Today marks the deadline for completion of a CASS Resolution Pack with respect to every investment firm to which CASS Chapter 6 (custody rules) or Chapter 7 (client money rules) applies.
The CASS Resolution Pack regulations are documented in PS12/6, published by the FSA in March 2012. They require a firm to collate certain information regarding its handling of client money and safe custody assets that would be of use to an insolvency practitioner in the event of the firm’s failure. The purpose of the rules is to facilitate the return of client money and safe custody assets to clients more quickly than is currently the case.
The Burden of Maintenance
At least in theory, the creation of a CASS Resolution Pack is a reasonably simple exercise. However, in practice, the CASS Resolution Pack requirements imply a significant ongoing maintenance burden on firms due to the nature of the documentation forming part of the pack and the requirements regarding retrieval and updating of the pack’s contents.
The ’48 Hour Rule’
The documentation forming part of a CASS Resolution Pack must be capable of being retrieved within 48 hours of (a) the appointment of an insolvency practitioner or (b) the request of the FSA, irrespective of whether the firm in question is a going concern or has entered into insolvency/resolution. It is worth noting that the 48 hour period continues to run whether the days in question are business days or non-business days. Moreover, where documents are held by a member of the firm’s group, the firm must have adequate arrangements in place to ensure that documents are still delivered within the 48 hour timescale.
The ‘Immediately Retrievable’ Rule
Certain documentation must be capable of being retrieved immediately so as to assist an insolvency practitioner in identifying and freezing client assets. Additionally, firms should note that the FSA may rely on the inability of a firm to provide ‘immediately retrievable’ documentation as tending to establish that the firm is in contravention of the general requirement that documents be retrievable within 48 hours.
Inaccuracies and Corrections
Firms must ensure that the contents of a CASS Resolution Pack are reviewed on an ongoing basis to ensure that the pack remains accurate. In addition, material inaccuracies in the content of any new documentation required to be produced as a result of the CASS Resolution Pack rules must be corrected within 5 business days of the inaccuracy arising.
To date, many firms have put in place a tactical, rather than strategic, solution to the issue of CASS Resolution Packs. These first generation CASS Resolution Packs are generally created in MS Word or MS Excel. Whilst easy to create and being fully compliant with the regulations, these products suffer from multiple user and data integrity issues. Moreover, they are likely to come under further strain as recently proposed changes to the CASS regime, in particular the ability to create multiple legally and operationally separate client money pools and sub-pools, increase yet further the burden associated with maintaining a CASS Resolution Pack. As a result, they are not well suited to being the foundation stone upon which an efficient and robust CASS Resolution Pack maintenance policy can be built.
However, the future is almost upon us. We are already starting to see the emergence of second generation CASS Resolution Packs in the form of bespoke CASS RP databases. In terms of speed and efficiency of updating, multiple-user access and data integrity, the longer-term advantages of these products is clear. However, the main driver behind this development is not primarily the question of maintenance, but rather the appreciation of the value of a robust CASS Resolution Pack as a risk management tool, used to identify weakness in existing client money processes. Indeed, discussions are already turning to the creation of third generation CASS Resolution Packs – being CASS Resolution Packs the contents of which are drawn automatically from existing systems and update, at least in part, on a semi-automatic basis. It is at this point that the true value of the CASS Resolution Pack, as a competitive advantage tool demonstrating the robustness of client money systems and used in the marketing of a firm to new and existing clients, will be fully realised.