The International Organisation of Securities Commission (IOSCO) has published eight recommendations for the protection of client assets, aimed at helping regulators improve supervision.
Regulators are looking to address risk to client assets held by intermediaries in certain jurisdictions and how to return client assets in default, resolution or insolvency scenarios as a result of the financial crisis.
IOSCO’s principles provide guidance on intermediaries’ responsibility to ensure compliance with current rules, including risk management systems and internal controls to monitor compliance.
In its report, IOSCO states there were two possible scenarios that may contribute to regulatory challenges around protection of client assets: where a client has, knowingly or unknowingly, waived or modified the degree of protection or opted out, and where an intermediary has placed or deposited assets in a foreign jurisdiction.
IOSCO said to solve the issue documentary requirements should apply, requiring intermediaries to obtain a client’s recorded consent, and it was important for a client to understand the implications of a waiver.
The recommendations, which touch on the roles of both regulators and intermediaries, include having intermediaries maintain accurate and up-to-date records and accounts of client assets, provide a regular statement to clients, and for regulators to maintain a regime that promotes effective safeguarding of client assets.
If assets have been moved to another jurisdiction, intermediaries would need to make sure they comply with that country’s regulatory requirements.
“The intermediary has the responsibility to understand the client asset protection regimes and arrangements in every jurisdiction in which client assets are kept, to the extent necessary to ensure compliance with the domestic requirements,” the report said.
IOSCO received 21 public responses to a consultation on the protection of client assets, which was published last year.