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17th December 2015

Increased Likelihood of FCA Client Money Audits

Since the FCA took on the role of City watchdog, they have paid particular attention to revamping the client money rules, with the final shake-up to the client assets protection regime being introduced for firms back in June.

Most firms will be well aware that failure to comply with the regulators Client Assets Sourcebook (CASS) can prove incredibly costly - as Bank of New York Mellon found out this year when they received a £126 Million fine for failing just that.

With all this regulatory attention being focused on client money, it won’t be long before firms find the FCA knocking at their doors ready to undertake a Client Money Audit, but what can firms do to ensure they are complying and prepared?

Complete a Client Money Health Check

Completing a Client Money Health Check should help firms to identify if there are any areas of weakness within their systems and controls that are designed to protect client money.

The following high level questions should start to help your firm’s understanding of client money and assess how well you have addressed the protection of client money within your business and whether you need to review or revise your firm’s systems and controls.

It should be noted that whilst some of these questions may seem fairly rudimentary – and are by no means exhaustive - they are none-the-less important. Should the answer to any of these questions be a ‘No’ then this would indicate your firm needs to place additional focus upon protecting your clients’ money in accordance with regulatory requirements.

Segregated Client Accounts

 Has your firm setup a separate bank account for holding client money?

 Does the account title of any client money account(s) include wording to distinguish it from any of your other accounts – for example by including ‘client’ or ‘client money’ within the account name?

 Has your firm obtained in writing confirmation from the bank that all money held by your firm on behalf of clients, in as ‘trustee’?

 Has your firm obtained in writing from the bank that it is not entitles to combine the client money account(s) with any other account or to employ any right or set-off against the money in those accounts in respects of any sum owed to it on any other account held by your firm with them?

Transactions involving Client Money:

In relation to client money transactions, is your firm able to answer ‘yes’ to all of the following questions? Again, answering a ‘No’ to any of these would suggest additional attention is required.

 Does your firm pay all money into a client money designated account on the day it is received or by the close of business the next day?

 Does your firm ensure that money arriving by automated transfers is received into a client money designated account?

 Does your firm repay money to clients when due

 Does your firm treat unidentified transactions as client money until they are identified?

Your Firms Client Money Systems & Controls

 Does your firm have written procedures for handling client money?

 Are those staff at your firm who are involved in client money handling arrangements fully aware of your firm’s procedures and their responsibilities?

 Has your firm assessed staff to be competent to perform their role and are these staff regularly monitored in their work?

Preparing for the worst

Since October 2012, firms that hold client money have been required to gather and maintain information regarding client money and so that in the event of a firm’s failure, custody assets and client money can be swiftly returned.

This information pack is called a Client Money and Assets Resolution Pack, or CASS RP for short.

Firms answering ‘no’ to the following should take immediate action to ensure they are complying with CASS.

 Has your firm got and maintain a Client Money and Assets Resolution Pack (CASS RP)?

 Does your CASS RP include the most up to date information available as to which institutions and accounts currently hold client assets?

 Does it include the most recent internal and external reconciliations relating to safe custody assets and client money?

Undertaking a Client Money Health Check

As mentioned, the above questions are merely a starting point for those firms wishing to undertake a Client Money Health Check and carrying one out that is applicable to your firm and its business will require much more in-depth review and analysis to ensure adequate CASS compliance exists within your firm.

Help with CASS RP and Client Money Health Check Support

The compliance support specialists at Compound Growth have a wealth of regulatory knowledge and experience and can help your firm undertake a Client Money Health Check relevant to your business.

In addition, if you are concerned that your Client Money & Client Assets Resolution Pack may be incomplete, missing core contents requirements and records or if you feel that the frequency of your CASS RP updates may be inadequate, please get in touch and we would be happy to assist.

Client Money Health Checks & Preparing for FCA Client Money Audit