FSA has updated its webpage to note that it wrote to several firms in December 2012 following their responses to a survey FSA issued on the use of term deposits for placing client money in August 2012. The letter (second link below) sets out FSA’s interim position in relation to unbreakable client money term deposits before it consults on this in 2013.

This PS sets out its final rules on client assets to accommodate EMIR and covers feedback received to CP12/22. EMIR is only addressed insofar as it affects CASS and does not address wider concerns on the implementation of EMIR more generally. It is also noted that the PS does not summarise feedback to, or publish final rules for, Parts II and III of CP12/22. These parts of the consultation closed on 30 November 2012 and FSA is still considering the feedback it has received. The final rules are included as an annex to this paper and come into force on 1 January 2013.

On 13 December 2012 the FSA Board made changes to the Handbook which amend CASS to bring it in line with EMIR (Client Assets Sourcebook (European Markets Infrastructure Regulation) Instrument 2012 2012/76)

This modification by consent will enable CASS medium and CASS large firms that have cancelled their authority to hold client money and their permission for safeguarding and administering investments (without arranging): to cease to be categorised as a CASS large or medium firm and cease providing the annual CASS firm notification required by CASS 1A.2.9R; to cease submitting a monthly CMAR report via GABRIEL; and to apply for a director or senior manager within the firm to cease performing the CASS operational oversight (CF10a) controlled function.

Text of the above, given at FSA’s client assets conference, has now been published. Topics include: the formation of the Unit and early approach; how the Unit works; its effectiveness and future work.

Text of the above, given at FSA’s client assets conference, follows. Topics include: securities markets regulation and market integrity; wholesale conduct; protection of client assets under FCA.

In CP12/15, FSA consulted on the following areas of client assets policy: CASS firm classification, oversight and reporting, and the mandate rules (CASS 8). Having considered the responses to that consultation, in this PS it summarises them, describes the key changes made to FSA’s proposals and sets out the amended rules. Most of the rules will come into force on 1 January 2013, affecting both regulated firms and their auditors. The technical changes to the CMAR and changes to the CMAR guidance notes will come into force on 28 February 2013.

The FSA Board made changes to the Handbook in instruments which clarify the requirements of Chapter 1A and Chapter 8 of CASS and improve the CMAR and CMAR guidance so that firms will be able to manage their CASS oversight and reporting responsibilities more effectively and apply the rules in a more consistent manner (Client Assets Sourcebook (Firm Classification, Operational Overnight, and Mandate Rules) Instrument 2012 /65)

This combined CP/DP proposes a number of changes to the client assets regime. The paper is split into three parts. Part I outlines the segregation and porting measures in Articles 39 and 48 of EMIR and consequential changes to CASS. Part II sets out proposals for introducing multiple pooling, which FSA suggests could result in the most significant changes made to the client assets regime in over 20 years. It proposes to permit firms to create multiple client money sub-pools in relation to any investment business, with the discretion left to the firm and the clients to determine the basis. For example, a firm may wish to create a separate client money sub-pool for its prime brokerage business, separating it from other parts of business. Alternatively, a client may agree with a firm to have only its own client money held in a client money sub-pool, separate from all other clients’ money. FSA also asks whether firms should be forced to operate certain client money sub-pools, for example splitting out retail from wholesale clients. Part III is a discussion on the wider client assets review currently underway, which is focused on getting a better result in the context of client assets in a firm’s insolvency. Comments must be received by 16 October (for proposals in Part I) and 30 November 2012 (for Parts II and III). FSA expects to publish a FS and final rules in December 2012 (with regard to Part I and feedback and final rules in the first half of 2013 (with regard to Parts II and III). FSA notes that it will provide relevant feedback to the Government to assist in the review of the Investment Banking Special Administration Regulations.

FSA notes that this CP is a result of its promise to review client money rules with respect to general insurance intermediaries. Its review of CASS 5 raised concerns over inappropriate controls around the use of the non-statutory trust; ineffective risk transfer documentation; application of the pooling rules; infrequent client money calculations; client money held by third parties; and client money held as designated investments (although FSA acknowledges it also found examples of good practice). This CP sets out proposals in relation to the following: ¶ the use of the non-statutory trust under CASS 5 and associated client money concerns; including discussion of issues around risk transfer and proposals intended to ensure more effective risk transfer; ¶ discussion of distribution rules and proposals that aim to facilitate firms in the transfer of client money on a sale of business; ¶ clarification on persification of client money, including a proposal on the amount of client money which can be held in a group bank; ¶ clarification on the accrual method of calculating the client money requirement, guidance on trust letters and a proposal on the CASS 5 resolution pack; ¶ proposals relating to credit write backs, unclaimed client money, unallocated client money, client money held at third parties, prudent over-segregation, money held as designated investments, commission, same day draw down and money due to a client from a firm, including a proposal in relation to segregation of client money held by a firm’s appointed representatives, field representatives or other agents; ¶ proposals in relation to firms’ governance on CASS oversight, client money audit reports and Section C of RMAP. ¶ Responses are required by 30 November 2012. FSA intends to publish feedback and final rules in Q2 2013.