The FSA machine for producing new Investor Protection measures continues with this latest 80 page Consultative Paper aimed at tightening up the CASS Sourcebook in the light of the Lehman Bros saga.
Thankfully, this only extends to those Firms involved in Prime Brokerage that handle Client Assets - and does not extend to Insurance Brokers!
Re hypothecation - Firms will be required to include contractual provisions to be summarised in a disclosure annex to the PBA. The objective is to highlight relevant definitions including that of net client indebtedness and contractual limit on re-hypothecation. It will include a statement setting out the risk to the client upon the prime broker’s default and cross-reference detailed provisions in the PBA. This in turn may help reduce the time required for legal due diligence undertaken by an insolvency practitioner following a prime broker’s collapse.
Daily reporting - Firms will be required to provide clients with access to up-to-date information regarding their accounts.
Client Money - a maximum of 20% may be held internally within Group Client Money Accounts.
New SIF - Controlled Function - One of the Senior Executives within the Firm will have to assume full responsiblity for Client Assets oversight - and will need to be able to demonstrate that ongoing controls are in place.
CMAR - new reporting requirement. Firms will be required to submit Monthly reports to the FSA. Those Firms that are categorised as "Small" will be required to complete CMAR returns on a half yearly basis.
Comments on this Consultative Paper are invited by 30th June 2010 - and our friends in Europe may also have a view.
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