On September 6, the UK Financial Services Authority (FSA) issued CP12/22, a combined Consultation Paper (CP) and Discussion Paper (DP) addressing changes to the client money and custody assets (collectively “client assets”) regime for firms undertaking regulated investment business.

The paper, entitled Client Assets Regime: EMIR, Multiple Pools and the Wider Review is divided into three parts. Part I addresses changes required by the European Markets Infrastructure Regulation (EMIR). In Parts II and III, the FSA proposes potentially far-reaching changes to its client assets regime. Part II considers proposals which would enable the introduction of multiple client money pools which the FSA characterised as “the most radical change that has been made to the client money regime in over 20 years.” This proposal would allow firms, subject to clients’ consent, to operate client money sub-pools which would be legally and operationally separate for (for example) different lines of business or different client types.

Part III is a Discussion Paper that provides an overview of the fundamental review of the client assets regime that the FSA has started and seeks comment on some wider issues raised with the aim of producing better results in the event of the insolvency of an investment firm. It is intended that the review will build on lessons learned from recent broker insolvencies, such as Lehman Brothers International and MF Global. The objectives of the review are:

  • Improving the speed of return of client assets following the insolvency of an investment firm;  
  • Reducing the market impact of an insolvency of an investment firm that holds client assets; and  
  • Achieving a greater return of client assets to clients following an insolvency of an investment firm.

Responses to Part I are requested by October 16. Responses to Parts II and III are requested by November 30.

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