Part IV – Client Money Rules
Application and Interpretation
1. Client Money means all money held or controlled by a VASP on behalf of a client in the course of, or in connection with, the carrying on of any VA Activity, except for—
a. money which is immediately due and payable to a VASP for the VASP’s own account, such as fees for services provided to a client; b. amounts payable by the VASP for expenses incurred on behalf of the client; and c. other charges that are due and payable to the VASP.
2. Client Money does not include any Virtual Assets held by a VASP on behalf of a client. 3. Client Money is held or controlled by a VASP if it is—
a. directly held by the VASP; b. held in an account in the name of the VASP; or c. held by an Entity, or in an account in the name of an Entity, controlled by the VASP.
4. Client Account means an account at a Third-Party Bank which—
a. holds or is established to hold the Client Money of one or more clients; and b. is maintained in the name of the VASP.
5. Third-Party Bank means the bank with which a Client Account is maintained.
A. Treatment of Client Money
1. VASPs must have in place the necessary policies, systems and controls, appropriate to the nature and scale of their operations, to ensure compliance with this Part IV of this Compliance and Risk Management Rulebook. 2. VASPs holding Client Money must hold it on trust for their clients in a Client Account. 3. All Client Accounts must include the words “Client Account” in their title. 4. VASPs must have systems and controls to ensure that the Client Money is identifiable and secure at all times. 5. Where a VASP holds or controls Client Money it must ensure—
a. except where otherwise provided in Rule IV.A.6 of this Compliance and Risk Management Rulebook, that the Client Money is paid into a Client Account within one [1] calendar day of receipt; b. Client Money held or controlled on behalf of clients in the UAE is paid into Client Accounts maintained with Third-Party Banks in the UAE; and c. Client Money held or controlled on behalf of clients outside of the UAE may be deposited into Client Accounts with Third-Party Banks outside of the UAE but must be moved to, and maintained with, Third-Party Banks in the UAE and VASPs must initiate such moves within twenty-four [24] hours of receipt.
6. The requirement for a VASP to pay Client Money into a Client Account does not, subject to Rule IV.A.7 of this Compliance and Risk Management Rulebook, apply with respect to such Client Money—
a. temporarily held by the VASP before forwarding to an Entity nominated by the client; b. in connection with a delivery versus payment transaction where—
i. in respect of a client purchase, Client Money from the client will be due to the VASP within one [1] calendar day upon the fulfilment of a delivery obligation; or ii. in respect of a client sale, Client Money will be due to the client within one [1] calendar day following the client’s fulfilment of a delivery obligation; or iii. held in the client’s own name where the VASP has a mandate to manage the Client Money on a discretionary basis.
7. VASPs must pay Client Money of the type described in Rule IV.A.6.b of this Compliance and Risk Management Rulebook into a Client Account where they have not fulfilled their delivery or payment obligation within three [3] calendar days of receipt of the Client Money. 8. VASPs must maintain adequate records of all payments of Client Money received including, in respect of each payment, the—
a. date of receipt; b. name and unique identifier of the client for whom payment is to be credited; c. name of the Entity who made the payment; d. transaction identifier and/or reference; and e. date when the payment was presented to the VASP’s Third-Party Bank.
9. Payment into Client Accounts.
a. VASPs must maintain systems and controls for identifying money which must not be in a Client Account and for transferring it without delay. b. VASPs must not hold or deposit their own money into a Client Account, except where—
i. it is a minimum sum required to open the account, or to keep it open; ii. the money is received by way of mixed remittance, provided the VASP transfers out that part of the payment which is not Client Money within one [1] calendar day of the day on which the VASP would normally expect the remittance to be cleared; iii. interest credited to the account exceeds the amount payable to clients, as applicable, provided that the money is removed within twenty [20] calendar days; or iv. it is to meet a temporary shortfall in Client Money.
10. Payment out of Client Accounts.
a. VASPs must have procedures for ensuring all withdrawals from a Client Account are authorised. b. Client Money must remain in a Client Account until it is—
i. due and payable to the VASP; ii. paid to the client on whose behalf the Client Money is held; iii. paid in accordance with a client’s instruction on whose behalf the Client Money is held; iv. required to meet the payment obligations of the client on whose behalf the Client Money is held; or v. paid out in circumstances that are otherwise authorised by VARA.
c. VASPs must not use Client Money belonging to one client to satisfy an obligation owed to another client, nor for any other obligation owed to other Entities [including but not limited to for liquidity, capital ratios or their own balance sheet purposes].
d. VASPs must have a system for ensuring no off-setting or debit balances occur in Client Accounts.
