The FCA's new CASS policy statement aims to enhance client asset protection and clarify compliance requirements, effective from December 2014 with full implementation by June 2015. Key changes include stricter governance and oversight measures, accurate maintenance of client asset records, and the introduction of detailed requirements for client bank accounts and custody arrangements. Firms holding client money or assets must start planning for these regulatory updates and conduct gap analyses to ensure compliance.

1. Illuminating client money rules
Client Money and Assets Policy Statement 14/9
July 2014
Ben Blackett-Ord

2. 2
The new CASS Policy Statement
FCA objectives:
• to address specific risks
• to clarify the requirements firms must comply with
• to enhance our client assets regime to achieve better
results for consumers and increase confidence in
financial markets.
• Does this clarify grey areas?
• What does this mean in practice?
September 2013 Consultation Paper – CP 13/5
June 2014 Policy Statement – PS 14/9

3. Purpose of the CASS rules
3
To ensure records
of client assets
are accurate and
up to date
To protect client
assets from the
liquidator in the
event of a firm’s
insolvency
To encourage
appropriate
governance and
oversight
To prevent firms
misusing clients’
assets

4. The context – FCA agenda
4
“Increasing firms’ compliance and awareness of CASS rules
is a key aim for us in 2013/14.
We will increase the supervision of firms holding client money
and safe custody of assets through more intrusive visits to firms,
thematic projects and desk-based reviews, actions initiated
through Client Asset and Money Return (CMAR) / audit
information and taking regulatory action where firm failings
are identified….”
FCA Business Plan 2013/14

5. Key dates
5
1st July 2014 Limited, immediate changes not requiring
significant lead time or infrastructure
changes
1st December 2014 Requirements around the provision of
information to, or obtaining the agreement
of new clients and documentation
standards with any new counterparties.
1st June 2015 Implementation of all new rules, including
new contract wording for all clients

6. • Scope of Permission
• Terms of Business
• Client bank accounts
• Trust status acknowledgement letters
• Identification / boundary issues
• Custody arrangements
• Reconciliations
• Compliance monitoring
• Management oversight
• CMAR
• Mandates
• CASS Resolution Pack
FCA focus areas
6

7. Client Money
Do you :
• Hold it?
• Control it?
Not usually restricted to particular client types
Client Assets
Do you:
• Hold assets? (safeguarding and administering)
• Arrange for others to do so?
Always restricted to particular client types
Do you have the right permissions?
7

8. Making required disclosures and obtaining consent
Areas to be updated:
• Use of banking exemption, title transfer collateral arrangements
• Right to use arrangements
• Use of Delivery versus Payment (DvP) window in relation to
commercial settlement systems or units in regulated schemes
• Arrangements with third parties
• Custody arrangements
New clients: from 1st December 2014
All clients: from 1st June 2015
Review Terms of Business
8

9. Client bank accounts
• Must be at a bank
• Must be an account in the name of the firm, not a parent or
group company
• Must contain the word “Client” in the name of the account
• An up to date list, clearly identifying relevant bank accounts
by account number as client bank accounts must be maintained
Client transaction accounts
• Accounts with counterparties, clearing houses, intermediate
brokers and other third parties
• Client money held by the above for a client of the firm, remains
client money of the firm
• Above requirements apply
Client bank / transaction accounts
9

10. • Applies to banks and third parties
• Standard wording to be drafted on firm letterhead
• Drafted to accommodate multiple accounts but in all circs at least
one unique identifier should be associated with each client bank
account or transaction account.
• Removal of the grace period
• Removal of exemption for overseas banks / third parties
• Flexibility on choice of law / jurisdiction
• Requirement for an annual review
• Reasonable endeavours approach to signature verification
Existing arrangements to be repapered by 1st June 2015
Any accounts opened after 30th November 2014
Re-issuing trust status letters
10

