knowledge 8 July 2022 |

Central Bank issues revised Client Asset Requirements (Updated 9 February 2023)

The revised client asset requirements, referred to as “CAR 2022”, are contained in Part 6 of a draft third edition of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations. A related draft guidance note (the “Guidance”) was also published by the CBI to assist investment firms comply with CAR 2022¹.

CAR 2022 applies to investment firms which hold client assets or which enter into title transfer collateral arrangements. 'Investment firms' include MiFID investment firms, investment business firms and UCITS management companies/AIFMs with MiFID ‘top-up’ permissions (but only in respect of those ‘top-up’ activities)².

CAR 2022 now also includes credit institutions carrying out MiFID activities within the definition of ‘Investment firm’.

CAR 2022 includes new provisions relating to:

• reconciliation and calculation requirements for client financial instruments;

• transfer of business requirements - investment firms must disclose arrangements relating to the transfer of business to clients prior to receiving assets and notify the CBI three months in advance of any material transfer of client assets as part of a transfer of business;

• reporting requirements to the CBI and client disclosures for in scope credit institutions;

• prime brokerage services - in scope prime brokerage agreements will need to include a ‘Client Asset Annex’ summarising key provisions relating to the use of client financial instruments by an investment firm;

• title transfer collateral arrangements – title transfer collateral arrangements will need to include specific provisions in respect of the transfer of client assets and termination arrangements; and

• the client asset management plan (“CAMP”) – the CAMP must now include a ‘client asset applicability matrix’ (“CAAM”) which, the Guidance explains, should ‘provide an independent reader with a clear and succinct overview of the products and services/activities that are in or out of scope of the client asset regime, so that it is readily understood where and how client assets arise within each business line of an investment firm’. The Guidance also contains extensive detail on the expected content of the CAMP.

Comment and Next Steps

Firms should begin the process of aligning their systems, processes and client documentation to meet the requirements of CAR 2022 and the Guidance. In particular, in scope credit institutions should take note of these new requirements, including reporting and disclosure requirements, which will apply under CAR 2022 and the Guidance.

The CBI expects full compliance with CAR 2022 from 1 July 2023 (for investment firms) and from 1 January 2024 (for credit institutions). 

Update 9 February 2023: On 27 January 2023, the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2023 containing CAR 2022 were published (here). In addition, the CBI published a draft addendum to the Guidance in February 2023 (here).