The Financial Markets Authority has released draft guidance for consultation in relation to the requirements under the Financial Markets Conduct Act 2013 and Financial Markets Conduct Regulations 2014 that apply to providers of "client money or client property services" (Client Property Requirements).
The draft guidance:
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updates and expands on the FMA's previous 2014 guidance in relation to the equivalent "broker" regime under the now repealed Financial Advisers Act 2008;
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is wide-ranging but covers some of the key areas of uncertainty regarding the application of the Client Property Requirements; and
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provides additional information to address issues the FMA has observed from recent monitoring and misconduct cases.
Broadly, a provider of client money or property services is a person or entity that:
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receives money from, or on account of a client, for the purpose of acquiring, holding or disposing of a financial advice product (which is broadly defined and includes contracts of insurance and consumer credit contracts); and/or
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receives a financial advice product (or a beneficial interest in such) from, or on account of a client.
A provider of such services is required to comply with specific disclosure and conduct requirements in respect of its clients and the client money and property held by it. In addition, a custodian, which is a subset of client money or property service providers, is required to comply with additional requirements.
Key matters that the draft guidance covers include:
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Outsourcing of client money and property services to third parties.
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Cross-use of client money.
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Deducting margins from client money (including interest on money).
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Identification of wholesale clients.
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Intermediaries, including guidance on the interplay between the requirements of the Insurance Intermediaries Act 1994 and the Client Property Requirements.
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Identifying the provider, including guidance on services that involve a number of parties (eg wrap platforms and custodians) and the application of section 431ZI.
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Custodians' obligations.
In our experience, the Client Property Requirements are not well understood and, given the increasing complexity and innovation in broking and custodial arrangements in financial markets, the application of those provisions can be unclear. Accordingly, the draft guidance is likely to be helpful to those considering providing client money or property services and those who currently provide such services. The consultation is a good opportunity for providers to seek to address any ambiguities on the Client Property Requirements.
Consultation closes on 1 November 2022.
This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.