FCA Legislation Update

On 11 February 2014, the FCA published its policy development update for January 2014 (PDU 10) which details forthcoming FCA publications relating to a number of areas, as detailed below:

Business Standards

Initiative

Current Expected Publication Date

Previous Expected Publication Date (PDU 9) 

Client Assets Review – PS to 13/5

Q 1/2 2014

Q 1/2 2014

Review of the client money rules for insurance intermediaries and feedback to CP 12/20 – CP

TBC

TBC

 

Advertisements

FCA Hands Out More Fines for Client Money Breaches

On 26 November 2013, the FCA published a final notice and accompanying press release levying a fine of GBP 900,200 on the asset manager SEI Investments (Europe) Limited (SEI) for failing to arrange adequate protection of client money in the period from 1 November 2007 to 4 October 2012. Continue reading

FCA Fines Aberdeen £7.2m for Client Money Breaches

On 3 September 2013, the Financial Conduct Authority (FCA) published a press release announcing the final notice it has issued to Aberdeen Asset Managers Limited and Aberdeen Fund Management Limited (“Aberdeen”), fining the firm £7,192,500 for breaches of the FCA’s client money rules.  This fine included a 30% discount for early settlement by Aberdeen.

Over a three year period from 31 August 2008 to 31 August 2011, Aberdeen breached Principle 3 (management and control) and Principle 10 (protection of client assets) of the FCA’s Principles for Businesses.  The firm failed to recognise that money held on behalf of clients in Money Market Deposits (MMDs) with third party banks were subject to the FCA’s client money requirements set out in Chapter 7 of the Client Assets Sourcebook (CASS).  As a result, Aberdeen breached rules 7.3.1R, 7.3.2R, 7.6.1R, 7.6.2R and 7.8.1R in CASS.

Under the client money requirements, firms are required to protect money held on behalf of its clients in the event of firm failure.  Aberdeen failed to:

  • Provide appropriate trust letter notifications to the banks and did not obtain acknowledgements confirming the client money trust status of the deposited monies from those banks;
  • Provide consistent account naming conventions when setting up accounts, creating uncertainty over ownership of those accounts.

The net result was that an average daily balance of approximately £685 million had been at risk but no actual loss of client money was suffered.  However had the firm become insolvent, severe delays and complications in the distribution of client money would have resulted.

Aberdeen’s failings highlight the importance of identifying and protecting client money.  In this regard, a CASS Resolution Pack (CASS RP) represents a useful and readily available compliance tool.  In providing a convenient snap shot of the state of a firm’s CASS compliance, not only does it assist an Insolvency Practitioner in locating and returning client money, but it also highlights immediate and ongoing deficiencies in a firm’s CASS procedures.  Implementing prompt remedial action with respect to CASS deficiencies highlighted during the creation and maintenance of a CASS RP will help avoid the high price, both in terms of monetary fines and reputational damage, that was experienced by Aberdeen in this case.

FCA Legislation Update

On 7 June 2013, the FCA published its Policy development update for June 2013 (PDU 2) which details forthcoming FCA publications relating to a number of areas, 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

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

No reference within PDU 2

June 2013

Client assets review – consultation paper

No reference within PDU 2

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

TBC

Q3/4 2013

 

FCA Continues the Focus on Client Assets

The Financial Conduct Authority has levied its first penalty under the new penalty regime for inadequate compliance with the Client Money rules.

On 11 June 2013, the FCA published details of the £120,900 fine (including a 20% discount for early settlement) levied on Xcap Securities (a retail stockbroking and asset management firm) for failure to protect client money and assets.  The fine amounts to 2% of Xcap’s average client money balance plus 0.2 % of its client asset balance during the relevant period.  This equates to a low-medium level fine according to the FCA 5 step process.  Among Xcap’s specific breaches were failures to:

  • ensure that client money was properly segregated;
  • ensure that all safe custody assets were clearly identified as belonging to the client;
  • maintain accurate records and accounts in respect of client money and safe custody assets;
  • have in place adequate organisational arrangements, policies and procedures to detect and manage client money and safe custody asset risks;
  • put in place adequate trust documentation;
  • carry out timely and accurate client money reconciliations; and
  • report without delay failures to comply with CASS requirements.

In the press release accompanying the final notice, the FCA noted that the new levels of penalty “are expected to result in larger fines, demonstrating the seriousness with which we view these failures and serving as a stronger deterrent to firms”.  Firms should take note and not expect sympathy.  Today, many of the gaps in client money processes which led to Xcap’s breaches would be highlighted to firms which establish robust procedures around the population and maintenance of a CASS Resolution Pack.  Whilst providing a smoking gun to the FCA in any client money investigation, if implemented correctly, a CASS Resolution Pack is also a powerful regulatory compliance tool, and even a competitive advantage instrument.  This case reinforces the need for firms to commit sufficient resource to improving standards in this area.

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