The UK Financial Services Authority will on Thursday, March 29, make a policy statement, which asserts that brokers and other custodians must be able to provide information on client assets in 48 hours in the case of a firm going bankrupt.
It is proposing to introduce a CASS Resolution Pack (CASS RP) that would be one step towards ensuring the speedier return of client assets in the event of “firm” failure. A fundamental review of the framework relating to the distribution of client asset followed resulting in significant changes to the client assets distribution regime, says Ian Stott, client services director, The Consulting Consortium, a provider of expert regulatory consultancy to financial services businesses.
The policy follows the collapse of Lehman Brothers and MF Global and aims to minimize risk in the event of a firm failure.
The final rules, which have already been published by the regulator, requires certain firms to maintain and be able to retrieve a CASS RP that would help an insolvency practitioner (IP) return client money and safe custody assets (client assets) more quickly following an investment firm failure. In the CP11/16, the FSA proposed requiring in-scope firms to maintain a CASS RP containing certain new and existing documents and records relating to client assets that can be retrieved within 48 hours of the appointment of an IP or at the request of the FSA.
Stott noted that the policy should not come as a surprise to in-scope firms holding permissions to handle client assets as custodians. But, as often seems to be the case, there will be outcry and comment from vociferous corners of the custodian community claiming unfair treatment by the Regulator, especially in light of the 48 hour deadline that would be imposed in the event of a firm’s failure or, at the specific request of the Regulator, he says.
So what about effective systems and controls that should already be in place to protect and safeguard the financial interests of retail and wholesale customers this isnt an FSA witch hunt but another sensible step towards improving client assets protection and increasing market confidence. It still amazes me how the FSA signposts its intent through consultation papers and, rather than this being an industry wake-up-call, many potentially affected firms are caught unaware of their responsibilities until policy is mandated. So when the FSA says, we do expect regulation in this area to become more focused on the effective segregation and rapid return of client assets, guess what? Be prepared and take positive action.
(JDC)