The FCA continued its flurry of Dear CEO letters on Friday with a communication to wholesale brokers. The letter points to failings in title transfer collateral arrangements – or TTCAs – and the matched principal exemption.
It comes after an uptick of supervisory activity on CASS issues over the last six months with many firms having received data requests and site visits, with a high degree of scrutiny, particularly on TTCAs.
The Dear CEO letter to brokers will have an impact for many in the sector. It focuses on two key issues:
Inappropriate use of TTCAs resulting in CASS failings
In particular the letter focuses on the holding of client assets and monies under TTCAs which are disproportionate to the likely future obligations of the client to the broker
Incorrectly classifying transactions as falling within the prudential matched principal exemption
This potentially results in firms holding lower financial resources than may be required, and acting outside the scope of their regulatory permissions. In particular, the FCA believes that margin transactions and financing transactions are unlikely to meet the tests for classification of transactions as matched principal for prudential purposes.
Both issues may result in a firm needing to change the regulatory permissions which it holds. If you’re holding client assets or monies in excess of those directly linked to client obligations you should look at whether you need permission to safeguard client assets, and apply CASS to those assets. Likewise, if you’re entering into financing arrangements which would not satisfy the tests for the matched principal exemption you may need to seek permission to deal as principal without your current matched principal restriction.
Given the current FCA focus on this topic, all wholesale brokers should review their arrangements, and determine whether they are consistent with the FCA’s new guidance.
We can help you check whether your current arrangements need re-visiting or work with you to pull together a response to the FCA by the 14th August deadline.
You can read the Dear CEO letter to wholesale brokers on the FCA’s website here: Inappropriate use of title transfer collateral arrangements (‘TTCAs’) and regulatory permissions for financing transactions