The FCA has published Policy Statement 18/2: Client money and unbreakable deposits – feedback to CP17/29 and final rules (PS18/2). In PS18/2 the FCA provides feedback and final rules on its proposed amendments on the client money 30-day rule and unbreakable deposits (UDs) as set out in Consultation Paper 17/29: Client money and unbreakable deposits (CP17/29) (our blog is here).
Among other things the final FCA rules provide that:
- firms may hold a proportion of client money in an UD longer than 30 days, subject to certain conditions;
- a firm may hold an appropriate proportion of client money in 95-day UDs;
- firms must produce a written policy setting out the maximum proportion of client money that would be appropriate for it to deposit in a UD longer than 30 days and the measures it will take to manage the risk of being unable to access client money when required;
- the written policy must be included in the CASS resolution pack so that an insolvency practitioner will be able to identify whether the firm places client money in UDs of longer than 30 days;
- prior to a firm depositing client money in 95-day UDs, it must provide each client with a written explanation of the risks that arise as a result of the longer notice periods for withdrawals;
- whilst a firm uses 95-day UDs, before receiving or holding client money from new clients, the firm must provide them with a written explanation of the risks of the longer notice periods for withdrawals;
- firms can provide the written explanation as a standalone notification or as part of their existing disclosures, providing the explanation complies with the final rules. This includes being clear, fair and not misleading. The FCA is not considering an industry-wide communication on the wider context and risks to consumers at this time; and
- the FCA has moved the requirement to report UDs of longer than 30 days in the client money and asset return (CMAR) to SUP16.14.
The FCA has also amended the CMAR guidance to make it clear that firms should report any UD in use at the end of the reporting period. The amended rules make it clear that firms should report the unexpired term of a UD, where the remaining term is longer than 30 days. The CMAR guidance has also been updated on how UDs should be reported by firms and the FCA has included a worked example.
Paragraphs 2.24 to 2.27 of PS18/2 summarises liquidity requirements for investment firms.
The final rules (set out in Appendix 1 of PS18/2) will come into force on 22 January 2018.
View PS18/2: Client money and unbreakable deposits, 22 January 2018