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CASS RP Changes on the Horizon?

On 14 January 2014, HM Treasury published the “Final review of the Investment Bank Special Administration Regulations 2011” conducted by Peter Bloxham.  The report meets Parliament’s requirement that the Treasury hold an independent review of the special administration regime (SAR) for investment banks within two years of it coming into force.

Five firms have gone into the SAR procedure since it was introduced in 2011.  Of these, two firms[1] have entered into the SAR after entry into force of the CASS Resolution Pack regulations[2] in October 2012.  Unfortunately, in neither case has either the percentage of client money returned or the estimated percentage client money shortfall materially improved since the collapse of MF Global in October 2011.  Concerns also persist about the speed at which client money is returned by Administrators, an issue which the author puts down to:

  • The need for a period of familiarisation with the affairs of a failed firm by an Administrator;
  • The need to clarify the operation and effect of the client asset and SAR regime;
  • The state of the records of a failed firm;
  • The need to carry out and agree reconciliations;
  • Litigation, often involving officeholders of other group companies; and
  • Delays in securing the return of client assets and client monies held by third parties.

In light of this, Mr Bloxham emphasises the need to ensure a holistic approach between regulation in going concern mode and the operation of the SAR in ‘gone concern’ mode, and the need to clarify the relationship between the two.  He recommends that, once the FCA has reached a decision on the revisions it intends to make to the CASS rules, it should seek the views of market professionals (particularly Insolvency Practitioners), as well as the Financial Services Compensation Scheme (FSCS), on proportionate additions which could be made to CASS Resolution Packs, with a view to further increasing the speed of return of client assets.

The report makes the following recommendations, some of which would affect CASS Resolution Packs directly, others indirectly:


  • Audit reports: firms that continue to use the “Alternative Approach” should include a statement describing how monies are received and subsequently allocated;
  • CASS Resolution Packs should contain sufficient data to enable the Administrator and FSCS to more speedily identify FSCS eligible clients, how their products are structured, and whether the FSCS can provide compensation in relation to any parts of the business of the failed firm;
  • CASS Resolution Packs should contain a detailed explanation of how client statements are presented;
  • Firm’s should remove any ambiguities in their intra-group arrangements and be required to include copies of their principal long term intra-group agreements within their CASS Resolution Packs.


  • In appropriate cases, firms should be encouraged by the FCA to use a wholly owned subsidiary as a nominee company to hold legal title to client investments (other than cash).  This may assist in the rapid transfer of client positions to a solvent successor via a transfer of shares in the nominee company, without the need for transfers of individual holdings.

It is already almost certain that the FCA’s Review of the client assets regime for investment business will result in a number of changes to the CASS Resolution Pack requirements.  Whether this report drives yet more amendments to the rules will depend on whether HM Treasury decides to implement any of the recommendations.  The timetable for this is unclear but will presumably dovetail with the FCA’s announcement of its definitive CASS reforms.  According to its policy development update for December 2013, the FCA expects to publish the final policy statement on its CASS review in Q1/Q2 of 2014, so stay tuned.

[1] Fyshe Horton Finney Limited and City Equities Limited

[2] PS12/6 The CASS Resolution Pack

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