Client Fund Segregation & Protection
This criterion assesses the robustness of an organization's practices in safeguarding client funds, ensuring absolute segregation from the organization's own assets. It evaluates the legal and operational measures taken to protect client assets from misuse, commingling, fraud, insolvency, and operational risks. Key elements include the enforceability of trust status via bank acknowledgement letters, the rigor of daily reconciliations, and the strength of cyber-fraud controls (e.g., MFA, maker-checker). The organization must demonstrate a proactive approach to third-party risk management, insurance adequacy based on peak exposure, and comprehensive contingency planning (e.g., CASS Resolution Packs) for the swift return of assets in distress. Transparency is paramount; clients must be fully informed of how funds are held, the Shari’ah contract governing them (e.g., Wadi’ah, Wakalah), and the purification of any impermissible income. This criterion ensures adherence to the Islamic principles of Amanah (trustworthiness), Hifz al-Mal (protection of wealth), and Adl (justice).
- Does the organization hold valid, up-to-date acknowledgement letters for all client bank accounts that explicitly waive set-off rights and confirm trust status?
- Are daily internal and external reconciliations performed with a documented process for resolving breaks within 5 business days?
- What specific cyber-fraud controls (MFA, maker-checker, whitelisting) are enforced for client fund transfers?
- How is the adequacy of insurance coverage determined relative to the peak client money exposure calculated quarterly?
- Does the organization maintain a tested 'Resolution Pack' or wind-down plan to ensure the swift return of assets in the event of insolvency?
- Are all non-permissible benefits (interest, rebates, float) identified, segregated, and purified with clear disclosure to clients?
- Client Fund Management Policy & Procedures.
- Bank Acknowledgement Letters for all client accounts (signed and dated).
- Reconciliation logs (last 12 months) showing break resolution times.
- Insurance certificates and the 'Peak Exposure' calculation worksheet.
- Independent Audit Report (Internal or External) covering client assets.
- Client Assets Resolution Pack / Wind-Down Plan.
- Client Agreement templates with Disclosure Schedule.
- Shari’ah Governance reports detailing purification of interest/benefits.
| Level | Rating | Description |
|---|---|---|
| 5 | 5/5 | Impeccable segregation with automated real-time monitoring; zero reconciliation breaks >2 days; comprehensive insurance covering >100% peak exposure; tested wind-down plans; and full transparency on Shari’ah purification. |
| 4 | 4/5 | Strong segregation with valid acknowledgement letters; daily reconciliations with rare aged items; annual independent audit completed; robust cyber controls (MFA/Maker-Checker) in place. |
| 3 | 3/5 | Adequate segregation and basic policy; separate accounts exist but acknowledgement letters may lack specific 'no set-off' clauses; reconciliations occur but resolution is slow; basic insurance in place. |
| 2 | 2/5 | Weak segregation; client funds distinct but controls are manual/informal; lack of dual authorization; frequent reconciliation breaks; outdated or missing bank acknowledgement letters. |
| 1 | 1/5 | No proper segregation; funds commingled with operational accounts; significant risk of misuse; no independent oversight; non-compliant with Shari’ah trust principles. |
Related Criteria
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📋 **Version updated: 1.0.0 → 2.9.7** **Changes:** Updated islamic_references from mizan-297.json
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