This Policy Statement summarises the feedback we received to our consultation on aspects of the client assets regime, in particular regarding the client money distribution rules and their interaction with the special administration regime.
Following the failure of Lehman Brothers International (Europe) in 2008, HM Treasury created an insolvency regime for investment firms called the special administration regime (SAR). The SAR works with the client assets sourcebook (CASS), and in particular the client money distribution rules (CASS 7A), to provide a mechanism under which client assets can be returned to clients in the event of an investment firm failure.
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, CASS and the procedures administrators follow in the event of an investment firm failure.
In our Consultation Paper (CP17/2) we proposed changes to CASS in relation to an investment firm failure and its interaction with the SAR. Collectively, these proposals aim to speed up the distribution of client assets, improve consumer outcomes and reduce the market impact of an investment firm failure.
Who this applies to
This Policy Statement is relevant to all regulated firms that hold custody assets and/or client money in relation to investment business and in particular:
- their clients
- their banks and custodians
- market infrastructure firms, including central counterparties, exchanges and other intermediaries with whom a firm may place client assets
- insolvency practitioners and their advisers
The rules (set out in Appendix 1 of PS17/18) will come into force on 26 July 2017 and investment firms to which CASS applies will need to comply with them from that date in the event of failure or other types of pooling events. We recommend the final rules are read alongside the amended SAR regulations.