FCA warns firms on holding client funds

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FCA warns firms on holding client funds
Financial Conduct Authority

The financial regulator has urged firms which have witnessed an increase in funds over the coronavirus crisis to consider returning the money to clients.

In a Dear CEO letter sent to firms that offer a non-discretionary investment service yesterday (August 12) the City watchdog said it was aware clients had moved to rebalance portfolios to "mitigate volatility"during the pandemic. 

The Financial Conduct Authority said this had led to some firms reporting a "significant" increase in client balances in the first six months of the year. 

The regulator said: "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."

Earlier this year the FTSE 100 saw some of its biggest rises and falls in 30 years as countries closed borders and introduced lockdowns to curb the pandemic. 

Yesterday's letter asked senior managers to consider whether the funds would be better placed directly with a client's current or savings account providers. 

Megan Butler, executive director of supervision in the FCA's investment, wholesale and specialists division, said it was "good practice" for firms to communicate with clients about their increased funds during this period. 

Ms Butler said: "[Firms should] ascertain whether these [funds] should be returned to them or continue to be held by the firm to facilitate further investment in the short term."


What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.