FSA Consultation Paper - Client Asset Protection
The FSA issued a consultation paper/discussion paper that proposes a number of changes to the client assets regime for firms that undertake investment business. The paper proposed changes required by the European Markets Infrastructure Regulation ("EMIR"), and recommends changes that could lead to a radical shift in how firms are required to protect client assets. The changes could also have significant implications in connection with the bankruptcy of a clearing firm, both in terms of facilitating the reporting of client positions and improving the standing of clients in reclaiming their assets.
The proposals fall under three different headings:
- Changes required by EMIR
- Introduction of multiple client money pools
- Client Assets Regime: Achieving better results
In addition, with the aim of producing better results in the insolvency of an investment firm, the FSA also requests comments on some wider issues related to its review of the client assets regime.
Lofchie Comment: The changes discussed in the consultation paper are of great significance to both buy- and sell-side firms, as they are likely to result in material restrictions on the use of client assets by sell-side firms, thus both possibly raising costs, but at the same time potentially materially improving client protections afforded by regulation. I observe that the changes may also be significant in regard to the competition for financial business between the United States and the EU. That is, the regulatory protections currently afforded to client assets in the United States are I think superior to those in the EU (though on the other hand, I observe that clients in the EU can arguably contract for better protection than regulation in the United States provides), and thus changes to EU law that are viewed favorably by clients may draw custodial assets to the EU, particularly from less sophisticated clients that would be better served by protections provided by regulation rather than by contract.
View paper here (links externally to FSA website).See also: FSA Press Release.
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