The Financial Services Authority has announced it will be looking at ways to improve the security for consumers, in the event that an investment company or other financial services firm that holds its money becomes insolvent.
The move from the regulator comes after recent high profile collapses in spread betting firm, World Spreads and MF Global.
An initiative is already being driven from the EU, with the introduction of the European Markets Infrastructure Regulation, but the FSA does not believe the measures go far enough. It is therefore planning on taking the new rules one step further, to protect the UK’s reputation as being a secure financial market.
Some of the measures being proposed include allowing firms to create ‘pools,’ where clients’ money can be held, in some cases completely separately, thus providing clarity in the event of financial collapse. This alteration, if approved, will be the single change in 20 years for investment firms and could alter the entire insolvency process.
The creation of these pools means that clients’ money will be treated far differently, if a firm became insolvent. At present, all money belonging to clients is held in a central account, separate from the firm’s own money, but with no further breakdown. This means that all parties have to share from the central account, sometimes a complicated and wieldy process. The new process should mean that many clients have their own pool, making it far easier and quicker to simply return their money.
The FSA hopes that the new proposals will speed up the process, making the return of assets far quicker. The regulator also believes that it will make it easier to ensure that individuals receive the money they are entitled, to as well as reducing the impact on the market as a whole.