Over recent months, the FCA has published a raft of guidance for firms to help prevent consumer harm in light of the unprecedented COVID-19 pandemic. On 12 August, the FCA wrote directly to CEOs of firms who provide non-discretionary investment services to clients requiring them to take action to prevent harm to clients.
This Dear CEO letter was issued in response to a number firms who hold client money reporting an increase (in some cases a significant increase) in client money balances in the half year to June 2020. This in part is due to clients of such firms rebalancing their portfolios to mitigate volatility during the COVID-19 pandemic. The Dear CEO letter was not applicable to client money balances held within a tax efficient wrapper or under a collateral arrangement for margined transactions.
The FCA is requiring the firms it has contacted to undertake the following:
- Consider whether the firm needs to hold client money balances which are unlikely to be reinvested or whether it would be in clients’ better interests to place these balances directly with their own current or savings account providers.
- Engage with clients about increased client money balances to determine whether these should be returned to them or continue to be held by the firm to facilitate further investment in the short term.
- Where a client wishes for such client money balances to be returned, for this to be returned in a prompt manner.
The FCA has stated that it will continue to review client money balances through regulatory returns over the coming period and will follow-up with firms individually that report significantly increased balances. Firms should therefore be prepared for discussions with the FCA as regard what action they have taken in response to this Dear CEO letter and how the actions they take are in clients’ best interests.