Protecting client assets

08 October 2018

It’s now more than a decade since Lehman Brothers went bankrupt, but we were given another reminder earlier this year as to why we can’t be complacent about risks to client funds.

Retail investors were facing losses on funds they had invested with Beaufort Securities when it was declared insolvent in March, with its administrator planning to use customer money to cover the cost of insolvency proceedings.

The Financial Services Compensation Scheme stepped in but the episode reinforced that the financial services industry must still learn lessons about how to minimise risks to client funds from insolvencies.

Security of client assets is critically important and client asset custodians, who hold client assets for safekeeping, must take their responsibilities very seriously. These responsibilities were increased after the 2008 financial crisis when the Financial Conduct Authority (FCA), rigorously enhanced its Client Asset Sourcebook (CASS) in order to better protect retail investors. This Sourcebook provides rules for firms that hold or control client money and safe custody assets.

The actions taken by the FCA have helped establish the UK as a leading jurisdiction with respect to the safety and security of retail clients’ assets.

Specialist custodians that focus on servicing wealth managers should operate a low-risk business model focused on asset safekeeping and security. Being conservative, independent and un-conflicted, and having the CASS rules as the main regulatory focus of the business, helps to reduce risks to clients.

In short, the protection of clients’ assets should be at the heart of everything that a custodian firm undertakes, and it is this that Multrees aims for. The UK’s suite of rules, regulations and guidance, combined with an operation that works closely with Risk, Compliance and Internal Control teams, means Multrees has a strong holistic approach to client asset safety that permeates the whole business.

Add a low risk and conservative business model that focuses on capital adequacy, conflict avoidance and independence, and wealth management firms and their clients can be confident in Multrees.