Client money
Client money acknowledgement letter
Q1 : Are there specific terms and conditions which should be included in the agreement between an associated entity of a Platform Operator and authorized financial institutions (AFIs) with respect to current or deposit bank accounts that are segregated accounts (referred to as “Client Bank Accounts”)?
(Key references: Paragraph 10.11 of the VATP Guidelines)
Q2 :
With reference to clause (f) of the client asset acknowledgement letter template, can account-level charges be deducted from Client Bank Accounts?
Q3 :
Is a Platform Operator (and its associated entity) required to procure client asset acknowledgment letters for overseas accounts which hold client monies?
No. However, the Platform Operator and its associated entity should perform due diligence to assess and ensure that client monies held overseas are adequately protected by the relevant rules and regulations in the corresponding jurisdiction.
The Platform Operator and its associated entity are reminded of their regulatory obligations to ensure that client monies are adequately safeguarded, pursuant to paragraph 10.2 of the VATP Guidelines.
(Key references: Paragraph 10.2 of the VATP Guidelines)
Operation of bank accounts
Q4 :
What is the standard of conduct expected of the senior management of a Platform Operator (and its associated entity) in relation to the operation of bank accounts?
A Platform Operator’s senior management should designate at least one responsible officer (RO) or manager-in-charge (MIC)1 to be responsible for each of the following areas2 (designated ROs or MICs), in addition to fulfilling its existing regulatory obligations to develop proper governance practices3 and implement effective internal controls4:
(a) adequately safeguard client assets5;
(b) promptly discharge settlement obligations to trading counterparties;
(c) ensure the availability of the financial resources needed for the proper performance of the Platform Operator’s (and its associated entity’s) business activities6; and
(d) fully comply with the financial resources requirements under the VATP Guidelines at all times.
The allocation of responsibilities to each designated RO and MIC should be specified in writing.
The Platform Operator’s board of directors should delegate sufficient authority to the designated ROs or MICs and empower them to:
(i) implement and operationalise policies, procedures and internal controls they consider necessary to prevent any act or omission which may adversely affect the Platform Operator’s (and its associated entity’s) compliance with regulatory obligations for each area in paragraphs (a) to (d)7 above, including for the operation of bank accounts; and
(ii) ensure that all authorised signers are subject to proper oversight and accountability with respect to the operation of the Platform Operator’s (and its associated entity’s) bank accounts.
The designated ROs or MICs responsible for each area in paragraphs (a) to (d) above should also have timely and effective access (by himself / herself, or through his / her delegate) to all information about the operation and activities of the Platform Operator’s (and its associated entity’s) house bank accounts and Client Bank Accounts, which is necessary for them to properly manage the risks associated with safeguarding client assets, ensuring the adequacy of financial resources or fully complying with the financial resources requirements under the VATP Guidelines at all times, according to their designated responsibilities.
(Key references: Paragraphs 10.2 and 10.3 of the VATP Guidelines)
Q5 :
Who should be the authorised signers for the house bank accounts and Client Bank Accounts of a Platform Operator and its associated entity?
The SFC does not mandate any particular organisational or governance structure for Platform Operators and their associated entities. However, in the ordinary course of business, the shareholders of the Platform Operator and its associated entity (in such capacity) or their nominees are not expected to conduct day-to-day operations related to the Platform Operator’s or its associated entity’s Relevant Activities8, unless they are accountable to the ROs or MICs in respect of such daily operations. The SFC expects that the authorised signers9 for effecting any form of payments out of a Platform Operator’s or its associated entity’s house bank accounts should be:
(a) RO(s), MIC(s) or his / her delegate(s)10; or
(b) Any other person(s), provided that such person(s) can only effect payment jointly11 with RO(s), MIC(s) or his / her delegate(s).
Additionally, the SFC does not see a need to enable persons not involved in the day-to-day management of the Platform Operator’s or its associated entity’s Relevant Activities to operate the associated entity’s Client Bank Accounts. To enhance the protection of client money, the SFC expects that the authorised signers for effecting any form of payments out of an associated entity’s Client Bank Accounts should only be RO(s), MIC(s) or his / her delegate(s).
