Delivery versus payment exemption

milleniumaire

I've recently received a letter from one of the fund managers of one of my investments asking me to sign a letter which confirms that I'm okay with my money not having the same level of protection as if xxx had treated it as client money. "My money" is the proceeds of a sale (redemption proceeds) or a "subscription payment".

TBH, this sounds like something that doesn't benefit me in any way and allows the fund to avoid being responsible for my money so I don't see why I should sign it. Here is the full text, just in case my summary is incorrect:

"We agree that when we buy or sell Shares in a Sub-Fund, in accordance with an exemption to the FCA's Client Money Rules (the delivery versus payment exemption), xxx Fund Managers Limited is not required to treat our subscription payment or redemption proceeds as client money for the purposes of settling that transaction, provided that the money is used to subscribe for Shares (in the case of a subscription payment) or paid out to us (in the case of redemption proceeds) by the end of the Business Day following the day on which xxx received the money. In these circumstances, our subscription payment or redemption proceeds could be mixed with xxx's own money and will not have the same level of protection as if xxx had treated it as client money."

Am I correct in thinking if I sign this I will get less protection of my money or have I misunderstood the purpose of this letter?

Tom99

This is standard stuff common to all fund managers, normally you will just see a note in the T&C you are not asked to sign a specific letter. For a very short window of 1 business day whilst stock is bought/sold, you get less protection than client money would get.
Signing/not signing will not make any difference to the level of protection you get. I suspect the fund managers have a way of doing things and the letter is just dotting the i's and crossing the t's.:
Maybe to have client money protection the money needs to be in a client separate client account and, for whatever reason, that's not possible during this short buy/sell window.

This is an example from Axa T&C's:

'2.5 How we will settle transactions in Units/Shares and hold your money
When you are purchasing Units/Shares in our Funds or have given instructions to redeem your holding of Units/Shares in our Funds, then we will settle the purchase or redemption on a delivery versus payment basis by exchanging money and title to the Units/Shares with you within as short a period as possible. Settling in this way means that we do not need to immediately treat your money as Client Money when we receive it from you (where you are purchasing Units/Shares) or from the Fund or the Fund’s depositary/trustee (where you are redeeming Units/Shares). If, for any reason, we have not paid the money to you (for redemptions) or to the Fund/Fund’s depositary/trustee (for purchases) by close of business on the next business day following our receipt of the money, then in accordance with the FCA Rules, we will need to treat the money as Client Money. Therefore, we will pay the money into a Client Bank Account with one or more UK banks selected by us and separate from any money belonging to us in our own right. Payments we make thereafter in respect of this money will be issued from a Client Bank Account.'

And from Rathbone T&C's:

14.5 Client money
14.5.1 In accordance with the Client Asset Sourcebook (“CASS”) of the Financial Conduct Authority’s (“FCA”) handbook, the ACD has chosen to operate the delivery versus payment exemption (“DVP Exemption”) with regard to investors’ subscriptions and redemptions. This exemption, under the FCA’s rules, allows the ACD to not treat investor monies as client money in the following two delivery versus payment scenarios:
(a) Where money is received from an investor in relation to the ACD’s obligation to issue shares in accordance with FCA rules.
(b) Where money is held by the ACD in the course of shares being redeemed where the proceeds of that redemption are paid to a client within the time specified in the FCA rules.
By agreeing to subscribe to any Rathbone Unit Trust Management funds, shareholders agree to Rathbone Unit Trust Management using such arrangements. Should Rathbone Unit Trust Management cease at any time to use the DVP Exemption, you will be pre-notified in writing ahead of the relevant cessation date.

milleniumaire

Thanks for replying Tom. I had seen other investment companies including this in the T&C's when I googled it.

I don't suppose you know what "protection" is lost during this short period of time? I'm struggling to find a real world example of this and would be interested to know how this works in practice.