Instruction No. 062/CREPMF/2020 on the Segregation of Funds and the Credit Balance Standard for Client Accounts of Management and Intermediation Companies (SGI)

West African Monetary Union

crepmf
Regional Council for Public Savings and
Financial Markets

INSTRUCTION No. 062/CREPMF/ 2020

RELATIVE TO THE SEGREGATION OF FUNDS AND THE CREDIT BALANCE STANDARD FOR CLIENT ACCOUNTS OF MANAGEMENT AND INTERMEDIATION COMPANIES (SGI) ON THE UMOA REGIONAL FINANCIAL MARKET

The Regional Council for Public Savings and Financial Markets

Having regard to the Convention of July 3, 1996 establishing the Regional Council for Public Savings and Financial Markets (hereinafter "Regional Council" or "CREPMF") and its Annex on the Composition, Organization, Operation and Powers of the Regional Council for Public Savings and Financial Markets;

Having regard to General Regulation No. 001/97 of November 28, 1997 relating to the Organization, Operation and Control of the regional financial market, particularly Articles 23, 37, 47, 48, 82, 140, 141, 142, 143 and 146;

Having regard to Regulation No. 9/2006/CM/UEMOA of June 29, 2006 adopting Specific Accounting Rules applicable to approved participants in the regional financial market;

Having regard to Decision No. CM/DAC/04/04/2017 of April 14, 2017 of the UMOA Council of Ministers appointing the President of the Regional Council;

Having regard to the deliberations of the Regional Council at its extraordinary 37th session on December 17, 2019;

DECIDES

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Instruction No. 062/CREPMF/2020

TITLE 1: STANDARD FOR THE SEGREGATION OF SGI CLIENT FUNDS

Article 1: Definitions
For the purposes of this Instruction, the following terms shall mean:

a) Segregation: The action of opening one or more accounts reserved for the funds of Management and Intermediation Companies (SGI) clients with a bank or another entity approved by the CREPMF, identified separately from any account used to hold funds belonging to the SGI, and placing the client funds therein.

b) Client: A term designating a set of clients and used in the context of the financial intermediary's activity. The client base may consist of individuals or professionals. A client is defined as a person receiving a financial service in exchange for the payment of a sum of money.

c) Segregated Account: An account opened in the books of a bank or any other entity approved by the CREPMF, in the name of an SGI's client base, intended to receive funds from clients and make payments on their behalf. It allows for a clear and distinct separation between client funds and funds belonging to the SGI.

d) Audit Trail: A set of internal procedures allowing operations to be reconstructed in chronological order, justifying any information with an original document from which it must be possible to trace back, through an uninterrupted path, to the summary document and vice versa, and to explain the evolution of balances from one accounting closing to the next, by preserving the movements affecting accounting items.

Article 2: Purpose
This Instruction aims to protect the interests of SGI clients through the segregation of third-party funds collected, by opening and maintaining segregation accounts in the books of a credit institution mentioned in Article 4. This operational separation of funds belonging to the SGI's client base serves to identify and protect third-party assets. The SGI must not use its clients' funds for purposes other than those for which they were entrusted to it.

Article 3: Scope
This Instruction applies to Management and Intermediation Companies (SGI) approved on the Regional Financial Market.

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Instruction No. 062/CREPMF/2020

Article 4: Obligation to segregate SGI client funds

SGIs holding funds from their clients must open one or more distinct and segregated current accounts to receive these funds. They must open the segregated accounts in the books of:

• a bank in the UMOA;
• any other entity approved by the CREPMF for the purpose of holding funds from their clients.

These accounts are designated as "SGI trust accounts" or "SGI client accounts".

SGIs are required to distinguish between client segregated accounts that are subject to a management mandate and other client segregated accounts.

Article 5: Operation of segregated accounts

Upon receipt of client funds, SGIs must ensure that they are, on the one hand, deposited into the segregated account and, on the other hand, allocated in their books to the account of the client for whom they were received.

