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What are the changes made to the client assets sourcebook (CASS) and what should clients do now to make sure they are in line with the rules? Michael Wainwright, partner at Dentons, considers the FCA policy statement on client asset regimes.
Investment firms conducting investment business and holding client money, custody assets, collateral and/or mandates in relation to their business are required to check the changes introduced to the CASS, as set out in a new Financial Conduct Authority (FCA) policy statement. All such firms will be affected by the changes and are required to comply with them by one of three key dates in July or December 2014 and June 2015.
What is the background to this policy statement?
The original client money rules worked well for many years, but they were amended extensively in the implementation of the Markets in Financial Instruments Directive 2004/39/EC (MifiD) and a lot of the guidance was taken out. Partly as a result of that, and partly because firms’ systems and operations became more and more complex, people began to lose sight of how the rules were supposed to work.
Then in 2008, we had the financial crisis and the collapse of Lehman Brothers—client money locked up in the Lehman companies was not available for distribution for a long time and much litigation followed. It became clear that a lot of people, including the regulator itself, no longer understood how the client money rules were supposed to operate in detail. The consultation leading to this policy statement is meant to fix all that. It has taken some time because the Financial Services Authority (FSA) (as it then was) had to wait for the litigation to be resolved, and in the meantime took the opportunity to create a specialist unit to properly understand the rules and get the message out to the industry as to how and why firms should be complying with them.
We are now at the point where we get to see what the client money rules are going to look like for the future.
What are the main changes being made to the FCA’s CASS requirements?
The most significant changes that affect the day-to-day administration of the rules for everyday users are:
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