In the FCA’s recent Dear CEO letter to firms providing services to retail investors, the FCA stated that it had received hundreds of requests from both firms and trade associations to adapt its regulatory approach. Further to these requests, the FCA has communicated a number of areas of de-prioritisation and re-prioritisation of regulatory work. However, the FCA has been clear in its communications that any requests that are not in the best interest of customers or hamper the FCA’s supervisory approach will be refused.
To date we have not identified any explicit references to CASS regulations in FCA COVID-19 publications. Due to the importance of CASS regulations in protecting consumers from harm, we believe that it is unlikely that there will be any loosening of regulatory focus on this area. Our expectation is that the FCA will continue to require firms to ensure that they retain full compliance with applicable CASS rules and have CASS control environments which continue to operate in an effective manner.
Senior Managers that are accountable for CASS governance and oversight may wish to re-evaluate their firm’s CASS control environment. It is worth remembering that a CASS audit gives an opinion on the adequacy of the firm’s systems to comply with applicable CASS rules and therefore there is a heightened risk for firms of additional CASS breaches and potentially adverse opinions if the firm’s CASS control environment does not effectively adapt to the new way of working.
Changes to work environments triggered by COVID-19 may have fundamentally changed a firm’s ability to operate on a business as usual basis in respect of performing and evidencing key CASS controls, in particular where these are manual and/or paper based controls. Combined with the volatility in the stock markets and the huge increase in transaction volumes this has triggered in many firms, CASS control environments are likely to be under pressure.
A prime source of data for identifying CASS controls at risk is the firm’s CASS rule by rule risk assessment. A review of a firm’s CASS risk assessment should help firms identify those key CASS controls that cannot operate in the way originally intended and therefore CASS risks that are no longer adequately mitigated. Where such risks are identified, firms should seek to implement alternative controls, ensuring that a clear audit trail of the operation of these controls is retained. Evidence of decisions taken to vary CASS controls should also be retained by the firm’s CASS governance and oversight committee or equivalent.
Firms should especially consider the continuing effectiveness of controls they have in place to ensure that one client’s money or assets cannot be used for the benefit of another, and where the firm makes use of pre-funding and prudent segregation that the firm is in a position to meet these funding requirements and that assumptions used in the calculation of pre-funding and prudent segregation amounts remain valid. Firms should ensure that they understand surplus and deficits arising on their internal client money reconciliation and ensure that any discrepancies caused by CASS breaches are remedied and prevented from recurring.
CASS firms will be aware of the depth of scrutiny that CASS controls are subjected to through the CASS assurance opinion process, and we believe that this year will be no exception. Therefore it is imperative that firms ensure that all CASS risks are addressed regardless of the current situation.