From 1 June 2011 To prevent intra-group contagion (a situation painfully illustrated by the placement of 50% of Lehman Brothers International (Europe)'s client money with a group bank which became insolvent), firms will be subject to a 20% maximum limit on intra-group client money deposits in client bank accounts from 1 June 2011. Firms which currently exceed the 20% limit will need to conduct suitable due diligence and diversify their client money deposits over the next few months. The FSA has said that it will pursue its credible deterrence strategy aggressively in relation to firms which breach this rule.
MiFID review of intra-group contagion The European Commission is proposing amendments to MiFID which may bring about further changes in this area for MiFID firms. The European Commission is proposing specific due diligence obligations in the choice of entities for the deposit of client funds. Recognising that the concentration of client money in group entities may raise the risk of contagion when intra-group insolvency occurs, it is proposing that the diversification in the placement of client funds becomes one of the due diligence criteria. Yet again, the FSA is ahead of the curve in already having similar requirements for firms under its supervision.
This article was first published on www.complinet.com on 31 January 2011.