Ethics guidance

Third-party-managed accounts (TPMA)

Issued on 6 December 2017

Status

This document does not form part of the SRA Handbook. However, we may have regard to it when exercising our regulatory functions.

Who is this guidance relevant to?

This guidance is relevant to SRA authorised firms that are considering using a TPMA as an alternative to the use of a client account. A third-party-managed account (TPMA) can also be used alongside an existing client account.

Purpose of this guidance

This guidance sets out what firms should do when engaging a third party managed account third-party-managed account provider. It explains:

  • what steps you should take when you want to engage a TPMA provider
  • the type of TPMA you can use
  • what you should do to make sure your client understands how their money is being held
  • what you should tell us as your regulator.

Our expectations

We expect all firms and individuals regulated by us to comply with the Principles and Outcomes of the SRA Handbook.

Money held in a TPMA does not fall under the definition of client money in our Accounts Rules as it is not held or received by you. As such it does not have to be held in accordance with those rules. However, your conduct and how you engage with the client and TPMA provider are subject to our regulatory requirements. Principle 10 which sets out your obligation to protect client money and assets, is particularly relevant to firms wishing to use a TPMA. Also, in order to meet Principle 4 - the obligation to act in the best interests of each client, you will need to ensure that the use of a TPMA is appropriate in each individual case.

We set out in more detail below, how Principle 8 and outcomes 1.7, 1.12 and the Outcomes in Chapter 7 (management of your business) are engaged.

Checks you should do before engaging a TPMA provider

We expect you to make sure that the TPMA provider is regulated by the Financial Conduct Authority (FCA). The TPMA provider must be either:

  • an authorised payment institution, or
  • a small payment institution which has adopted voluntary safeguarding arrangements to the same level as an authorised payment institution.

Both arrangements mean that the TPMA provider is authorised and regulated by the FCA.

You can check the authorisation status of a potential provider by searching the Financial Services Register.

Engaging with the TPMA provider and client

You can enter into arrangements with a client to use a TPMA for receiving payments from or on behalf of, or making payments to or on behalf of, the client, provided:

  • use of the TPMA does not result in you receiving or holding the client's money
  • you take reasonable steps to make sure that the client is informed of and understands their rights and obligations and what the use of the TPMA means in their case, including whether they are required to authorise payments, and any charges or fees they are liable to pay
  • you obtain regular statements and ensure that these reflect the transactions on the account correctly, and make sure that the funds in the TPMA are only used for their designated purpose
  • you maintain an overview of the transactions on the account and keep appropriate records to reflect this.

What you need to tell your clients

To achieve Outcome 1.12 and Outcome 1.7, you need to make sure that you have taken reasonable steps to ensure that the client understands the arrangement, before the agreement is entered into. They should understand in particular:

  • how their money will be held and how the transaction will work
  • their right to terminate the agreement
  • their right to dispute payment requests made by you
  • who will be responsible for costs associated with the agreement
  • that the TPMA is regulated by the FCA and that complaints about the TPMA provider should be made to that provider in accordance with their complaints procedure.

Your systems and procedures

To achieve O(7) (management of your business) and principle 8, which requires you to run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles, you must have suitable arrangements in place for the implementation, use and monitoring of TPMAs. This includes having appropriate internal systems for monitoring the transactions on the account.

What you need to tell us

You do not need our permission to use a TPMA. However, we expect to be notified that you are using a TPMA. You can do this by filling out our TPMA form and emailing it to us.

The form asks you to provide the following information:

  • the name and SRA number of your firm
  • the name of the TPMA provider
  • the TPMA provider’s FCA authorisation number
  • the date on which you plan to start using a TPMA as part of your business.

We will update our records to show that you are using a TPMA. If you use the same TPMA provider for several clients, and plan to continue using the same provider with future clients, you only need to inform us the first time you use that TPMA provider.

If you choose to engage more than one TPMA provider, we expect to be notified of all the providers with whom you enter into an arrangement.

If you switch between TPMA providers, or stop using the one you have engaged with, we expect you to inform us, so we can update our records.

Further help

If you require further assistance with understanding your obligations, please contact the Professional Ethics Guidance Team.

Print page to PDF