The FSA is proposing a number of changes to the client assets regime for investment firms.
The regulator is to consult on changes required by the European Market Infrastructure Regulation regulator, that would require central counterparties in the event of a default by a clearing member.
The establishment of a central counterparty would try to transfer client positions from a failed member to a back-up or the return of any balance, allowing clients to carry on trading or have their money returned.
This would allow client money would not be pooled and would be transferred or paid to the client directly.
The FSA is also consulting on changes to extend these options to all client money held by firms in relation to investment business and would be made possible by the introduction of multiple client money pools.
By segregating client money from a single pool into separate client money sub-pools, the regulator hopes any shortfalls will be restricted to a sub-pool so all clients do not share losses.
A fundamental review of the regime is also taking place to help improve speed of return of client assets in the case of insolvency, reduce market impact of an insolvency and achieve a greater return of client money.
Client assets unit leader at the FSA Richard Sutcliffe says: “The protection of client assets remains a key priority for the FSA and today’s proposals will go a long way to ensure confidence in UK markets is maintained.
“In addition to the changes required by Emir the FSA proposals will lead to the most radical change in the client assets regime in over 20 years with the introduction of client money sub-pools that are designed to bring further safeguards to the industry.
“Furthermore, the fundamental review of our client assets regime also invites debate on the changes required following the lessons learned from ongoing insolvencies.”