FCA Legislation Update

On 26 April 2013, the FCA published its first Policy Development Update (PDU) for April 2013 which details forthcoming FCA publications relating to a number of areas, including RRP, client assets and EMIR, as detailed below.

High level standards

Initiative

Current Expected Publication Date

Previous Expected Publication Date

Recovery and Resolution Plans: policy statement to CP11/16

Q2 2013

Q2 2013

Policy statement on non-EEA national depositor preference regimes

TBC

Business Standards

Initiative

Current Expected Publication Date

Previous Expected Publication Date

Client assets regime – multiple client money pools – policy statement to part 2 of CP12/22

June 2013

Q2 2013

Client assets review – consultation paper

June 2013

Review of the client money rules for insurance intermediaries – policy statement to CP12/20

Q3/4 2013

Q3/4 2013

CRD IV – consultation paper on strengthening capital standards

Q3/4 2013

TBC

 

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FCA Update on RRP and CASS

On 26 April 2013, the FCA published Policy Development Update No 157.  This summarises the anticipated publications dates for various pieces of regulatory guidance.  Of note are the following:

  • a policy statement (PS12/5) to CP11/16 on recovery and resolution plans, due for publication in Q2 2013;
  • a policy statement to part 2 of CP12/22 on the client assets regime (multiple client money pools), due for publication in Q2 2013 (had previously been noted as “TBD”); and
  • a policy statement to CP12/20 on client money rules for insurance intermediaries, due for publication in Q3/Q4 2013.

Webinar on CASS RP for Insurance Intermediaries

On 16 April 2013 I am a guest speaker in a webinar being given by the Forum for Regulatory Change.  The presentation will focus on the future requirements for insurance intermediaries to prepare and maintain CASS Resolution Packs.  It will summarise the law in this area as it applies to insurance intermediaries and will leverage off the practical experience we have derived from implementing CASS Resolution Packs for banks and investment firms.

The event is free and you can register here.

FSA Update on RRP and CASS RP

On 25 February 2013, the FSA published Policy Development Update Number 156 detailing forthcoming publications from the FSA on a wide range of issues, including:

  • RRP: Policy Statement to CP11/16 and PS12/5 on recovery and resolution planning.  This is expected to be published in Q2 2013; and
  • CASS RP: Policy Statement to CP 12/20, “Review of the client money rules for insurance intermediaries”. This will include finalised rules regarding CASS Resolution Packs for firms subject to CASS 5 and is expected to be published in Q3/Q4 2013.

Congratulations on the Completion of your CASS Resolution Pack! Now comes the hard part…

Introduction

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.

The Future

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.

CASS Resolution Pack Seminar

I will be presenting a half-day workshop on CASS Resolution Packs on 29 November 2012 as part of the Infoline Client Assets & Client Money Protection Conference.  The workshop will address a number of topics, including:

  • The background to CASS RP;
  • The CASS RP regulations;
  • Implementing a CASS RP;
  • The form of a CASS RP;
  • Future FSA initiatives and their effect on CASS RP planning; and
  • The extension of CASS RP regulations to insurance intermediaries.

Finally, we will also be demonstrating a CASS RP database, and discussing the advantages of this solution over more manual forms of CASS RP.

As a speaker, I am entitled to offer a 20% discount to contacts, colleagues and clients.  Please just drop me a line at michael.beaton@drsllp.com if you would like to take advantage of this.

Hope to see you there.

Michael.