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

 

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 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.