The UK Financial Conduct Authority has published a Policy Statement and final rules to introduce changes to its client money rules to amend the existing 30-Day Rule, under which firms are prevented from placing client money in bank accounts with unbreakable terms of longer than 30 days. The client money rules require firms to deposit client money in an account opened with an authorised bank, a central bank or in a qualifying money market fund. An unbreakable deposit is one where the firm placing the deposit has no contractual ability to request the return of the monies prior to the end of the agreed term.

The rule changes have been made following feedback from firms that banks have been increasingly reluctant to provide 30-day unbreakable deposits. This reluctance appears to have been due to the interaction of the client money and prudential regimes. All client money is subject to the Liquidity Coverage Ratio which requires banks to have highly liquid assets to cover 100% of their potential net cash outflows over 30 days. Unbreakable deposits of a maximum of 30 days are therefore capital inefficient for banks.

While the FCA remains of the view that placing client money in unbreakable deposits for long periods is incompatible with the purpose of the client money regime, the rule changes will allow firms to use 31-90 day unbreakable deposits, provided that they comply with certain conditions such as new record keeping requirements. The FCA consulted on the proposals in August 2017 and, following positive responses to that consultation, is implementing the rule changes as consulted on.

The new rules apply from January 22, 2018.

View the Policy Statement (FCA PS18/2).