11. Banking exemption
• Default is use of banking exemption
• Terms of Business may need to be updated to reflect
circumstances
where exemption ceases to apply
• Notifications to clients required
Title transfer collateral arrangements
• Each to be set out in a written agreement
• Documented procedures for moving back into CASS protection
• No requirement to accept request to seek protection
Rules take effect from 1st December 2014
Transitional to 1st June 2015 for existing clients
Identification / boundary issues
11

12. Delivery vs Payment window for commercial settlement systems
Applies to both money and assets
• Purchase: Date payment received for max of 3 days before
client money rules apply
• Sale: Date stock delivered for max of 3 days before
custody rules apply
Reference to use of window to be included in Terms of Business
Rules take effect from 1st December 2014
Transitional to 1st June 2015 for existing clients
Identification / boundary issues
12

13. • Agreements required with custodians / sub custodians
• Further guidance on the selection, appointment and review of third
party custodians
• Restrictions on circumstances in which client assets can be
registered in the same name as firm assets
• Rules updated to accommodate firms that use integrated systems
to maintain records of custody assets
• Introducing more detailed notification and recordkeeping
requirements
Custody arrangements
13

14. • Continues to be a source of difficulty for firms in relation to both
client money and assets
• New rules provide further guidance in both cases
• Assets: new rules introduce a minimum frequency for
undertaking reconciliations.
• Client money: further guidance issued in relation to internal
client money reconciliations
• CASS 7 Asset Management Firm
Reconciliations
14

15. Example client money reconciliation methods
15

16. • CASS is high risk and should be given appropriate status in a
monitoring programme
• Effective monitoring will pick up deficiencies allowing swift
resolution and limiting regulatory intervention
• Issues picked up must be escalated appropriately
• The culture should promote effective monitoring
• Monitor all aspects of CASS compliance
• Outsource if appropriate
Compliance monitoring
16

17. • CF10a – accountable for CASS
• Terms of Reference of appropriate board committees
• Evidence of board engagement
• Appropriate CASS MI which is regularly reviewed and acted upon
• Training
• Senior management
• Operational staff
• Compliance
• CASS Resolution Pack
Management oversight
17

18. Good governance – things to consider
18
• Clearly defined roles – how
monitored?
• End to end view
• Formal authority levels
• Clear strategy
• Formalised and embedded
risk appetite
• Appropriate committees to
provide oversight
• New business – wholesale
change and non wholesale
• Sufficient and appropriate MI
tools in place
• Risk dashboard/heat map
[versus] risk appetite
• Timely, relevant and reliable
MI
• CASS specific MI
• Operational MI
• MI that is fit for purpose
• Board reporting
• Centralised breach log
• Who owns regulatory
relationship?
• How are regulatory issues
communicated/
escalated (internally and
externally)?
• Governance over
remediation exercises.
• Assessing impact of
regulatory change
• Integration between
Operations and Compliance
• Periodic review of system
design – are key processes
still suitable?
• Are controls operating
effectively?
• Is documentation up to date
and accurate (trust letters,
client agreements etc.)
• Are staff trained on CASS
matters?
• Books and records
• Key controls
• Segregation of duty
Governance
arrangements
Clear and
focussed MI
FCA
relationship
CASS
compliance

19. • Remains the principal window on a firm’s CASS arrangements
• CMAR and CMAR Guidance being updated in line with changes
• Is responsibility for completion and oversight of CMAR clear?
• Does it fall within scope of Compliance Monitoring and
Management Oversight?
Client Money and Asset Return (CMAR)
19

20. • No longer need to be in written form
• A comprehensive and up to date list must be maintained
• Records to be retained for five years (Mifid business)
New rules come in 1st June 2015.
Mandates
20
Definition:
…any means that give a firm the ability to control a clients
assets or liabilities.

21. 21
Illuminating CASS?
• By and large these changes are positive
• In CASS black and white is best
• All firms that hold or control client money or assets will
be affected
• Thematic CASS visits will continue
Firms will need to undertake a gap analysis and start planning
now for how they will deal with the changes

22. 22
Questions