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FCA finalises client money and custody rules

10 June 2014


UK regulator expects extensive changes to increase protection of client assets

Read more: FCA UK custody

The UK Financial Conduct Authority (FCA) has published its final changes to rules over client money and custody assets in order to increase the protection of client assets held within investment firms.

The regulator said the "extensive and detailed" amendments would improve how client assets are looked after in the 1,500 FCA-regulated firms, which range from large investment banks to small investment advisors.

Regulators globally have focused heavily on increasing the protection of client money ever since the insolvency of Lehman Brothers.

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 regulator has rewritten the client money rules that investment firms must adhere to, and has made "substantial" changes to the custody rules in the client assets sourcebook. The FCA said this would improve firms' systems and controls used for segregation, record-keeping and reconciliations, as well as show firms how they should address client asset risks.

The final rules address lessons learnt from recent insolvencies, feedback from firms, and observations from the FCA's specialist Client Assets Unit that was set up by its predecessor the Financial Services Authority in 2010.

However, the FCA said it was not going ahead with most of the proposals on client money distribution rules, which it had previously consulted on, due to an independent review of the special administration regime (SAR) that was commissioned by HM Treasury.

The review, published in January, made several recommendations on how to improve the SAR's operations, which are now being considered by HM Treasury.

The FCA will once again review the client money distribution rules in line with HM Treasury's implementation of the SAR review recommendations. The FCA said it would publish another consultation on the rules later this year.


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