Several banks are currently actively marketing a ‘Hub account’ clients’ account service to IPs. In simple terms, hub accounts are where there is one central account, for which there is a cheque book, and separate account for each estate.
The devil is in the detail. In some versions, the IP controls the allocation of funds to each separate estate. In others, the bank controls the allocation. In most cases the estate accounts do not have cheque books and funds have to be transferred to the central account by the IP to meet cheques issued for payment.
This can result in funds mixing, contrary to SIP 11. For example, when paying a dividend, funds may be transferred ‘up’ to the hub and take months to clear and therefore mix with other funds in the hub awaiting allocation. Alternatively, the IP may just be too slow in allocating funds from the hub to individual estate. This was a situation we commonly saw 5 or 6 years ago when many of you received IPOs into clients’ accounts and took too long to pay them on to the ISA, especially when it was not clear who the payment had come from.
Where the bank undertakes the allocation of the funds received and cheques presented for payment to the correct estate account these accounts comply with SIP 11. It is even possible to address the issue of dividend by having a number of unallocated dividend accounts from which the bank agrees to pay cheques. This allows you to transfer money from the estate account into one of the dividend accounts. While funds are in there, it remains dedicated to one estate, but once the cheques have all cleared it can be recycled for use when paying dividends from another appointment.
We are aware that the Joint Insolvency Committee is revising SIP 11 and it appears likely that the revised SIP 11 will permit the operation of hub accounts, subject to the IP having certain safeguards in place. We do not know the timescale for revising SIP 11, but in the meantime if you already operate such an account, or are considering doing so, then you should contact your regulator to seek their views. We are aware that at least one regulator is presently permitting a practice to use such an account as it meets their business needs.
