The extensive changes detailed in the 410 page ‘PS14/9: Review of the client assets regime for investment business’ will affect around 1,500 FCA regulated firms that carry out investment business, from the largest investment banks to the smallest investment adviser, which collectively hold over £100bn of client money and £10trn of custody assets.
The statement includes a rewrite of the client money rules for investment firms and substantial amendments to the custody rules in the FCA’s client assets sourcebook.
The FCA said the changes are also aimed at improving firms’ systems and controls around segregation, record keeping and reconciliations and setting out how investment firms must address client assets risks within their businesses.
Michael Rothwell, country manager of Pershing Channel Islands said businesses will now have to absorb a complex set of rules where “the interpretation of even a single word can get it wrong and could signal disaster”.
He highlighted a “challenging” 1 December 2014 deadline for a complete re-wording of the standard letter for bank account trust arrangements.
In relation to other jurisdictions adopting similar client money rules, he said “the Central Bank of Ireland will follow, and one of the crown dependencies, Jersey, is believed to be considering a review of its client assets regime”.
Some of the new rules come into effect on 1 July, with the rest going live in December 2014 and June 2015.
Observers said the short timetable for implementation will put pressure on firms to assess the impact on their business and understand how their strategy and operations are affected by these significant changes.
Anne Simpson, partner in PwC’s Financial Services Risk and Regulation practice, said the statement “marks the most significant policy shift in recent years, adding that “as the failure of Lehman Brothers demonstrated, the current rules are not fit for the complexities of today’s financial markets”.
Over recent years, a number of firms have been fined by the UK regulator for client money breaches,including SEI Investments in November last year.
