Global policymakers are calling on securities regulators to step up the protection of clients assets in the wake of the failures of brokerage houses, Lehman Brothers and MF Global.
The International Organization of Securities Commissions (IOSCO) published a report Wednesday that aims to help regulators improve the supervision of firms that hold client assets. The report sets out eight principles designed to aid enhanced supervision by clarifying the roles of firms and regulators in protecting client assets.
The report highlights the responsibility of financial firms to ensure compliance with rules in this area, including their obligation to develop risk management systems and internal controls to monitor compliance. It also notes that when firms place client assets with third parties they should reconcile the client´s accounts and records with the third party’s records.
IOSCO says that the insolvencies of large Wall Street firms, Lehman Brothers and MF Global, in recent years have put client asset protection regimes in the spotlight. “This is the result of investors trying to better understand the potential implications of placing their assets with particular intermediaries and in certain jurisdictions,” it notes.
And, at the same time, it says that regulators have been seeking to address risks to client assets, and how to return client assets when a default or insolvency occurs.