The FSA continues to be concerned by the number of firms that
are failing to comply with 'CASS' – its complex
rulebook on client assets (including client money), which is
designed to protect assets belonging to clients and being held by
the firm from the firm's insolvency (and its creditors).
The FSA is, to some extent, dependent on firms' auditors,
through their compulsory annual report on a firm's client
assets systems and compliance, to bring firm-specific breaches and
weaknesses to its attention. The FSA has expressed very
serious concerns about the scrutiny applied by auditors during
their annual reviews, and the quality of the reports that are being
produced. In some cases the FSA has referred auditors to
disciplinary boards.
In June 2011 new rules for auditor client asset reporting will take
effect. The main objective is to improve the FSA's
oversight of firms' client asset systems and compliance through
better quality, more transparent and consistent auditor client
asset reports. Auditors will also be keen to repair their
reputation by showing the FSA they are up to the task, and firms
can expect auditors to be more probing, thorough and challenging in
their annual reviews.
The main resulting risk to firms is that breaches that were
previously undetected (or perhaps just undisclosed) are now more
likely to be identified, examined and reported to the FSA, and
therefore the chances of the auditor client asset report resulting
in a formal FSA investigation (and enforcement action) are
greater. To reduce the risk of such a regulatory crisis,
firms should confirm their understanding of precisely how CASS
applies to them and the extent to which they are CASS-compliant,
ideally resolving any issues before their auditor commences its
annual review. They should also be prepared to address any
further breaches identified by the auditor with appropriate
remedial action and, in some cases, they may need to challenge
auditors where they believe they are wrong. The governing
body of the firm will be formally required to read the
auditor's client assets report, and they and senior management
are advised to take an auditor's 'adverse opinion' very
seriously.
Click
here to read our full analysis, which expands on the new rules,
discusses the FSA's concerns in more detail and explains how
firms should manage the resulting risks during the various stages
of their annual client assets audit.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 24/05/2011.
