FCA Completely Rewrites Regulatory Rulebook On Client Money

Mark Shapland

11 June 2014

The (FCA) has ripped up the regulatory rulebook for firms holding client money, making a large set of changes to ensure clients at thousands of firms are better protected in future.

The body has made 39 changes to the client assets sourcebook - or CASS - in an attempt to increase protection for client assets. The changes require firms to provide enhanced information for consumers about how monies are held and how they are protected.

This includes demands for more extensive due diligence on accounts and new rules on disclosure of withheld interest earned on client funds.

"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,” said David Lawton, FCA director of markets.

"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."

It is estimated 1,500 regulated firms investment advisers will be affected, including fund managers and investment banks. Some of the new rules come into affect as early as 1 July.

PwC partner Anne Simpson described the changes as "the most significant policy shift in recent years".

"The FCA has undertaken a fundamental rethink of the regime, and the new rules should go a considerable way in enhancing confidence in UK financial markets," she added.

The document reveals that where a firm is not going to pay all the interest on clients’ monies, they should be notified of this in writing. Where interest is earned by a firm on client money, this money should be segregated in accordance with broader client money segregation requirements.

It does not change the existing limit of a maximum of 20 per cent of funds being held with a single institution, but they do require firms to conduct periodic assessments on whether amounts held with any single group are appropriate.

The regulator increased its focus on client assets protection following the failure of Lehman Brothers in 2008 when it set up a dedicated client assets unit.