Recommendation 2011-R-01 of January 26, 2011, on the management by credit institutions of client accounts held by condominium managers

Recommendation of the Prudential Control Authority regarding the management by credit institutions of client accounts held by condominium managers 2011-R-01 of January 26, 2011

The Prudential Control Authority (ACP) has identified practices within credit institutions that could endanger client interests in the management of accounts opened in the name of certain condominium managers. Consequently, pursuant to Article L. 612-30 of the Monetary and Financial Code, the ACP has warned these credit institutions against continuing these practices, which they have indicated they have ceased.

In this instance, these institutions acceded to requests from condominium managers, who held funds entrusted by condominium associations and deposited in client accounts, to freely dispose of these funds and transfer them to third-party credit institutions where they were supposed to be placed. These transfers were executed by debiting accounts known as "mirror" accounts, opened in the name of the managers, which were subject to merger agreements with the client accounts. Under these conditions, no debits appeared on the client accounts, even though the credit balances of these accounts could potentially be offset against the debit balances of the "mirror" accounts.

Such practices may result in funds deposited in the client accounts of managers in the name of condominium owners no longer being available for the allocation mandated by law, namely the payment of expenses for the said condominiums, whereas best practice requires ensuring the preservation of funds entrusted to managers and their availability within the institution.

Consequently, the ACP recommends, in accordance with point 3 of Section II of Article L. 612-1 and the second paragraph of Article L. 612-29-1 of the Monetary and Financial Code, to credit institutions that have in their books client accounts recording funds held by managers on behalf of condominium associations, not to accept that these funds can be transferred to other credit institutions and not to conclude merger agreements allowing the offsetting of credit balances of these accounts against debit balances of other accounts.