London 10/03/2016 - The Financial Conduct Authority (FCA), the UK's financial markets regulator, has issued a broad discussion paper on client money distribution rules and the administration procedure that follows when investment firms collapse.
"Following the failure of Lehman Brothers in 2008, the UK Treasury created a specific insolvency regime for investment firms holding client assets, the SAR (Special Administration Regime)," it said in a release.
This works alongside rules, known as CASS, to create the mechanism under which client assets are dealt with in a failed investment firm, the regulator said.
A Treasury review, undertaken by Peter Bloxham, looked at the SAR and contained several ecommendations relating to SAR regulations, CASS rules and the procedures administrators follow in the event of an investment firm failure.
The discussion paper covers methods of valuing transactions to determine client money entitlement, transfer of client monies to another firm, the need for CASS rules to address lessons learned from case law and the provision of additional information to clients and administrators for the treatment of allocated but unclaimed client money.
"This review is essential to ensure that the client money distribution rules work as well as possible with the insolvency legislation, so that client assets are returned as soon as possible to customers after the failure of an investment firm," Megan Butler, FCA executive director of supervision, said.
Following Lehman Brothers, which collapsed at the height of the 2008 Financial Crisis, the most recent high-profile investment firm failure was MF Global, which went bankrupt in 2011. The complicated nature of its business and segregation of assets meant that there were considerable delays in repatriating client funds.
(Editing by Mark Shaw)