The extensive and detailed changes include a rewrite of the client money rules for investment firms and substantial amendments to the custody rules in the client assets sourcebook (CASS). They are the result of the lessons learnt from recent insolvencies, feedback from firms themselves and observations from the FCA’s specialist Client Assets Unit.

The FCA says the changes will improve firms’ systems and controls around segregation, record keeping and reconciliations and set out how investment firms must address client assets risks within their business.

David Lawton, FCA director of markets said: ‘These changes will improve the protection offered to client assets and should speed up the recovery of client assets on a failure of a firm.’  

The new rules will affect approximately 1,500 FCA regulated firms that carry out investment business, from the largest investment banks to the smallest investment advisor, who collectively hold over £100bn of client money and £10tn of custody assets.

The FCA says it is not going ahead for the moment with most of the proposals it consulted on around the client money distribution rules, as it is awaiting the Treasury’s responses to an independent review of the special administration regime (SAR) which published its report in January 2014. 

 The Treasury is currently considering the SAR review’s recommendations to improve the operation of the SAR, including changes proposed to the SAR legislation and CASS. Once the Treasury lays out how it will implement the changes, then the FCA says it will conduct a further review of the client money distribution rules, with a consultation later this year.