UK Regulator Proposals to Amend Client Money Distribution Rules

The FCA published a consultation paper on proposed changes to the client money distribution rules in the Client Assets Sourcebook of the FCA Handbook - CASS 7A - as a result of the special administration regime review. The client money rules govern how client assets are to be distributed by an insolvency practitioner managing a failed investment firm. The proposals focus on rule changes following the introduction in early January 2017 by the Government of draft regulations to improve the regime in line with the Bloxham Report's recommendations, i.e. The Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017, the Amending SAR Regulations.

The consultation follows on from the FCA's discussion paper published in September 2016 which set out its proposed approach to implementing certain of the recommendations of the Bloxham Report, which recommendations aim to minimize the market impact of a failed firm's entry into special administration. The FCA consultation paper sets out a host of technical changes mostly relating to the treatment of client money or client assets for firms post-administration, but also include some other amendments of compliance relevance.  The consultation seeks input on the proposed changes to the CASS rules as a result of the Amending SAR Regulations, while also recognizing that not all firms that are subject to the CASS rules are subject to the SAR Regulations. There are also new proposals implementing changes to CASS in order to better fit with the indirect clearing requirements of the European Market Infrastructure Regulation and the incoming Regulatory Technical Standards under the Markets in Financial Instruments Regulation, which have been adopted by the European Commission but have not yet come into force. The FCA's proposals are relevant to all regulated firms that hold custody assets and/or client money for investment business, their clients, their banks and custodians and CCPs and exchanges.

Responses to the FCA's proposals relating to the indirect clearing requirements are due by February 23, 2017. Responses to all of the other proposals are due by April 24, 2017. The FCA aims to publish a policy statement containing final rules in summer 2017.

View the consultation paper.

View the Amending SAR Regulations.

View the Bloxham report.