The Financial Conduct Authority (FCA) has set down its position on a series of compliance queries relating to client assets (CASS) resulting from the current disruption caused by Coronavirus (Covid-19). Members may access the full document by clicking here.
The FCA said that it expects firms to consider potential harm caused by not being able to cash the cheque on a case-by-case basis – for instance, whether it means that the customer cannot receive the product or service intended until the cheque is cashed. Firms should communicate clearly with clients about this.
Where a cheque representing client money is not paid into a client bank account promptly, there are two main issues from a CASS perspective.
- The CASS rules generally require a firm to bank a cheque into a client bank account within one business day and in the interim before banking the cheque to hold it securely and record its receipt. Where there are logistical difficulties in relation to these requirements arising from coronavirus, the FCA expects firms to take such mitigatory steps as are possible in the circumstances, to ensure that clients assets remain protected.
- If payment is made out of a client bank account for a client who has paid using an (unbanked) cheque, this will usually breach the CASS rules around statutory trusts if the firm has previously paid an amount of its own money into a client bank account, in line with CASS 5.5.10R. Insurance intermediaries operating a non-statutory client money trust under CASS 5.4 may not be affected by this issue, as credit can be advanced from the non-statutory trust.
Otherwise, to act upon the client’s payment instruction without breaching the CASS rules, the firm should:
- ask the client to make a payment directly into the client bank account by alternative means before completing the instruction
- and return or destroy any cheque received in line with the client’s instructions
CASS audit reports
Some firms are concerned the current situation could lead to additional breaches needing to be reported and costs of the CASS audit reports could increase.
CASS auditors usually group multiple breaches in their reports, avoiding the need for extensive repetition and additional cost. The FCA said it had not heard from auditors that reporting on extra breaches would result in significantly increased costs of audits.
Notification of CASS breaches
Firms may be required to notify the FCA of CASS breaches under Principle 11 and SUP 15.
In addition to these general duties, the CASS rules contain various requirements to notify the FCA of specific issues (for example if a firm is unable to carry out a reconciliation or unable to pay any shortfall into a client bank account).
These specific requirements in CASS relate to fundamental components of the regime and firms should continue to make any notifications required under CASS.
The FCA said that where a regulated firm has a query about how to apply the CASS rules in the current circumstances, they can contact the regulatory by emailing [email protected]. It expects firms to have taken reasonable steps to research and analyse the issue, this could include seeking professional advice, before approaching the regulator.