Regulation  

FCA to ramp up client asset reporting rules

Firms holding client money will be required to provide an additional reporting document outlining how client money is held and what protections are in place, as well as what would happen in the event of a failure, under new rules proposed by the Financial Conduct Authority.

In a consultation paper published on Friday (12 July), the FCA proposes a new disclosure document issued annually to clients outlining any special rules regarding the handling of client money, which it says it would also require firms to issue to all clients on an annual basis.

Other proposals in the paper would mean firms could no longer distinguish between types of clients for determining what information should be provided to them, either on the basis of how much the client pays or any other classification.

Firms would also be required to report to their clients on their holdings of client assets more frequently if a client so requests, and would not be allowed to make such a service prohibitively expensive.

The regulator says: “Following recent firm failures, clients of all types have demonstrated a lack of awareness over the arrangements to which they have agreed for the holding of client assets and the impact those arrangements may have on the protections available for those client assets.

“The Client Assets Disclosure Document should serve to narrow this gap between client expectations and firm behaviour and ensure clients do not unwittingly give away protections otherwise available under the custody rules or the client money rules.”

The FCA is also proposing to speed up the return of client money in the event of firm failure by implementing a two-pool process through which some money would be distributed via an “initial” pool when a firm became insolvent based on a company’s client records.

Remaining client money would be distributed at a later time through a “residual” client money pool.