Compound Growth Ltd 2016 -
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CLIENT MONEY
& UNBREAKABLE DEPOSITS:
Client Money & Unbreakable Deposits: New Rules
22 January 2018 will see new rules become effective for all those that hold Client Money now that the FCA has published their Final Rules on Client Money & Unbreakable Deposits.
Further to last August’s Consultation, Policy Statement (PS18/2) that has now been published relates to depositing client money in unbreakable deposits.
Main Changes:
Newly agreed changes to the FCA’s CASS 7 will enable investment firms to hold a proportion of client money in an unbreakable deposit longer than 30 days subject to certain conditions. Changes to CASS rules also includes allowing firms to deposit an appropriate proportion of client money in 95-
Risks: Written Explanation Required
The Final Rules in PS18/2 come into force on 22nd January 2018 and require that:
- prior to a firm depositing client money in 95-
Day Unbreakable Deposits, it must provide each client with a written explanation of the risks that arise as a result of the longer notice periods for withdrawals; and - whilst a firm uses 95-
Day Unbreakable Deposits, before receiving or holding client money from new clients, the firm must provide them with a written explanation of the risks of the longer notice periods for withdrawals
Policy & CASS Resolution Pack
The FCA state that firms must produce a written policy setting out the maximum proportion of client money that would be appropriate for it to deposit in a unbreakable deposit longer than 30 days and the measures it will take to manage the risk of being unable to access client money when required.
It should be noted that this written policy must be included in the CASS resolution pack so that an insolvency practitioner would be able to identify whether the firm places client money in unbreakable deposits of longer than 30 days.
Reporting use of Unbreakable Deposits
Within the final rules, the FCA has moved the requirement to report unbreakable deposits of longer than 30 days in the client money and asset return (CMAR) to SUP16.14. In addition, the regulator has also amended the CMAR guidance to make it clear that firms should report any unbreakable deposit in use at the end of the reporting period.
The amended rules make it clear that firms should report the unexpired term of an unbreakable deposit, where the remaining term is longer than 30 days. The CMAR guidance has also been updated on how unbreakable deposits should be reported by firms and the FCA has included a worked example.
BIPRU Liquidity Requirements for Investment Firms
Firms holding client money that fall under the IFPRU regime are also reminded within PS 18/2 by the FCA of their liquidity risk management obligations under the BIPRU 12 liquidity rules. In particular, when a firm is assessing their potential liquidity resources required from maturity transformation exposure, the FCA informs the amount of liquidity resources would be based on that exposure and would not be based on the amount of client money placed on deposit within the 95-
Client Money Support Services
Compound Growth can assist firms of all sizes to ensure they have the necessary procedures in place to remain compliant with the regulator’s rules pertaining to client money and client assets as set out in the CASS Sourcebook.
If you would like to discuss client money or client assets further, please feel free to contact us or email enquiries@compoundgrowth.co.uk
Related Reading: See also >> Government Report on Impact of Client Money Changes
Client Money Support & Compliance Assistance
Compound Growth can assist firms of all sizes to ensure they have the necessary procedures in place to remain compliant with the regulator’s rules pertaining to client money and client assets as set out in the CASS Sourcebook.
In particular we can support your firm in establishing suitable accounting systems as well as developing client money policies in line with industry best practice and the FCA’s guidance.
If you would like to discuss client money or client assets further, please feel free to contact us or email enquiries@compoundgrowth.co.uk.
