Client Money And Assets
The FSA has become increasingly focussed on the regulation of client assets, partly resulting from what has been described as "massive under-segregation" of assets by Lehman. As part of this in 2009 the FSA set up a CASS Unit which is mandated, amongst other things, to drive forward policy in this area and to step up the FSA's scrutiny of firms' compliance with the CASS requirements. As a result of its work so far, the CASS Unit has identified three key risks prevalent at firms operating in this area:
- Inadequate resource and oversight;
- Inadequate notification and acknowledgement of trust letters; and
- Inadequate records, accounts and reconciliations.
The CASS Unit will take action where it identifies compliance failings. This may entail enforcement action and/or the commissioning of a Section 166 (Skilled Person) Reports at the firm's expense. As the CASS Unit plans to double its headcount we expect its efforts in this area to further intensify.
We have also seen changes in the regulatory requirements applying to firms holding client money or assets:
- The corporate governance arrangements have been strengthened and firms are now required to appoint an individual to perform CASS oversight and to undertake more detailed CASS periodic reporting (for some firms, on a monthly basis). There have also been wide-ranging changes applying to prime brokerage firms;
- Further requirements are expected to be introduced relating to the Auditor's Report on Client Assets, materially increasing the amount of work that Auditors have to undertake to meet FSA expectations (including reporting to the FSA on identified breaches), and as a consequence requiring firms to enhance their efforts in this area.
There are a number of ways in which we can help firms in meeting both the FSA's existing and new CASS requirements:
- Completing a CASS review to ensure full preparedness for the Auditor's visit;
- Drafting procedures and policies, including in relation to calculating the firm's "client money requirement";
- Completion of the new Client Money and Assets Return.