In his 2014 Budget, George Osborne announced far-reaching reforms he said would help savers by dramatically increasing the simplicity, flexibility, and generosity of ISAs.
Under the changes announced by the Chancellor money in a stocks and shares ISA need not be held for the purpose of investment, and consumers can now use stocks and shares ISAs for both cash saving and investment purposes, without distinguishing between the two.
The FCA identified that under the current client money rules the changes to the ISA regime may lead to some ambiguity as to what money is, and should be protected under client money rules.
On 11 June the FCA issued a Consultation Paper (CP14/9) in which it proposed a number of rule changes to the client money rules in relation to all money held in stocks and share ISAs as well as cash ISAs. Following a brief consultation period on 1 July, the FCA published Policy Statement (PS)14/10 which summarised feedback from CP14/9 on the proposed changes and sets out the final rules.
The Policy Statement confirms that the FCA is proceeding with the rule changes identified in the Consultation Paper to come into effect in two stages, on 1 July 2014 and 1 June 2015.
In relation to Unbreakable Term Deposits, following a mixed response to the Consultation Paper, the FCA has confirmed in the Policy Statement that it will not be proceeding with the changes originally intended to limit a firm’s ability to withdraw client money from a fixed term deposit within an ISA wrapper. As a result, ISA managers will not be able to place client money held in a stocks and shares ISA or cash ISA in an unbreakable term deposit of more than 30 days.
Following the feedback received on the consultation paper, the FCA has also clarified that ISA monies held collectively with a third party do not constitute an unregulated collective investment scheme. The FCA has provided further guidance on the issue in the Policy Statement and has advised that an ISA manager can rely on the exemption for pure deposit-based schemes, although not being regarded as accepting deposits itself.
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