Shaking up how you protect client assets

"One of the FCA’s key objectives is to make sure that consumers are adequately protected – it sees protecting customer money and assets as fundamental to consumers’ rights. The FCA has high expectations of how firms will behave when they agree to protect a client’s money or assets.”

The FCA’s changes to the Client Assets Protection Regime (CASS) are going to have a big impact on banks, brokers and asset managers. The shake-up will affect how businesses handle client money and assets – through customer relationships, outsourcing arrangements, operations, IT systems and the policies and procedures they have in place.

The failures of Lehman Brothers and MF Global demonstrated that the current rules are not fit for today’s complex financial markets. Although it dropped the controversial ‘speed proposal’, the FCA plans to do more work later this year on how to return assets more quickly to customers when a firm becomes insolvent.

The new CASS rules will come into force in stages. Some of the rules already took effect on 1 July 2014. On 1 December 2014 you’ll need to adopt the new rules that require repapering client documentation. And by 1 June 2015 you’ll need to implement many of the rules that require big changes to IT systems.

We believe that businesses need to act now. You need to assess what the impact will be and begin planning for implementation. Those who take steps to comply now and protect customer money will ensure they stand out for the right reasons.

What the new changes include

  • Clarity on segregation requirements: restricting use of the alternative approach and requiring ‘immediate’ segregation under the normal approach
  • Auditors’ letters required for non-standard client money reconciliations and the alternative approach for segregation, with no grand-fathering of existing arrangements beyond 1 June 2015
  • Requirement for written custody agreements
  • Restrictions on how assets are registered
  • Frequency for internal and external reconciliations have been made more explicit
  • Standard methods of internal reconciliation clarified and codified into rules
  • ‘Internal evaluation method’ for custody assets is introduced
  • Standardised template acknowledgment letters
  • Money passed to brokers must be protected by an acknowledgment letter (formerly ‘trust letters’)
  • Clarity over commercial settlement systems
  • DvP window for authorised fund managers is restricted to one day
  • Scope of the banking exemption is clarified
  • A 30-day maximum term for unbreakable deposits is introduced and
  • A prescriptive mechanism for using TTCAs (and allowing clients to request re-segregation) is adopted.

Find out more by downloading our brochures or calling one of the team. The ‘Protecting client assets – the new rules’ brochure provides a high-level overview of the key messages within the Policy Statement; with the other two documents providing a more in-depth analysis of the main issues impacting asset managers and banks, deposit takers and securities firms respectively.