On August 12, the UK’s Financial Conduct Authority (FCA) published a “Dear CEO Letter” (the Letter) for firms providing non-discretionary investment services that are experiencing an increase in levels of client money held in their accounts.
The FCA is aware that clients may have rebalanced their portfolios to mitigate volatility during the COVID-19 pandemic. Consequently, a number of firms that hold client money have reported an increase in client money balances between January to June.
In the Letter, the FCA states that each firm’s relevant senior manager should consider whether the firm needs to hold client money balances that are unlikely to be reinvested, or whether it would be in its clients’ better interests to place those balances directly with each client’s own current or savings account provider.
The FCA considers it good practice during the COVID-19 pandemic for firms to communicate with clients about increased client money balances to ascertain whether these should be returned to them or whether the firm should continue to hold on to them to facilitate further investment in the short term. If it is in a client’s better interests during this period, firms should return client money balances if they are unlikely to be reinvested in the short term.
The Letter is available here.