In and to allow firms to deposit

In this Policy Statement, the Financial Conduct Authority highlight how client money rules (CASS 7) are preventing investment firms from stationing client money in bank accounts that have unbreakable terms of no more than 30 days (30 day rule). A small group was formed in the lead up to CP17/29 to investigate the issues of the 30-day rule and to underline any changes that could be made to improve it. The sample group for the survey was 31 investment firms who each represented an industry association. The feedback from the survey showed that creating an alternative – the 95-day rule -would help the situation as banks would be more willing to hold client money.Response has shown that this issue has deteriorated by larger amounts of client money and liquidity in banks. In the consultation paper CP17/29, the FCA proposed changes to the 30-Day Rule which was created to allow protection of client money being held by firms and to allow firms to deposit client money in an unbreakable deposit of up to 90 days.  . The changes are evidently most relevant to regulated firms holding money, banks being used for deposits and auditors who provide client asset reports. The purpose of the policy and adapting the rules is to allow consumers to make decisions with the correct knowledge. It will also affect protections provided to consumers.AmendmentsThe first part of the document was based on the length of an unbreakable deposit. From feedback given on authorising a firm to deposit client money in client bank accounts with unbreakable terms of between 31 and 90 days, the FCA were persuaded into allowing 95-day UDs to allow banks to accept more client money.The majority of respondents encouraged the FCA to allow firms to deposit client money in unbreakable deposits of 95 days. Using 95-day UDs proved more beneficial for banks where their internal policies are stricter for 90-day deposits.The survey asked firms whether it should be made clear that if the notice expiry period is on a day the bank is closed, and the firm can make the withdrawal on the next working day, that it will not be a breach of CASS 7. Whilst most respondents agreed with this proposal, the FCA clarify that a firm will be in breach of the final rules if its UD finishes on a weekend or bank holiday and the firm cannot make a withdrawal until the next day the bank is open for business.The statement then continued on to focus the conditions on UDs of over 30 days. Due to the majority of respondents agreeing with this proposal, the FCA introduced these provisions with changes. Before a firm deposits, holds or receives client money in 95-day UDs, it must send an explanation to the client of risks of a longer notice period for withdrawals. Also, while using 95-day UDs and before receiving/holding client money. This is in case of a firm failure and client money is pooled or ‘stuck’ in a UD.The provisions which set out how a firm can demonstrate compliance by taking appropriate measures to manage risks of inaccessible client money when required was questioned regarding how helpful it was in terms of understanding and achievability. The FCA have decided to introduce these provisions noting the majority of respondents agreed the proposal was clear, understandable and achievable. The FCA asked respondents whether they agreed with investment firms including a written policy in its CASS Resolution Pack. As a result, this proposal was introduced as noted by firms that it would be useful for an IP..The CMAR Guidance has been amended to make sure UDs are reported at the end of the reporting period and unexpired UDs are also reported if the term is longer than 30 days. Respondents were asked if they feel CASS medium and large firms which use UDs of more than 30 days should report these in their CMARs and whether guidance to CMAR17 should be reported by firms. Essentially, all respondents were in support of this proposal. BIPRU liquidity requirements for investment firmsInvestment firms using extended term UDs keep an obligation to make customer cash withdrawals and investment redemptions quickly. There is an additional risk to liquidity due to maturity transformation which occurs from timing differences with cash flow of client money.All firms where BIPRU 12 is in place must comply with the ‘Liquidity Adequacy Rule’ which means the firms will have constantly have access to liquidity resources. Firms must undergo a liquidity risk management framework to show their compliance with the rule. All firms must also have a ‘Contingency Funding Plan’ to show procedures that identify and manage a liquidity stress event, liquidity sources available and how they are used to meet stressed liquidity outflows.

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