FCA review of Client Assets Regime: radical proposals for the speedy return of cash and assets on insolvency

In Consultation Paper 13/5 (‘Review of the client assets regime for investment business’), the Financial Conduct Authority (FCA) sets out some fairly radical proposals aimed at improvements in two areas: the amount and speed of return of client assets following insolvency; and reducing the ‘market impact’ of insolvency.

This note looks at these proposals specifically and also picks out some of the more significant changes floated in CP13/5’s wide-ranging tour around the client money and assets rules. As with all radical proposals, there is a significant caveat. Currently, the law on the return of client assets is based on European law and English primary and secondary legislation, including the Special Administration Regime for Investment Banks, or SAR. In April 2013, a government-commissioned independent review reported on whether the SAR was meeting its objectives and made various recommendations. Those included recommendations around the introduction of legal mechanisms to help the rapid transfer of customer relationships out of insolvent institutions and an extension of the bar date concept to client money claims. Proposals in CP 13/5 are therefore subject to revision or even reversal should these recommendations be translated into legislative change.

While not purporting to alter the statutory trust construct, this is the most significant of the proposals in the CP and is aimed at tackling the severe delays in returning cash that have characterised institutional insolvency processes, both pre- and post-SAR. In a (possibly futile) attempt to balance accuracy with speed when returning client money on insolvency, CP 13/5 makes the ‘speed proposal’, which is essentially a tiered process for pooling and returning client money. Tier 1 takes place immediately on insolvency, when an initial client money pool (CMP1) is formed upon the firm or its appointed insolvency professional performing a reconciliation calculation to bring the firms’ books up to date as at the point of failure…

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