This discussion paper seeks feedback on a number of aspects of the client assets regime, in particular regarding the client money distribution rules (CASS 7A) and their interaction with the Special Administration Regime (SAR).
If an investment firm holding client assets fails, its client estate is generally dealt with by the relevant insolvency practitioner in accordance with CASS 7A and the SAR. These two regimes work together to ensure that client assets are returned to their owners as soon and as intact as possible following the failure of an investment firm.
HM Treasury commissioned Peter Bloxham to undertake an independent review of the SAR. The Bloxham Final Report was published in January 2014 and contained a number of recommendations relating to the SAR regulations, the CASS rules and the procedures administrators follow in the event of an investment firm failure.
This discussion paper sets out our response to the recommendations in the Bloxham Final Report addressed to us and seeks industry views on the discussion points raised. The recommendations aim to improve the speed of return of client assets to an investment firm’s clients in the event of its failure and minimise the market impact of its entry into special administration. This discussion paper also contains our response to the ‘speed proposal’ on which we consulted in CP13/5: Review of the client assets regime for investment business, but which was separated from our final proposals in PS14/9: Review of the client assets regime for investment business, pending the Treasury’s response to the Bloxham Final Report.
Throughout this discussion paper we refer to the Treasury’s response to the Bloxham Final Report, Reforms to the Investment Bank Special Administration Regime, which we understand is to be published concurrently with this paper. The two should be read together to obtain a clear view of how the CASS and SAR regimes work following an investment firm failure.
This paper is relevant to all regulated firms that hold custody assets and/or client money in relation to investment business and in particular:
The topics discussed in this discussion paper will affect investment firms and their clients in the event of an investment firm failure. We welcome feedback from consumers and consumer groups on the discussion points.
We would like to know what you think of the discussion topics and questions we have set out in this paper. Please submit your comments by 9 May 2016. To submit a response, please use the online response form or write to us at: Kate Davis and Soo-Bee Appleton, Client Assets Department, Specialist Supervision Division, Financial Conduct Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.
We will consider all feedback and expect to publish a consultation paper in response to the discussion aspects of this paper later this year, when the legislative changes to the SAR have been finalised.
Within this further consultation, we propose to include additional CASS 7A changes consulted on in CP13/5: Review of the client assets regime for investment business relating to currency conversion, the definitions of a primary pooling event (PPE) and secondary pooling event, the treatment of post PPE receipts and additions to the CASS Resolution Pack.
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