New regulations give the regulator more leeway to protect investors if a financial services company goes bankrupt or files for liquidation. A financial services company that wants to file for bankruptcy or liquidation will need to follow new rules from the Capital Market Authority (CMA) before it can file court proceedings, CMA said as it approved yesterday the amendments (pdf) to regulations for companies operating in capital markets.

The essential rundown:

  • The CMA can approve or reject bankruptcy requests from companies operating in capital markets if they hold client funds and / or assets or manage investment funds;
  • CMA has the authority to take any action its sees fit to protect clients;
  • Approval is required: Companies that hold investor funds or assets or are managing investment funds will have to get written approval from CMA ahead of filing for court protection in a bankruptcy or liquidation scenario;
  • Notification is enough for some companies: Companies that don’t hold investor funds or assets and are’t managing investment funds are only required to notify the authority 30 days ahead of starting their bankruptcy procedures in court. (CMA can still withhold approval obligatory if it thinks it necessary.);
  • Neither clients funds nor their assets can be rolled into the bankruptcy holdings. All client funds are exempt from the provisions governing the suspension of claims as stipulated in the insolvency law;
  • CMA can hire a third party to take action to protect clients. The company filing for bankruptcy will need to carry the full costs of the third party.
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