The Futures and Options Association (FOA) sets out in this paper some recommendations as to how the FSA’s Client Money Rules (Client Money Rules), as set out in the Client Assets sourcebook of the FSA Rules (CASS), could be improved in light of the administration of Lehman Brothers International (Europe) (LBIE). These reflect discussions which the FOA has carried out with its members since 15 September 2008.
The FOA understands that the FSA is considering making certain amendments to the Client Money Rules and hopes that the FSA will take these recommendations into account. The FOA would be pleased to discuss these recommendations and any other proposals with the FSA in further detail.
The FOA is also conscious that the operation of the Client Money Rules has a complex relationship with insolvency law and believes it is important that any amendments that are made to one are reflected in the other. The FOA is also participating in the Investment Banking Advisory Panel review of the application of insolvency law to investment banks, and notes the similarity between several of the suggestions raised in HM Treasury’s recent paper and its own recommendations.
The FOA also notes the recent publication of the judgment in In Re Global Trader Europe Limited and the conclusions which Sir Andrew Parke reached about the circumstances in which cash might not be held as client money both before and after a pooling event. The administrators of LBIE have sought directions from the court in relation to the judgement in the Global Trader case and to clarify the status and application of other aspects of the Client Money Rules that are ambiguous and where drafting changes would be appropriate. The court’s deliberations may potentially also reveal instances of where the outcome of the court’s interpretation of the Client Money Rules may lead to undesirable outcomes which can be addressed by amending the rules. As such, it would be helpful to continue to monitor the LBIE administration process to identify CASS rules that should be amended.
