Money protection rules: A false sense of confidence

The announcement yesterday by the FSA of its fine against J P Morgan Securities Ltd. has sent a strong signal to UK's financial institutions authorized to hold client money and assets.

The FSA rule seems to provide good protection for clients but this is without considering the option available in the law to opt-out from the client money rules. Amongst hedge funds, it is not uncommon for managers to choose this option since they usually get a better interest income for their cash.

At the end of the day, it is very good for regulator to enforce the rules but it also gives a false sense of protection to investors who don't always understand all the subtleties of the law.

Conclusion: Don't take money protection for granted. Ask you manager the right questions!!


The Financial Services Authority (FSA) has fined J P Morgan Securities Ltd (JPMSL) £33.32 million for failing to protect client money by segregating it appropriately.
Under the FSA's client money rules, firms are required to keep client money separate from the firm's money in segregated accounts with trust status. This helps to protect client money in the event of the firm's insolvency….
Click here to read the FSA's announcement.