FMLC: Report: Analysis of legal uncertainty in the Financial Services Authority's Client Assets Sourcebook and arising from judicial decisions relating to the administration of LBIE

November 1, 2011

The Financial Markets Law Committee has published a report entitled 'Analysis of legal uncertainty in the Financial Services Authority's Client Assets Sourcebook and arising from judicial decisions relating to the administration of Lehman Brothers International (Europe)'.

This FMLC has prepared the report for the FSA in its consideration of the Client Assets Sourcebook ("CASS"). In particular, the report seeks to deal with:

(i) the uncertainties highlighted in the High Court's decision in Lehman Brothers International (Europe) v CRC Credit Fund Limited and the decision of the Court of Appeal in the Lehman Case surrounding the point at which the statutory trust created pursuant to CASS arises;

(ii) the uncertainties regarding the nature of the assets and claims forming part of the statutory trust and the remedies available to the holders of the beneficial interests under the statutory trust where a Firm has failed to segregate monies in the client account; and

(iii) some policy solutions for addressing uncertainties above, including the power to transfer unsegregated monies from the "house" account to the "client" account and the power to treat a claim for client monies as an expense of a Firm's administration in cases where the statutory trust and/or proprietary remedies fail.