unidentified funds that includes: the date the monies were received; how they were received, i.e. cash, cheque, direct banking; the reference on the bank statement regarding the payer and the amount. The firm should carry out an investigation into the unidentified funds, which should include: * checking the accounting records to see whether they have outstanding rental income/service charges/ground rents and checking to see whether any of the unidentified funds tie up with outstanding debts and target those tenants/ leaseholders * writing to the last known address of the client/tenants or engaging a firm to follow-up the addresses to find the clients/tenants and... * trying to repay the funds through the banking system wherever possible The firm should keep a record of their investigation including evidence of the steps above and, if relevant, evidence that the funds were banked directly into the client account without any details.

Question 38

If the source of unidentified funds paid into the client account cannot be determined, what should be done?

Answer 38

The firm should take all reasonable steps to identify the owner or payee of the funds as soon as possible. If identification or repayment has not been possible within three years of receipt and the firm has paid the money to a charity, the firm will remain responsible for ensuring that client money is repaid but can use the indemnity to seek reimbursement from the charity.

Question 39

If money is transferred into a client account as an error (e.g. money paid into the wrong discrete client account or interest wrongly credited to a general client account), how should this matter be approached?

Answer 39

The monies should be withdrawn or transferred from the client account promptly on discovery.

Question 40

If the purpose for which particular funds are held falls away, what should be done with the client monies?

Answer 40

The management agreement or account handling terms agreed with the client should state what should happen to client funds at all points including the completion of the instruction. If the agreement is not clear about this situation, the RICS-regulated firm should take instructions on whether the money should be returned to the client or retained to cover any aspects of further work.

Question 41

Does the client require prior notification for payment of agreed fees?

Answer 41

If a firm’s terms of engagement include information about when and how fees will be paid, the firm should provide written confirmation to the client of the amount being transferred. This should be done before agreed fees are paid from the client account unless there has been a written agreement by the client for agreed fees being deducted without prior notification being provided.

Question 42

What should accounting records include?

Answer 42

* Accounting records should include a cash book detailing all payments and receipts with a running balance for all client money accounts held. * For general client money accounts, the records should also include a client ledger detailing all receipts and payments held for each specific client. * All ledgers should include the client name and an appropriate description, e.g. the property address.

Question 43

How and when should accounts be completed?

Answer 43

Accounting records should be completed chronologically and promptly. The current balances at the total and individual client levels should always be available.

Question 44

What should remain on file?

Answer 44

RICS-regulated firms should retain copies of client money account bank statements, copies of reconciliations and supporting documents relevant to the transactions in the client money accounts.

Question 45

How long do the accounting records need to remain on file?

Answer 45

It is suggested that these are retained for at least six years, but firms should check whether there are requirements in case law, leases or professional standards requiring records to be kept for longer periods.