Investment firms who are authorised to hold client assets should take note of the Central Bank’s proposals to overhaul the applicable rules. The changes will apply both to those authorised under MiFID and under the Investment Intermediaries Act 1995.
On 2 August 2013, the Central Bank published a consultation paper on ‘Client Asset Regulations and Guidance’, to formulate new rules to replace the existing Client Asset Requirements which were issued in November 2007.
Interestingly, the Central Bank intends to impose the new client asset rules on a statutory basis, using its new powers to make statutory regulations under the Central Bank (Supervision and Enforcement) Act 2013, in force since 1 August.
The consulation paper proposes that "fund service providers" will, for the first time, be subject to client asset rules as regards client funds which they hold.
A "fund service provider" is defined in the draft Regulations as including the following entities:
Those authorised under section 10 of the Investment Intermediaries Act 1995 to (solely) carry out any of the following:
- the administration of collective investment schemes or fund accounting services or acting as a transfer agent or registration agent for such schemes; or
- custodial operations involving the safekeeping and administration of investment instruments;
Management Companies authorised under:
- the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (S.I 352 of 2011);
- the Unit Trusts Act 1990;
- Part XIII of the Companies Act 1990; or
- the Investment Funds Companies and Miscellaneous Provisions Act 2005.
- General Partners authorised as such under the Investment Limited Partnership Act 1990;
- Alternative Investment Fund Managers authorised as such under the European Union (Alternative Investment Fund Managers) Regulations 2013.
The draft Regulations, which will be based on seven core principles, will require that firms create, document and maintain a client asset management plan. Rules around daily calculations are also set out. Entities will not be permitted to maintain a buffer or to hold any other funds in accounts where client assets are held.
The introduction of a new pre-approved controlled function is also proposed, with firms being required to appoint an individual to a ‘Client Asset Oversight Role’. A separate supplementary draft Guidance document has also been published as part of the consultation.
In addition to the consultation on the Regulations, there are a number of other Central Bank consultations open at the moment, which may be of interest to clients.