Far reaching new rules introduced by the United Kingdom’s Financial Conduct Authority (FCA) with respect to customers’ monies and assets have been encompassed under policy statement 14/9 (http://www.fca.org.uk/static/documents/policy-statements/ps14-09.pdf).
These rules represent an extensive overhaul in the way investment firms handle client monies and custody assets. Companies directly affected by the new rules number about 1,500, among them managing client monies of greater than £100 billion and £10 trillion of custody assets.
The changes and new rules contained in PS 14/9 (http://www.fca.org.uk/news/firms/ps14-09-review-of-the-client-assets-regime-for-investment-business) will be implemented in stages: on 1st July and 1 December, 2014 and then 1st June 2015 (with some transitional provisions for the first phase and some for the second phase).
A transparent distinction is required to be drawn by organisations between those monies owned individually by clients and those owned by the firms. These rules and revisions incorporated in the Client Assets Sourcebook (CASS) impact how investment companies manage the many plausible risks to their clients’ monies. This incorporates, but is not limited to, the frequency of reconciliations.
As part of a broader compliance scope, it is abundantly clear that the FCA’s CASS regulations, more specifically those regarding CASS 7 & CASS 11 require firms to:
- Leverage technology as a critical component to providing robust compliance
- Implement automated reconciliation tools rather than relying on spreadsheets to manage primary records
- Supply audit trail capabilities i.e. tagging transactions to audit trails; tagging transactions to facilitate reconciliation.
In essence, just as the United States’ Sarbanes-Oxley Act did on a much broader industry scale, the FCA’s CASS rules require implementation of automated reconciliation technology. As a result of implementing such reconciliation systems to ensure compliance, affected firms will have the ability to:
- Execute daily client money reconciliations and exception resolutions to save time and effort and mitigate risk aligned to the requirement of the new CASS rules.
- Provide a single view of customer money accounts.
- Automatically allocate and post client money receipts in the context of ever more challenging allocation deadlines.
- Monitor, calculate and post adjustments to a client money top-up on a daily basis with fully transparent audit trail.
The FCA has encouraged these companies to perform an impact analysis in light of the changes. CASS is towards the top of the FCA’s agenda and reaching beyond CASS awareness has become critical. Having a fully attuned CASS mindset, especially in financial control functions, has now become crucial.
If firms are to avoid another ‘Lehman style’ fiasco, albeit for many on a reduced scale, all changes, some of which come sooner, will need to be in place for June 2015. Prompt adoption of automated reconciliation technology such as the ReconArt™ Total Reconciliation Lifecycle™ solution can put firms firmly on the road to compliance and afford their directors a better night’s sleep.
Tom Burke is ReconArt’s latest recruited Senior Sales Executive within ReconArt’s UK operation. With over 25 years’ experience of enterprise-class software solution sales, he brings extensive knowledge to the table of how automation using proven software can being significant benefits to any organization. Tom can be contacted at firstname.lastname@example.org or +44 (0) 7475 400 240.