The FSA states that, on recent visits to firms, it has discovered that, in some instances, firms are failing to comply with even the most basic Client Assets Sourcebook (CASS) requirements. The FSA has taken this opportunity to remind the compliance officers of the following key areas:
– Records – in particular CASS rules 6.5.1R and 7.6.1R, which require a firm to be able to distinguish between safe custody assets and money held for one client from that of any other client, and from the firm’s own applicable assets.
– Acknowledgement of trust – where a firm opens a client bank account, under CASS rules 5.5.49R and 7.8.1R, it must require the bank to acknowledge that all money is held by the firm as trustee and that the bank is not entitled to combine the account with any other account or exercise any right of set-off or counterclaim against money in that account in respect of any sum owed to it on any other account of the firm.
– Due diligence and diversification – in times of market turbulence, firms should carry out due diligence more frequently and more stringently. The FSA reminds firms that they should document any due diligence carried out. Furthermore, senior management should consider (1) the need for the diversification of risks; (2) the credit rating and capital of the credit institution or bank; and (3) the level of risk in the investment and loan activities undertaken by that bank, credit institution or affiliated company.
The FSA has a number of firm visits scheduled for the second and third quarters of 2009 that will focus on CASS compliance, and it will publish a report of its findings in the fourth quarter of 2009.
To see a copy of the letter sent to the compliance officers, please click here.