IEIM401940 - Financial Accounts: Wealth Management, Fully Disclosed Clearing and Settlement

Financial Accounts: Wealth Management, Fully Disclosed Clearing and Settlement

Where wealth management services are provided it is common for Financial Institutions to enter into arrangements designed to facilitate the clearing and settlement of security transactions utilising a third party provider’s ‘IT’ systems, specifically those that interface with the international securities settlement and clearing systems (clearing firms).

A tri-partite relationship between the underlying customer, the broker/wealth manager and the clearing firm is created, by virtue of the fact that the broker has entered into a fully disclosed clearing relationship with the clearing firm on its own behalf, and is also acting as the agent of its underlying client.

Where a broker/wealth manager has opened an account (or sub-accounts) with the clearing firm in the name of its underlying client, and fulfils all verification, due diligence and reporting requirements on them, then the financial accounts remain the responsibility of the broker/wealth manager and not the clearing firm.

The broker/wealth manager may appoint the clearing firm as a service provider to undertake the reporting on its behalf.

The broker/wealth manager will be the client of the clearing house. Where the clearing house is a Reporting Financial Institution it is the broker/wealth manager that is the person for which it maintains a financial account and will undertake reporting and classification accordingly.

The term broker/wealth manager in respect of fully disclosed clearing and settlement would include any Financial Institution who acts on behalf of the underlying investor in respect of executing, placing or transmitting orders and would therefore include financial advisers if their business is more than simply advisory.