Within the dual issuance the regulator addresses changes required by the European Markets Infrastructure Regulation (EMIR) and also proposes changes it believes “could lead to a radical shift in how firms protect client money”.
The discussion paper element is designed by the FSA to encourage comment on some wider issues in relation to its fundamental review of the client assets regime in order to produce better results, it said.
Three main headings split up the FSA’s proposals: Changes required by EMIR; Introduction of multiple client money pools; and Client assets regime – achieving better results.
On top of EMIR’s guidelines the FSA is wants to bring in rules that extend similar options to all client money held by all firms in relation to investment business, with the use of ‘multiple client money pools’.
The regulator described this as “the most radical change that has been made to the client money regime in over 20 years”.
Currently, the client money regime treats all client money as part of a single pool in the insolvency of an investment firm, but these proposals will allow firms to operate legally and operationally separate client money sub-pools with the consent of clients.
Multiple pools
This scheme has a number of advantages, including:
- Restricting any client money shortfalls to a particular sub-pool, so that all the clients of a firm do not share all losses, thereby maximising client money return for some clients; and
- Allowing the distribution of client money from a particular sub-pool where no contentious issues have arisen in relation to that sub-pool, leading to a more rapid distribution of some client money.
Finally, the discussion paper will allow the regulator to provide an overview of the fundamental review of the client money and custody assets regime.
The objectives of the review are:
- Improving the speed of return of client assets following the insolvency of an investment firm;
- Reducing the market impact of an insolvency of an investment firm that holds client assets; and
- Achieving a greater return of client assets to clients following an insolvency of an investment firm.
The FSA said it is considering and welcoming responses to “help maintain an appropriate regime for the UK.
For the full consultation paper, click here.
