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ARTICLE · 01 MAY 2012

Practical Implications Of The Supreme Court's Client Money Decision

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In its recent decision in Lehman Brothers International (Europe) ("in administration") the Supreme Court resolves the uncertainty where a regulated firm does not properly segregate client monies.

United KingdomFinance and Banking
Edward Starling
Edward Starling

In its recent decision in Lehman Brothers International (Europe) (in administration)1  the Supreme Court resolves the uncertainty where a regulated firm does not properly segregate client monies. The decision has a number of practical implications, not only for the administration of Lehman Brothers International (Europe) (LBIE) but also for the way client monies are held by institutions.

Background

The client money rules in Chapter 7 of the Clients Assets Sourcebook (CASS 7) of the Financial Services Authority (FSA) create a statutory trust under which firms hold client money on behalf of clients. This client money is then usually used for trades/investments.  The central feature of the rules is the requirement imposed on regulated firms to segregate money that they receive from or hold on behalf of their clients in the course of business by placing it into a client money account in order to keep it separate from the firm's own money.

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