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.