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Opening Client Money Accounts: A Full Guide

Managing client funds is not only a matter of trust but also a highly regulated activity. Only a select group of firms have the authorization to handle customer money, reflecting the potential value and risk associated with this responsibility.

 

This guide will delve into the intricacies of opening and managing client money accounts, ensuring compliance with regulatory standards and leveraging technology for efficient operations.

 

 

Understanding The Landscape

 

Client money handling is a privilege granted to specific categories of regulated firms, underpinned by stringent guidelines to ensure the protection of customer interests. The primary entities authorized to manage client funds include:

 

- Banks: Banks stand out because they can take deposits directly from customers. These deposits go beyond mere storage; they empower banks to lend these funds, facilitating a marketplace of lenders and borrowers. This core function underscores the societal importance of banks, enabling a dynamic financial ecosystem.

 

- Electronic Money Institutions (EMIs) and Payments Institutions (PIs): These entities resemble banks in their ability to hold customer funds. However, their operations are distinctly limited. EMIs issue e-money against customer funds, while PIs focus on executing payments. Importantly, neither can lend out customer money nor offer interest on these holdings. A safeguarding account at a bank is mandatory for these firms to segregate customer funds from operational finances.

 

- Other Regulated Firms: A wide array of companies, including investment firms, brokers, insurance companies, remittance firms, fall under this category. They are governed by the local regulatory body, for example FCA in the UK,  which outlines the regulations for handling client money.

 

 

Choosing The Right Banking Partner

 

Selecting an appropriate banking partner is critical for firms handling client money. This decision impacts operational efficiency, compliance and ultimately, the client experience. Factors to consider:

 

- Ease Of Opening New Accounts: The process should be streamlined to avoid delays, which can affect client satisfaction and operational efficiency. Many banking providers allow clients to open currency sub-accounts, issuing new vIBANs for each currency. This process is quick and efficient, allowing the client to expand operations into new markets requiring additional currencies.

- Reconciliation Processes: Automated solutions reduce the risk of errors in reconciling firm records with bank balances.

- Record-Keeping Capabilities: Advanced systems that offer real-time access to transaction history and account states can significantly ease the burden of compliance, allowing firms to focus on their core activities.

- Technology: By integrating accounting systems with banking APIs, firms can automate the reconciliation process, reducing errors and enhancing efficiency. Furthermore, event-based architecture provides an efficient way to access transaction history and account information, streamlining record-keeping practices.

 

If you would like to get an up to date list of banking provers that can open client money accounts, get in touch with us and we will send it by email.

 

 

Onboarding For Client Money Account - Common Steps

 

The onboarding process for Client Money Accounts involves a pack of documents to ensure compliance and secure client funds. This pack should include the Certificate of Registration or Incorporation, Memorandum and Articles of Association, a list of UBOs and directors, and POI for all UBOs and authorized signatories, ideally with a selfie for verification.

 

Additionally, a recent proof of business address, the firm’s licence number, recent audited accounts, and a business bank statement are required.

 

The documentation must also cover AML/KYC/CDD policies or a Wolfsberg’s Questionnaire, and either the latest external AML audit report or a commitment to conduct an audit within three months of account approval, with potential annual audits thereafter. Management's approach to AML governance, sample CDD files, and customer risk assessment data are reviewed to gauge risk management.

 

It’s crucial to disclose the account's purpose, expected volumes, and currencies accurately, as this information can affect service terms and costs. This concise approach to onboarding facilitates a transparent and effective partnership with banks, ensuring regulatory compliance and fund security.

 

 Conclusion

 

Opening and managing client money accounts is a complex but critical process for firms authorized to handle client funds.

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