B. Third-Party Bank
1. VASPs may only maintain Client Accounts at Third-Party Banks appropriately and validly authorised to accept or take deposits in accordance with applicable laws and regulatory requirements in the relevant jurisdiction and which must not be in the same Group as the VASP. 2. Payment of Client Money to a Third-Party Bank.
a. VASPs may only pass, or permit to be passed, Client Money to a Third-Party Bank if—
i. the Client Money is to be used in respect of a transaction or series or transactions for that client; and ii. the Third-Party Bank is appropriately and validly authorised to accept or take deposits in accordance with applicable laws and regulatory requirements in its relevant jurisdiction as per Rule IV.B.1 of this Compliance and Risk Management Rulebook.
3. When a VASP opens a Client Account with a Third-Party Bank it must promptly obtain a written acknowledgement from the Third-Party Bank stating that—
a. all money standing to the credit of the account is held by the VASP as agent and that the Third-Party Bank is not entitled to combine the account with any other account or to exercise any charge, mortgage, lien, right of set-off or counterclaim against money in that account in respect of any sum owed to it on any other account of the VASP; and b. the title of the account sufficiently distinguishes that account from any account containing money that belongs to the VASP, and is in the form requested by the VASP.
4. If the Third-Party Bank does not promptly provide the acknowledgement referred to in Rule IV.B.3 of this Compliance and Risk Management Rulebook, the VASP must refrain from making further deposits of Client Money with that Third-Party Bank and withdraw any Client Money in that Client Account.
C. Disclosure, Reporting and Audit Requirements
1. Proper record keeping.
a. VASPs shall keep proper and up-to-date records regarding—
i. the receipt and payment of Client Money and in and out of Client Accounts; and ii. movements of Client Money within internal systems to enable the reconciliation of any differences in balances or positions of Client Money.
b. VASPs shall have appropriate procedures for identifying Client Money received. The procedures should cover Client Money received through all means, including electronically or via agents of the VASP [e.g. banks, payment processors]. c. VASPs may be requested to demonstrate evidence of above records upon VARA’s request.
2. Client reporting.
a. VASPs must send or otherwise make available a statement to clients at least monthly, or as agreed with the client, which shall include—
i. the client’s total Client Money balances held by the VASP; ii. the amount, date and value of each credit and debit paid into and out of the account since the previous statement; and iii. any interest earned or charged on the Client Account since the previous statement.
b. The statement sent to the client must be prepared within twenty-five [25] calendar days of the statement date.
D. Reconciliation
1. VASPs must maintain a system to ensure that accurate reconciliations of the Client Accounts are carried out daily. The reconciliation must include—
a. a full list of individual client credit ledger balances, as recorded by the VASP; b. a full list of individual client debit ledger balances, as recorded by the VASP; c. a full list of outstanding lodgements; d. a full list of Client Account cash book balances; and e. formal statements from Third-Party Banks showing account balances as at the date of reconciliation.
2. VASPs must—
a. reconcile the individual credit ledger balances, Client Account cash book balances, and the Third-Party Bank Client Account balances; b. check that the balance in the Client Accounts as at the close of business on the previous day was at least equal to the aggregate balance of individual credit ledger balances as at the close of business on the previous day; and c. ensure that all shortfalls, excess balances and unresolved differences, other than differences arising solely as a result of timing differences between the accounting systems of the Third-Party Bank and the VASP, are investigated and, where applicable, corrective action taken as soon as possible, including where necessary using the VASP’s own funds.
3. VASPs must perform the reconciliations in Rule IV.D.2 of this Compliance and Risk Management Rulebook on a daily basis. 4. VASPs must ensure that the process of reconciliation does not give rise to a conflict of interest. 5. VASPs must notify VARA where there has been a material discrepancy with the reconciliation which has not been rectified.
E. Failure to Comply
1. VASPs which become aware that they do not comply with any Rules in this Part IV of this Compliance and Risk Management Rulebook must notify VARA in writing of any such non-compliance within one [1] calendar day. 2. Failure to comply with any Rules in this Part IV of this Compliance and Risk Management Rulebook may result in VARA taking appropriate enforcement action[s] as it deems fit and the VASP must comply with all corrective action[s] as instructed by VARA.