Context
During the past year firms have been required to submit financial resilience surveys to the FCA, the results raised some concerns at the FCA, in particular that some firms were at risk of failure or of not having adequate financial resources. As part of the follow up work the FCA reviewed certain GI intermediaries’ client money arrangements and identified common shortcomings. The FCA believe this may indicate more widespread non-compliance throughout the sector.
This has resulted in the FCA issuing a Dear CEO Letter to GI intermediaries in relation to their client money arrangements.
Key points to note
The FCA is reminding firms of their obligations and the consequences of any non-compliance.
- Principle 10 of the FCA’s Principles for Business states a firm must arrange adequate protection for clients’ assets when it is responsible for them.
- Principle 3 requires firms to take reasonable care to organise and control its affairs responsibly and effectively.
- Firm should continually review its client money arrangements and its compliance with the rules in Chapter 5 of the Client Asset Sourcebook (CASS).
- It is expected that senior management has appropriate oversight of their firm’s client money arrangements.
- Possible action the FCA can take includes:
- to impose an asset restriction
- to prohibit a firm from carrying out specified regulated activities
- The specific issues that the FCA mention in the letter are:
| – the client money calculation | – segregation of client money |
| – appropriate withdrawal of commission | – the co-mingling of risk transfer money with client money |
| – client money bank accounts and acknowledgement letters | – the client money audit |
Next actions
Firms should review their client money arrangements and take action if needed to ensure that client money is appropriately safeguarded. This letter should be discussed with the Board or equivalent governing body and identify what actions, if any, are needed to ensure your firm has adequate client money arrangements in place. As set out in the Dear CEO letter itself, firms which are having difficulty in understanding the requirements of the rules in Guidance in Chapter 5 of the FCA’s Client Assets Sourcebook (CASS 5 ), and the implications of not meeting those rules and guidance, should seek external advice and assistance.