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FCA rewrites client money and custody rules
by Danielle Levy on Jun 10, 2014 at 10:35
The Financial Conduct Authority (FCA) has rewritten the rules on client money and custody assets in light of recent insolvencies.
The extensive and detailed changes include a rewrite of client money rules for investment firms and substantial amendments to custody rules in the client assets sourcebook (Cass). The move follows a series of fines in the industry over failures in custody and safeguarding of assets.
The FCA said the changes will improve systems and controls around segregation, record keeping and reconciliations and set out how investment firms must address client asset risks.The changes affect around 1,500 FCA-regulated firms that carry out investment business, from the largest investment banks to the smallest investment adviser, who collectively hold over £100 billion of client money and £10 trillion of custody assets.
The regulator said the final rules address lessons learnt from recent insolvencies, feedback from firms themselves and observations from the FCA’s specialist Client Assets Unit.
David Lawton, director of markets, said: 'The protection of client assets is central to confidence in the UK 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 UK markets is maintained and consumers are protected.'
The FCA said it had decided not to proceed with most of the proposals it consulted on around the client money distribution rules. In parallel with the work that the FCA has been carrying out in reviewing the client money distribution rules, a Treasury-commissioned independent review of the special administration regime (SAR) has been in progress (the SAR review).
The report contains a large number of recommendations to improve the operation of the SAR, including changes proposed to the SAR legislation and CASS. HM Treasury is now considering the recommendations that fall within their remit and their response.
In light of this, the FCA is planning to conduct a further review of the client money distribution rules in line with HMT’s implementation of the SAR review recommendations and intends to publish a further consultation on the client money distribution rules later this year.
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