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Lehman's legacy for London

The new alternatives for client money

Lehman's legacy for London


The Financial Services Authority (FSA) is undertaking what it describes as “the most radical change that has been made to the client money regime in over 20 years”. In this report, we identify 16 high-level impacts from the proposals. For example, the new operating regime could require firms to operate tens of thousands of new accounts for clients. All 16 impacts will increase costs for investment firms, and we expect that many of these new costs will be passed on. Moreover, further changes under consideration by the FSA and by the US Commodity Futures Trading Commission (US CFTC) could restrict firms’ use of clients’ money. The proposed changes will undoubtedly make client money safer, but whether the price in terms of increased cost and complexity, and a possible draining of liquidity are worth it, remains to be seen.

Key findings

  • The reach of the proposals is vast - the amount of segregated client money held by medium and large firms regulated by the FSA at the end of September 2012 was almost £100 billion.
  • All 16 high-level impacts of the proposals will increase costs for banks, brokers and other investment firms. Due to the pressures on financial sector profitability, many of these costs will be passed on directly to clients.
  • The FSA and the US CFTC are also considering limiting or even banning firms from using clients’ money on their own account. Such a change could dramatically increase trading costs for clients.


Lehman’s legacy for London  Lehman’s legacy for London: The new alternatives for client money (PDF)


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