The “banking lottery” post-Lehman’s client money case

Author: Gemma Varriale | Published: 7 Mar 2012

The UK Supreme Court’s ruling in the Lehman Brothers International Europe (LBIE) client money case highlights the tensions of a legal framework that must deal with both sophisticated financial institutions and ordinary retail investors.

The outcome of the three-year collateral segregation litigation serves a reminder that the Financial Services Authority’s (FSA) rules apply to everyone, and has proved deeply divisive.

On February 29 the Court gave its landmark decision, upholding a lower court’s ruling that LBIE had failed to segregate client money "on a truly spectacular scale". It means that LBIE clients whose money had not been segregated (Unsegregated Clients) can share in the pool of client money to be returned to those entitled to protection (Segregated Clients).

While some said the precedent is a boost to investor protections, Lord Walker’s strong dissenting judgment states that it "makes investment banking more of a lottery than even its...