Upcoming changes to CASS with FCA publication of PS14/9 and CP14/9

PS14/9 – “Review of the client asset regime for investment business”

Who will this impact? 

The paper impacts all Investment Firms which hold permission of safeguarding and administering client assets and/or client money and/or those who arrange the safeguarding and administering of client assets and/or client money.

When will this become relevant?

  • 1 July 2014 – Certain rules and guidance come into force which introduce optional arrangements and add clarification to the rules.  It would appear the impact of these amendments to firms, at this first stage, is not significant.
  • 1 December 2014 – Certain rules and guidance come into force regarding the provision of information to, or obtaining agreement of, new clients. There is also a mandatory requirement to use the template acknowledgement letters for new client bank accounts opened.
  • 1 June 2015 – All remaining amendments to the rules come into force.

Overview

The FCA has recently published the policy statement PS14/9: Review of the client assets regime for investment business which contains the details on changes to the client money and custody assets regime for investment business. These changes were originally discussed in CP13/5 and have been the subject of significant debate and response to the FCA since publication.

Whilst the majority of the proposals made in the consultation paper published in July 2013 have been upheld, there are some significant alterations in certain areas. The policy statement acknowledges that some of the areas not carried forward at this time may be subject to a further consultation in due course.

There is evidence in the publication of compromise from the original proposals that has had the effect of reducing impact on firms as well as pushing back the implementation timeline. Furthermore, the intention of CP13/5 appears to have been achieved and has delivered a sensible outcome for both the regulator and those subject to the CASS rules.

Key highlights

Client money rules (CASS 7)

  • The delivery versus payment window for settling transactions in relation to units in a regulated collective investment scheme has been retained, but has been reduced to one day. However cheque payments made to clients for redemptions will now need to be issued from client money.
  • Unbreakable Term Deposits have not been prohibited but have been restricted to a maximum of 30 days.
  • Firms are required to periodically assess whether it is appropriate to diversify, or further diversify, client monies held with third parties.
    There is to be a new section of rules and guidance in CASS 7 dealing with client money reconciliations. Some additional clarifications have been made but much of the existing detail has been retained. There is an acknowledgement that firms carrying out the individual client balance method to calculate the requirement when completing the “Standard method of internal reconciliation”, can do so based on a product-by-product or business line basis,
  • and not necessarily at the level of the entire firm.
  • There is a new template for Acknowledgement letters. The letters need to be issued on headed paper of the firm and signed by the relevant third party (e.g. banker) where monies are to be deposited. This will require a re-papering of existing letters to be completed by 1 June 2015.

Custody reconciliations (CASS 6)

  • The internal system evaluation method discussed in CP13/5 for custody reconciliations is to proceed but there will not be a requirement to first have approval from your auditor.
Client asset disclosure document
  • The FCA decided not to proceed with this proposal at this time. The FCA has determined that there are several other client reporting changes in the detailed requirements of the policy statement that will serve to better achieve the policy of increasing awareness of protection.

PS14/9 – “Client Money held in Individual Savings Accounts (ISAs)”

Who will this impact?

  ISA managers who manage either stocks and shares ISAs, or cash ISAs and who hold, or wish to hold, the monies as client money.

When will this become relevant?

It is anticipated that the changes to the CASS rules that are proposed in CP14/9 will come into force alongside the new ISA rules on 1 July 2014. Feedback was requested on the consultation paper, to be received by 25 June 2014.

Overview

The FCA recently published CP14/9: Client Money held in Individual Savings Accounts which consults on making alterations to the CASS rules in response to the changes announced by the Government in March relating to the introduction of the New Individual Savings Accounts (NISAs).

NISAs will be introduced on 1 July 2014 and will mean that up to £15,000 cash can be placed into a stocks and shares ISA each year. This will allow clients to use stocks and shares ISAs for both deposit and investment purposes.

Change to the CASS rules is required to ensure that ISA managers do not need to separate client money from non-client money within the ISA wrapper.

The CP14/9 seeks to deal with three main areas:

  • Requiring all investment managers who hold any money within stocks and shares ISAs to hold these sums as client money;

     

  • Allowing investment firms who manage cash ISAs to opt-into the CASS regime and elect to hold money in cash ISAs as client money; and
  • Excluding any money held as client money by ISA managers from the CASS rules preventing firms from holding client money as unbreakable term deposits with terms of longer than 30 days.

