Client money

Designation of segregated account

Q1 : Must a segregated account be called “trust account” or “client account”?

A: Preferably but not necessarily. Any designation that sufficiently identifies, signifies or characterises the account as a client account or trust account would be acceptable.

(Key references: Paragraph 10.11(a) of the VATP Guidelines)

Segregation of client money

Q2 : Would it be necessary to segregate unknown receipts within one business day of receipt?

A: As a matter of policy, unknown receipts in the bank account of the Platform Operator or associated entity would normally not be treated as receipt of client money except where there is evidence to the contrary. Platform Operators (and their associated entities) are expected to have adequate internal controls and procedures enabling them to take reasonable steps to track client deposits and reconcile unknown receipts promptly.

(Key references: Paragraphs 10.11(b) and 10.16 of the VATP Guidelines)

Q3 : Client money may be received after banking hours through bank transfer or otherwise, the Platform Operator or associated entity will face an extremely tight segregation schedule in order to comply with the requirements under the VATP Guidelines. Would such monies be treated as being received on the same day?

A: As a matter of policy, money received after banking hours would not normally be regarded as money received on that day. However, the circumstances in which the money is received will be taken into consideration in considering compliance with the VATP Guidelines.

(Key references: Paragraph 10.11(b) of the VATP Guidelines)

Q4 : If Platform Operators receive foreign currencies (for example, US dollars) from clients, are Platform Operators required to hold such client money in the same currency (ie, US dollars)?

A: Yes. Platform Operators are required to keep client money received in a foreign currency in segregated accounts in that same foreign currency.

(Key references: Paragraph 10.11 of the VATP Guidelines)

Q5 : What are the standards of conduct expected of Platform Operators if they hold client money received outside Hong Kong in segregated accounts maintained with overseas banks?

Platform Operators should establish and maintain policies and procedures to ensure the proper management of risks to which the Platform Operators and, if applicable, their clients are exposed. Amongst other things, Platform Operators should:

Evaluate and monitor the risks associated with their relationship with overseas counterparties, including:
- assessing the creditworthiness of the counterparties concerned;
- evaluating the counterparties’ capabilities in providing the services; and
- be alert to adverse changes in the prevailing market conditions that may increase the risks inherent in their relationship with the counterparties and to the risk of over reliance on a single counterparty; and
Subject to any instructions from clients, avoid placing excessive client money with overseas counterparties.

Platform Operators should also explain to their clients the risks associated with receiving and holding such client money outside Hong Kong as such assets may not be subject to the same protection as that conferred on client assets received or held in Hong Kong.

(Key references: Paragraph 10.11(b)(ii) of the VATP Guidelines)

House money in segregated accounts

Q6 : Can a Platform Operator or an associated entity’s own money be put into the segregated account to cushion situations where there is a delay in the remittance of settlement monies caused by the paying bank’s remittance errors or other unforeseen situation beyond the control of the Platform Operator or the associated entity?

A: Allowing a Platform Operator or its associated entity to commingle some buffer money (belonging to the Platform Operator or associated entity) with client money in a segregated account will undermine the objective of maintaining a segregated account which is to facilitate tracing to the money therein by clients in the event of the Platform Operator’s (or its associated entity’s) insolvency. If a Platform Operator (or its associated entity) becomes aware that it is holding an amount of money in a segregated account that is not client money, it is required to pay that amount of money out of the segregated account within one business day.

At any rate, if a Platform Operator wishes to complete the settlement of any transaction conducted on behalf of a client on time in spite of a shortage of cash funds in the segregated account attributable to settlement errors relating to other transactions, the Platform Operator could consider the alternative arrangement of drawing funds (or allowing funds to be drawn) from its house account as a backup measure so long as such action is not prohibited by other law, regulation or contractual obligation that the Platform Operator is subject to.

(Key references: Paragraphs 10.11 and 10.14 of the VATP Guidelines)

Payment of client money

Q7 : Is it necessary to obtain a client’s written direction or standing authority for payment of client money into the client’s designated bank account?

A: No.

(Key references: Paragraphs 10.11(d) and 10.15 of the VATP Guidelines)

Last update: 1 Mar 2024