The U.K.’s Financial Conduct Authority (FCA) has finalized changes to the client money and custody assets (client assets) rules, affecting approximately 1,500 FCA regulated firms including custodians, market infrastructures, auditors, etc. The over-400-page document aims to increase investor protections, and in the event of an insolvency such as with Lehman Brother, improve the process in which investors’ assets are returned.
The FCA aims to accomplish these protections through rules such as the reintroduction of the Client Money and Asset Return (CMAR), which increases reporting of when a firm allows another party to hold a client’s money such an exchange, clearing house or OTC counterparty. The changes, the regulator says, will improve firms’ systems and controls around segregation, record keeping and reconciliations and set out how investment firms must address client assets risks within their business.
Other examples of rule changes or clarifications include requiring firms to have a written agreement in place whenever arrange to place custody assets with a third party, and introducing a minimum of monthly reconciliations or other checks to ensure the accuracy of their records for custody assets, as opposed to every 25 business days.
“The protection of client assets is central to confidence in the U.K. markets and fundamental to consumers’ rights and the trust they place with firms. These changes will improve the protection offered to client assets and should speed up the recovery of client assets on a failure of a firm. Coupled with the increased focus the FCA has had on client assets, they will go a long way to ensure that confidence in U.K. markets is maintained and consumers are protected,” says David Lawton, director of markets at the FCA.
The rules will be partially phased in on December 1, 2014, and all rules will be fully applicable by June 1, 2015. The full set of rules can be found here.
Aside from the client asset rules, though, the FCA says it is not proceeding with most of the proposals it consulted on around the client money distribution rules. However, the FCA will conduct a further review of the client money distribution rules in line with recommendations from Her Majesty’s Treasury’s (HMT) review of the implementation of the special administration regime (SAR), and the FCA plans to publish a further consultation on the client money distribution rules later this year.
FCA Finalizes Rules to Protect Client Money and Custody Assets
The U.K.’s Financial Conduct Authority (FCA) has finalized changes to the client money and custody assets (client assets) rules, affecting approximately 1,500 FCA regulated firms including custodians, market infrastructures, auditors, etc.