The Platform Operator and its associated entity should also consider the need to require two or more authorised signatures for house bank accounts and Client Bank Accounts.
All authorised signers should adhere to the governance framework established by the Platform Operator’s senior management and comply with the policies, procedures and internal controls implemented by the designated ROs or MICs. The designated ROs or MICs should also have the authority to hold each authorised signer to account12 for any operation of the Platform Operator’s or its associated entity’s bank accounts which is not consistent with these policies, procedures and internal controls13.
(Key references: Paragraphs 10.2 and 10.3 of the VATP Guidelines)
Q6 :
Who would be considered as a delegate of an RO or MIC (as referred to under FAQ 5 above)?
Whether a person is a delegate of an RO or MIC is a matter of fact, and depends on, for example, whether that person reports or is accountable to the RO or MIC and whether the RO or MIC has the actual authority to direct, and sufficient oversight of, that person’s actions14.
For example, a delegate of an RO or MIC may be:
(a) Staff of the Platform Operator or its associated entity;
(b) Staff of the Platform Operator’s group companies, where the Platform Operator is part of a global group with different functions in different jurisdictions, and the Platform Operator delegates the operation of its and its associated entity’s house bank accounts to effect payments on its behalf to (i) a centralised finance function at its parent company; or (ii) certain business or functional staff within its group affiliates; or
(c) A payment processing agent which processes payments necessary for the Platform Operator’s or its associated entity’s ongoing operations in the normal course of business under an arm’s length outsourcing arrangement.
Where delegates are authorised to operate a Platform Operator’s or an associated entity’s bank accounts, the designated ROs or MICs should ensure that effective policies, procedures and internal controls are in place and they ultimately have sufficient oversight over the operation of these bank accounts to effectively discharge their supervisory and regulatory responsibilities in relation to each area under (a) to (d) of FAQ 4 above.
Q7 :
Are there any specific requirements governing the use of online banking accounts?
For access control purposes, where the Platform Operator or its associate entity has online banking accounts (whether house bank accounts or Client Bank accounts), each user’s access credentials (eg, user name and passwords) should be unique and should not be disclosed to another person, such that each user who has accessed the bank account and effected transactions can be uniquely identified, and unauthorised transactions can be detected.
(Key references: Paragraph 10.3 of the VATP Guideline)
1 The responsibility for each area in paragraphs (a) to (d) can be allocated to different ROs or MICs.
2 Paragraph 5.1(k) of the VATP Guidelines. Although there are no restrictions on which ROs or MICs can be designated as responsible for each area in paragraphs (a) to (d), Platform Operators are recommended to review the FAQs on Measures for Augmenting Senior Management Accountability in Platform Operators issued on 31 May 2023 to determine the most appropriate persons. For example, given that the MIC of Finance and Accounting is expected to be responsible for ensuring the timely and accurate financial reporting and analyses of the Platform Operator's operational and financial positions, Platform Operators may consider if it is appropriate to designate that MIC to be responsible for paragraph (d).
3 Paragraph 11.1 of the VATP Guidelines.
4 Paragraph 11.10 of the VATP Guidelines.
5 Paragraph 10.2 of the VATP Guidelines.
6 Paragraph 5.1(c) of the VATP Guidelines.
7 For example, the RO or MIC designated to be responsible for paragraph (c) to ensure the availability of the financial resources needed for the proper performance of the Platform Operator’s (and its associated entity’s) business activities should have authority to access the Platform Operator’s liquid capital budget and forecast, such that he possesses the necessary, pertinent information to make informed decisions about the Platform Operator’s (and its associated entity’s) business activities. He should be empowered to direct or procure the orderly wind down of the Platform Operator’s (and its associated entity’s) Relevant Activities if, after taking the relevant steps within his power (such as escalating the issue of insufficient liquid capital to the board of directors and shareholder(s)), he considers that it is uncertain whether the Platform Operator’s liquid capital will be sufficient for the continuation of the Platform Operator’s (and its associated entity’s) Relevant Activities as a going concern.
8 “Relevant activities” has the meaning specified in Part I of the VATP Guidelines.
