CP13/5 Consultation Paper July 2013

15.10.13 Chris Errington

Review of the client assets regime for investment business

11 October was the deadline for CP13/5 responses on the FCA’s proposed changes to, amongst other things, CASS 7.  It’s highly likely that the FCA will get its way and push through material changes to the current CASS 7 Client money rules.  And rightly so as
they want firms to reconcile client money faster, more accurately and with improved record keeping – all to ensure consumers are not let down by those holding their money.

The client money reconciliations and record keeping section of the consultation (4.104 to 4.122) evidences some fundamental changes looming for all firms – changes that the FCA will enforce just six months after the consultation review phase, which means first half 2014.  And enforced I am sure they will be if the constant flow of enforcement actions coming out of the FCA is a measure.

So what does it all mean in terms of reconciliation (and matching)?

The answer is relatively simple.  Firms will need to robustly control client money and, through reconciliation [and the related matching aspect], be able to evidence at any one point in time whether their records agree to the consumer’s.   Or, as CASS 7.6.1 already says, “a firm must keep such records and accounts as are necessary to enable it, at any time and without delay, to distinguish client money held for one client from client money held for any other client, and from its own money” – the FCA is really consulting to clarify they will enforce this and provide some guidance and what and what isn’t permissible (because CASS 7.6.1 just isn’t working, I guess?).

Short of paying your auditor a fortune to audit your use of the so called ‘non-standard’ reconciliation method, you’ll be using a standard method for internal reconciliations – and doing it daily.

For some reason, in this real-time world, you’ll then be doing your external reconciliations (the ones that identify fraud, error,
teeming and lading, disinterest in controls etc.) at least monthly.  I had imagined they were already performed daily; not sure I would leave it to monthly if I had responsibility for client money at a firm.

You will also need much improved record keeping – those spread sheets, the ruler, the highlighter and pen really will have to go and be replaced by an auditable product.  You can, after all, fake spread sheet records and any kind of manual evidence. Did you really perform that reconciliation on that date?

So it’s all about doing things better and faster, then being able to prove you did so.  Good for the FCA – simple internal control enforcement and, unlike an auditor relationship, you pay the FCA to police it!

Now the sales pitch.  Gresham’s CTC product can help you.  Our proven matching and reconciliation technology provides a robust
control platform from which to identify and allocate incoming client money even at the highest volumes and in the absence of high quality message referencing.  If you are struggling with spread sheets, manual effort and a never ending challenge to allocate client money – contact us for a demonstration of how we can help.  You need not to be a CASS 7 firm– we can help allocate any form of financial transaction, even the simple bank receipt, whether or not its client money.