Client Money – how Aston CM (Guernsey) protects its clients

“Trust, but verify.” – Ronald Reagan

Please note that this note applies to Aston CM (Guernsey) Ltd only, and is not relevant for Aston’s UK business.

In January 2024, the Guernsey Financial Services Commission published this guidance about the use of Payment Services. The article warns that providers who are NOT regulated in Guernsey, or an equivalent jurisdiction, may “not be acting in your best interests, and you may be left with limited options to take action against them. In addition, should the provider go out of business, your money may be at risk.”

Aston CM (Guernsey) Limited (“Aston”) is a non-bank payments provider in the Bailiwick of Guernsey. We’re the only institution of our type to be licensed by the Guernsey Financial Services Commission (GFSC) under Guernsey’s Lending, Credit and Finance Law, 2022. Self-evidently in the above linked article we would be classed as a Payment Services Provider that is licensed by the Commission.

Aston’s differentiators are:

- Client Money. Funds are held at our credit institution in a statutory trust. Aston is a trustee of the funds in those accounts. Aston does not provide a bank account (we are not a bank).

- Jurisdiction. Funds are held (and payments made to/from) Guernsey-domiciled client money accounts. No funds are held in, and no remittance is made via, GB.

- Named accounts. In client’s legal name and with their own unique account number (and thus their own IBAN).

- Currencies. Accounts and payments are available in 14 currencies.

- Foreign Exchange. Aston can execute FX spot and (subject to additional approval and conditions) FX forwards for risk management, all at competitive terms.

- Speed. We can onboard quickly and securely once there is a complete CDD file, which includes complex structures (note, it can take sometimes take a few iterations to get a complete file).

- Service. Someone to speak-to for day-to-day transactions and general service coupled with (if desired) the use of Aston’s web portal, client API or secure file processes.

It’s worth diving further into the first 3 bullets above. As Reagan said; “Trust, but verify.”.

1. Client Money. Funds are held in a “statutory trust” at our credit institution, with Aston as a trustee. But what does that mean, exactly?

Credit institution = bank. So far, so easy. The “statutory trust” may not be as familiar to everyone, so it is worth breaking this down and defining each term separately.

- A trust is a legal arrangement in which the legal title or nominal owner of specified property or assets is separated from the beneficial owner.

- In our case, Aston is the trustee of the trust but Aston’s clients remain the beneficiaries of the monies.

- Statutory just means that the trust does not need a bespoke trust deed because it is required, permitted or enacted by statute. That is, the law requires a trust arrangement exist to separate legal title from beneficial ownership.

- The arrangement exists so that our bank only has to enter one legal contract with Aston (with an associated acknowledgement letter). If title and beneficial ownership were not split then all of Aston’s underlying clients would contractually face the bank. This would be a very different commercial model and, for all parties, would be so cumbersome as to be commercially unviable.

There are certain conditions that Aston is required to follow. For example, we must ensure that funds held as client money are not co-mingled with Aston’s own funds.

As an aside, we also do not have any overlap of technology platform, banking integrations or customer funds between our Guernsey and UK businesses. I cover this again below in my commentary on jurisdiction, but it is important to reiterate that the complete segregation of own/client funds within Guernsey extends to segregation from Aston’s own/client funds in its UK business.

Aston’s bank is required to sign an acknowledgement letter which recognises that Aston has legal title of the funds they hold for our clients, but that Aston does not have beneficial ownership. This arrangement is designed to protect Aston’s clients “should the provider [i.e. Aston] go out of business”. Legally, since it is an explicit trust, it is a slightly different arrangement than is used by Payment Services Providers in e.g. UK, although it has substantially the same effect.

2. Jurisdiction. Funds are held in Guernsey, and payments made to / from client money accounts do not pass through the UK or EU.

Guernsey is a tax-neutral jurisdiction and International Financial Centre (sometimes called an Offshore Financial Centre). The IMF views it as being one of the Group I countries i.e. ‘cooperative, with a high quality of supervision, which largely adhere to international standards’. Other Group I International Financial Centres include Jersey, Hong Kong, Ireland, Luxembourg, Singapore and Switzerland.

Some institutions in Guernsey do not want to make payments via GB. Aston’s accounts are set up such that they are not connected at all with the GB-domiciled bank system. Clients could send funds to GB accounts from their Aston accounts in Guernsey. However, the payment would be originating from Guernsey not from GB. If clients did wish to send funds originating from GB, then Aston’s UK business could help to achieve that. However, as mentioned above there is no overlap at all between the UK and Guernsey accounts or payments infrastructure. Thus, by design, Aston’s platform in Guernsey could not hold or operate GB-based accounts even if it wanted to.

3. Named accounts. Each client gets a separate account with its own account number for each currency.

Named accounts have great utility for clients. They provide both an address (sort code and account number) and a reconciliation / settlement venue for funds to flow in and out. These are not bank accounts; funds are not held as a deposit, and there is no depositor protection from GDCS. However, some of the other functionality is similar.

For example, each client’s account is a sub-account of Aston’s general ledger account with its bank*. In addition, each client account is legally distinct, can be switched off, can be subject to a legal charge, can be separately claimed upon by a creditor, can be subject to an asset freeze and each is documented on severable terms. The funds attributable to a particular client cannot be used to settle or offset any of Aston’s (or its other clients’) obligations, and neither can that client claim on anyone else’s funds.

*This is not dissimilar to the way banks aggregate all balances on their balance sheet. Banks use a proportion of those aggregated deposit funds to make loans, whereas Aston does not (indeed, could not).

Funds are not ‘pooled’ in any real sense. If they were, then some of the above features would not be true or could more easily be subject to challenge. For example, if pooled then they could not have a separate, uniquely named and numbered account; their funds may not be instantaneously attributable to them, etc. In short, it might be more difficult to assert that all clients’ accounts are distinct from each other.

Aston can provide services to many industries, but not all. For example, we do not provide services to Virtual Asset Service Providers (VASPs). In addition, Aston does not provide client money accounts on a downstream basis i.e. we are not a bank and thus cannot provide other institutions with their own client money service. Aston will publish more about specific case studies, which we have developed in consultation with our external legal advisors in Guernsey, in the coming weeks and months.

There are a wide range of companies and institutions to which Aston can provide its services, and this may help mitigate issues with opening bank accounts. Please do get in touch with our team who can show you what we can do and guide you through the process. I look forward to seeing you on the island!