The return of client money in investment bank special administrations: an empirical assessment
Year: 2025
Type: article
Abstract: This article empirically investigates the return of client money under the newly created investment bank special administration regime in the UK. The data suggest that the new regime has largely failed to achieve its fundamental objective of delivering a quick return of client money. The findings prove that the automatically triggered client money pooling event is unnecessary and disruptive and that its application should be conditional upon the occurrence of a client money shortfall, which is not seen in most investment bank special administrations. Practice reveals that most failed firms behave properly in safeguarding client money, suggesting that the UK investment banking sector is well regulated and that it is generally safe for investors to have funds to be held by investment banks. But the biggest threat to client money is, as is evidenced in the collected data, distribution costs, not client money shortfalls. In most cases, distribution costs cannot be equitably justified. The findings can also confirm that the client money bar date is largely powerless in facilitating a quick return of client money due to its flawed design and its loose enforcement. To expedite the return of client money, relying on the firm’s client money records, which are correct and reliable in most investment bank special administrations, is a viable option and can reduce costs drastically. This article empirically investigates the return of client money in UK investment bank special administrations.1 As a matter of common sense, the return of client money is supposed to be subject to the same rules applicable to that of client assets. Considerable differences are found, however. For example, just to name but a few, a primary pooling event only applies to client money, not to client assets2; client assets are distributed following a court-approved redistribution plan, whereas the repayment of client money can be done without a court-sanctioned scheme; in the Financial Conduct Authority Client Assets Sourcebook (commonly known as CASS), client money and assets are regulated in different chapters, with Chapter 6 (CASS6) on client assets and Chapter 7 (CASS7) on client money. As is precisely addressed by an English judge, ‘a separate regime’ governs how client money is returned.3 Some may question whether the client money regime is worth investigating in the first place, given that in the UK investment banking sector is only client money of in held by investment in to of client assets in the of the of the return of client money cannot be by its for in investment bank special administrations, the may not client but firms in special client money. In to the return of client money are to client assets. the return of client the return of client money to which may to to This is for the UK of its on the In in investment bank special administrations, it is not to of of of client money and a To how client money is in investment bank special article investment bank special administrations, a the to under the UK investment bank special administration a investigating how in and In article on how is the primary pooling event in the and rules not are client money as as and are the in client money can be to the for and the bar a to client money in a is to be a in a return of client money, article the question whether its in client money article to a how client money return is in UK investment bank special administrations. To the of the article in the how a client money pooling event is to be and the of client money the of the client money bar how the data and the that whether to a client money pooling event should be that client money of failed firms be to be by costs and are and that the client money bar date with and should be As is the of the to as the which created the UK investment bank special administration a to the of client assets and money in the of is worth that the the of the UK investment bank special administration a of and governs how an investment bank special administration is This is the on the return of client money. the it only to client money, of and the of the that of the special administration is to the return of client assets as as is and in client assets client suggesting that a quick return of client money is of of the a bar date to be for client but it that not to client of the that of client assets of a should be by but it a that redistribution is only for client not for client of the not on client money. not the the client money in the as a of which which in of not to to client money rules which with rules on the return of client money in the the by the and by the Financial and and it not be to on to to be rules to be client money, the objective in its the return of client money can be under a primary pooling event client money the and investment bank are in This that the special the primary pooling event is may also The may client money in a client bank a under and for a client money is in the firm’s client not have a to the money in and a a primary pooling event it the client money in the client money bank and is is which that the the client bank and is are and can client money to the newly created client money is the client money primary pooling event may as seen in the an investment bank is in the of client money for client money is to be as to it to in an to the on the return of client money. client money the of an investment under is to be which that client a which is to the client money This is the fundamental to client money may have failed to as for the client money and the of the client money. is as is by which that is a client money and in is the only and The is that is an is and is in client bank that the properly and can is unnecessary in an The is a the and special it that is client money is by and it and be in should be The to have not by the of and to as the which special to a to money the firm’s to the client bank in the event of a a in the client bank to the firm’s is client money are the distribution the investment bank special administration regime the bar date in to expedite the return of client money. 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be This also and is in the special of and In the special administration of for example, the special that following a client money the that the firm’s client money not be upon to return client money of may that the not a client money should be to The threat by the special in the be on the of client money in the it a whether investors be client money under a client has in the investment under a that is as the of the and is not subject to client money In in the and on the firm’s which that it for client money which client given the correct and in has in the firm’s client money not the special the of client money it in that the client money to a a client money of suggesting that client money This to be In the special administration of a But client money as by the special on the the for client money only by client money whereas the is that is a of client money a of the special in the special of and the of client money is a of client money without the of a client money the most in client money, is in investment bank special In the can be as the client money in the special of and without to the and client money In a for special the of client money and cannot distribution costs of client money. is to client money distribution The be of which that the event of of the costs to the distribution of client money may have to be by the The in can be as a This that costs may have to be by the But not as for in costs may not be of the is whether it is that is by the that is by the a it to the of the is to by the Financial and distribution costs to be the cannot its the the only generally the to which in that money held on that distribution costs may be the is due to the the first In the in is by common of by the The first the costs of assets to be by the is in But should be properly and are worth in the firm’s only to to in to the client money whereas the distribution of the client money to suggesting that it to the firm’s to This is a the should be in its the and the that to be and of the assets the assets to have only of the the not have the of client money held on by the should be the has given in to whether a should be by the the has in a following of the same a that the of the client money should be the are assets in the firm’s which in with the given by In as is seen in it to be for to the client money to the distribution costs of whether the has assets This that the by This article is, of the that the has the client money distribution costs should be the firm’s first and that and the firm’s is the client money to This is also with the as by a in the not in a but in a and be in properly in the as the and by the in the administration of the and that have in the of the should also not be is that it the the costs of the client money costs to the is not But the question is how the special in the upon and the whether to client money to the distribution the rules In whether distribution costs on client money the special of and should be the for the same the cases, it is that the special distribution costs on the client money in as in costs on client money costs on client money This that the special distribution costs on
Source: Capital Markets Law Journal
DOI: 10.1093/cmlj/kmaf004
Author: Zinian Zhang
Institution: University of Glasgow
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $4,533
OpenAlex ID: W6960061999
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