Copying and distributing are prohibited without permission of the publisher
FCA finalises client money and custody rules
10 June 2014
UK regulator expects extensive changes to increase protection of client assets
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
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
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
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
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.