SGIs are required, for any sum deposited into the segregated account, to implement all due diligence required by current regulations on the fight against money laundering and the financing of terrorism. They must inquire with the client, and/or by all other means, regarding the origin and destination of the funds, as well as the purpose of the operation and the identity of the economic actors in the operation that generated these funds.

For client segregated accounts, SGIs disburse funds according to the client's instructions or to settle financial transactions concluded by the latter.

Client segregated accounts under management mandate are managed in accordance with the management mandates concluded with their clients and the current regulatory provisions.

Segregated accounts may not:

• be part of a physical or notional account merger agreement;
• be in debit.

These rules do not apply to SGI client funds that are placed directly by the client in a bank account opened by them and held in their name.

Article 6: Treatment of interest generated by client funds held in segregated accounts

The SGI may segregate client funds in current trust accounts opened with a bank that remunerates the balance.

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Instruction No. 062/CREPMF/2020

In the case where the segregated funds belong to managed clients, the SGI is required to pay the generated interest to the managed clients proportionally to their assets that contributed to generating said interest.

Article 7: Prohibition on using client funds for netting and/or proprietary trading

SGIs are prohibited from using the credit balances of a given client to settle transactions, fees, and other debts owed by another client of the SGI. Similarly, SGIs are prohibited from using their clients' funds for proprietary trading and placements, the settlement of their debts, or the payment of other sums owed by them.

Article 8: Client account provisioning ratio

The ratio between the credit balance of client accounts and the provision to cover any operation to be performed must always be equal to or greater than 1.

TITLE 2: CREDIT BALANCE STANDARD FOR CLIENT ACCOUNTS

Article 9: Availability and exigibility of funds

Each client maintains a minimum credit balance in the cash account without activity at a level corresponding to account maintenance fees for a period of one (01) year.

As soon as a client's cash account has recorded no movements (deposit, transfer, investment activity, withdrawal or divestment, event on securities) for two (02) years, such that its balance reaches the required minimum, the SGI ceases to levy commissions (including the valuation commission due to the Central Depository/Settlement Bank (DC/SB) and the commission on assets in custody due to the CREPMF) and other charges on this account, with the exception of reasonable fees for sending, at least once a year, a statement of account.

When the account records movements again, the SGI collects the associated fees and commissions from the resumption of activity without retroactive collection, except for the collection of account maintenance fees for the two (02) year period due and unpaid.

Article 10: Determination of client credit balances

Client credit balances consist of the three (03) elements determined below:

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Instruction No. 062/CREPMF/2020

A. Gross Amount
Sums recorded on the liabilities side of the balance sheet in the name of the client base.

B. Elements to add
(+) Checks and values to be collected received from the client base as soon as they are available; (+) Amount of sales transactions on behalf of clients, pending settlement (amounts credited to the accounts of selling clients, on the transaction date, the corresponding funds of which will only be collected on the settlement date, i.e., T + 3); (+) Sums due to clients, not yet credited (amounts received by the SGI pending allocation to a client account). The SGI credits client accounts with dividends and interest from securities in custody at the latest two (2) days after payment by the Central Depository/Settlement Bank (DC/SB); (+) The provision to cover account maintenance fees for a period of two (2) years.

C. Elements to deduct
(-) Amount of purchase transactions on behalf of clients, pending settlement (amounts debited to the accounts of buying clients, on the transaction date, the corresponding funds of which are held by the brokerage companies until the settlement date); (-) Sums blocked as a provision in the case of a subscription or purchase of securities operation; (-) Commissions and other fees allocated to the account not yet debited.

TITLE 3: TRANSITIONAL AND FINAL PROVISIONS

Article 11: Transitional provisions

SGIs approved before the effective date of this Instruction have a maximum period of six (06) months from its date of signature to comply with its provisions. Beyond this date, proof of compliance with the obligations of this instruction must be available at any time.

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Instruction No. 062/CREPMF/2020

Article 12: Publication and entry into force

This Instruction, which will be published wherever necessary, repeals all prior and contrary provisions.

It enters into force as of its date of signature.

Made in Abidjan, on MAR. 20, 2020

For the Regional Council,
The President

Mamadou NDIAYE