The Financial Conduct Authority (FCA) has written a ‘Dear CEO’ letter to firms to make sure they communicate with clients if they have seen an increase in funds over the coronavirus pandemic.
The letter, written on 12 August 2020 by Megan Butler, executive director of supervision – investment, wholesale and specialists division at the FCA, said that it was directed at businesses that provide a non-discretionary investment service.
It was not applicable to client money balances held within a tax efficient wrapper or under a collateral arrangement for margined transactions.
The UK regulator said that clients may have rebalanced their portfolios to mitigate volatility during the coronavirus pandemic, and therefore a number of firms may have reported an increase in client money balances in their reporting from January to June 2020.
It added that a firm’s relevant senior manager should consider whether the business needs to hold client money balances which are unlikely to be reinvested, or whether it would be in their customers’ better interests to place these balances directly with their own current or savings account providers.
Return funds
Butler said: “We consider it good practice in this period for firms to communicate with clients about increased client money balances to ascertain whether these should be returned to them or continue to be held by the firm to facilitate further investment in the short term.
“In line with the above, if it is in clients’ better interests during this period, we expect firms to return client money balances which are unlikely to be reinvested in the short term.
“The FCA will continue to review client money balances and follow up with firms that report significantly increased balances.”