9 For the purposes of these FAQs, authorised signers include not only wet ink signers but also any person who is able, on behalf of the Platform Operator (and its associated entity), to instruct or authorise the bank to make any payment from the Platform Operator’s (and its associated entity’s) bank account via any means, including but not limited to online banking, any form of electronic payment, standing instruction or the set-up of direct debit arrangement.
10 Sub-delegation is permitted. It is up to the delegating RO or MIC to design the delegation arrangements.
11 A Platform Operator and its associated entity may choose to implement this joint signatory approach using group A / B signer arrangements, whereby group A may include any persons and group B only comprises ROs, MICs or their delegates.
12 To be clear, the SFC does not require that all authorised signers be only accountable to the designated ROs or MICs.
13 Under section 11.15 of the VATP Guidelines, a Platform Operator should implement and maintain measures appropriate to ensure its and its associated entity’s compliance with the Platform Operator’s and its associated entity’s internal policies and procedures.
14 For example, depending on the actual facts of the specific case, a person whose instructions are expected to be acted upon by the RO or MIC in the normal course of the Platform Operator’s (and its associated entity’s) business may not constitute a delegate of the RO or MIC.
2 Paragraph 5.1(k) of the VATP Guidelines. Although there are no restrictions on which ROs or MICs can be designated as responsible for each area in paragraphs (a) to (d), Platform Operators are recommended to review the FAQs on Measures for Augmenting Senior Management Accountability in Platform Operators issued on 31 May 2023 to determine the most appropriate persons. For example, given that the MIC of Finance and Accounting is expected to be responsible for ensuring the timely and accurate financial reporting and analyses of the Platform Operator's operational and financial positions, Platform Operators may consider if it is appropriate to designate that MIC to be responsible for paragraph (d).
3 Paragraph 11.1 of the VATP Guidelines.
4 Paragraph 11.10 of the VATP Guidelines.
5 Paragraph 10.2 of the VATP Guidelines.
6 Paragraph 5.1(c) of the VATP Guidelines.
7 For example, the RO or MIC designated to be responsible for paragraph (c) to ensure the availability of the financial resources needed for the proper performance of the Platform Operator’s (and its associated entity’s) business activities should have authority to access the Platform Operator’s liquid capital budget and forecast, such that he possesses the necessary, pertinent information to make informed decisions about the Platform Operator’s (and its associated entity’s) business activities. He should be empowered to direct or procure the orderly wind down of the Platform Operator’s (and its associated entity’s) Relevant Activities if, after taking the relevant steps within his power (such as escalating the issue of insufficient liquid capital to the board of directors and shareholder(s)), he considers that it is uncertain whether the Platform Operator’s liquid capital will be sufficient for the continuation of the Platform Operator’s (and its associated entity’s) Relevant Activities as a going concern.
8 “Relevant activities” has the meaning specified in Part I of the VATP Guidelines.
9 For the purposes of these FAQs, authorised signers include not only wet ink signers but also any person who is able, on behalf of the Platform Operator (and its associated entity), to instruct or authorise the bank to make any payment from the Platform Operator’s (and its associated entity’s) bank account via any means, including but not limited to online banking, any form of electronic payment, standing instruction or the set-up of direct debit arrangement.
10 Sub-delegation is permitted. It is up to the delegating RO or MIC to design the delegation arrangements.
11 A Platform Operator and its associated entity may choose to implement this joint signatory approach using group A / B signer arrangements, whereby group A may include any persons and group B only comprises ROs, MICs or their delegates.
12 To be clear, the SFC does not require that all authorised signers be only accountable to the designated ROs or MICs.
13 Under section 11.15 of the VATP Guidelines, a Platform Operator should implement and maintain measures appropriate to ensure its and its associated entity’s compliance with the Platform Operator’s and its associated entity’s internal policies and procedures.
14 For example, depending on the actual facts of the specific case, a person whose instructions are expected to be acted upon by the RO or MIC in the normal course of the Platform Operator’s (and its associated entity’s) business may not constitute a delegate of the RO or MIC.
Last update: 31 May 2023