Herbert Smith have posted a briefing discussing the main aspects of the Lehman judgment as well as the key implications for FSA regulated firms and their clients. It also discusses some ways in which clients may wish to mitigate the insolvency risks they would otherwise face where their cash is held by FSA regulated firms as client money.
Overview
On 15 December 2009, the High Court handed down its judgment in relation to an application for directions made by the administrators of Lehman Brothers International (Europe) (LBIE).
This application for directions related to a range of issues arising under the FSA’s client money rules set out in Chapter 7 of its Client Assets Sourcebook (CASS 7).
One of the main purposes of the application was to address issues arising out of the earlier High Court judgment in Re Global Europe Trader Ltd (In Liquidation) [2009] EWHC 602 (Ch) (Global Trader (No 1)).
The judgment of Briggs J had been eagerly awaited by many of those affected by LBIE’s insolvency, as well as the FSA, which is in the process of preparing a wide ranging consultation paper on CASS 7. Although subject to an appeal, the judgment represents the current state of the law in relation to CASS 7 and its implications should be considered by both FSA regulated firms and their clients.
The main effect of the judgment is that any client whose money has not been segregated by an FSA regulated firm in accordance with CASS 7 will, in the event of the firm’s insolvency, be unable to assert a proprietary claim against the pool of segregated client money and will instead be faced with the challenge of tracing that money through the firm’s own accounts under established principles.
To view the full briefing, please click here.
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