FCA is reviewing the client assets regime for investment business and is proposing some fundamental changes. The paper covers:
- the client money distribution regime: FCA is considering a change to enable the insolvency practitioner (IP) of a firm that has begun insolvency proceedings to distribute client money based on the firm’s records (rather than agreed claims of clients). It says this would increase the speed of recovery and affect the amount returned to clients in most cases. While some clients will benefit, others would lose out, and FCA notes that other national regimes manage to achieve quick distribution without the negative effects that making this change in the UK will have. However, it says the changes represent the best it can do within its powers, although if the Government makes changes following the result of its review of the Special Administration Regime this may help;
- multiple pools: a proposal for a limited introduction of client money multiple pools for clearing member firms;
- client money rules and custody rules: proposals to change to the client money rules and custody rules. The changes relate to several parts of the rules, including reconciliations, delivery versus payment exclusions, buffers, unclaimed client money and assets and acknowledgment letters. The changes also clarify and restructure other client money and custody rules;
- disclosure: FCA proposes firms report to their clients at least annually on the client assets protections they provide them;
- mandate rules: FCA wants to increase the scope of the mandate rules by requiring firms to establish and maintain adequate records and internal controls for all mandates, including those not obtained in written form; and
- EMIR-related changes: FCA needs to make changes to bring the rules into line with the EMIR RTS on porting and indirect client clearing.
Comments are due by 12 August in relation to the EMIR-related proposals (so it can make its rules by the end of September) and otherwise by 11 October. (Source: FCA Consults on Client Money and Assets Review for Investment Firms)