The final bullet point is intended to avoid investment firms without deposit taking permission to be placed at a competitive disadvantage to those with deposit taking permissions that would not be bound by this new CASS rule.

In our opinion, the proposed changes to the CASS rules appear to be sensible in light of the changes announced by the Government. However, care needs to be taken to ensure that consumers understand the role of client money accounts, the role of the Financial Services Compensation Scheme and the appropriate protections surrounding their ISAs.

Upcoming Changes to CASS with FCA Publication of PS14/9 and CP14/9

30/06/2014 

PS14/9 – “Review of the client asset regime for investment business”

Who will this impact? 

The paper impacts all Investment Firms which hold permission of safeguarding and administering client assets and/or client money and/or those who arrange the safeguarding and administering of client assets and/or client money.

When will this become relevant?

  • 1 July 2014 – Certain rules and guidance come into force which introduce optional arrangements and add clarification to the rules.  It would appear the impact of these amendments to firms, at this first stage, is not significant.

     

  • 1 December 2014 – Certain rules and guidance come into force regarding the provision of information to, or obtaining agreement of, new clients. There is also a mandatory requirement to use the template acknowledgement letters for new client bank accounts opened.

     

  • 1 June 2015 – All remaining amendments to the rules come into force.

Overview

The FCA has recently published the policy statement PS14/9: Review of the client assets regime for investment business which contains the details on changes to the client money and custody assets regime for investment business. These changes were originally discussed in CP13/5 and have been the subject of significant debate and response to the FCA since publication.

Whilst the majority of the proposals made in the consultation paper published in July 2013 have been upheld, there are some significant alterations in certain areas. The policy statement acknowledges that some of the areas not carried forward at this time may be subject to a further consultation in due course.

There is evidence in the publication of compromise from the original proposals that has had the effect of reducing impact on firms as well as pushing back the implementation timeline. Furthermore, the intention of CP13/5 appears to have been achieved and has delivered a sensible outcome for both the regulator and those subject to the CASS rules.

Key highlights

Client money rules (CASS 7)

  • The delivery versus payment window for settling transactions in relation to units in a regulated collective investment scheme has been retained, but has been reduced to one day. However cheque payments made to clients for redemptions will now need to be issued from client money.
  • Unbreakable Term Deposits have not been prohibited but have been restricted to a maximum of 30 days.
  • Firms are required to periodically assess whether it is appropriate to diversify, or further diversify, client monies held with third parties.
  • There is to be a new section of rules and guidance in CASS 7 dealing with client money reconciliations. Some additional clarifications have been made but much of the existing detail has been retained. There is an acknowledgement that firms carrying out the individual client balance method to calculate the requirement when completing the “Standard method of internal reconciliation”, can do so based on a product-by-product or business line basis, and not necessarily at the level of the entire firm.
  • There is a new template for Acknowledgement letters. The letters need to be issued on headed paper of the firm and signed by the relevant third party (e.g. banker) where monies are to be deposited. This will require a re-papering of existing letters to be completed by 1 June 2015.
Custody reconciliations (CASS 6)
  • The internal system evaluation method discussed in CP13/5 for custody reconciliations is to proceed but there will not be a requirement to first have approval from your auditor.
Client asset disclosure document
  • The FCA decided not to proceed with this proposal at this time. The FCA has determined that there are several other client reporting changes in the detailed requirements of the policy statement that will serve to better achieve the policy of increasing awareness of protection.

PS14/9 – “Client Money held in Individual Savings Accounts (ISAs)”

Who will this impact?

ISA managers who manage either stocks and shares ISAs, or cash ISAs and who hold, or wish to hold, the monies as client money.

When will this become relevant?

It is anticipated that the changes to the CASS rules that are proposed in CP14/9 will come into force alongside the new ISA rules on 1 July 2014. Feedback was requested on the consultation paper, to be received by 25 June 2014.

Overview

The FCA recently published CP14/9: Client Money held in Individual Savings Accounts which consults on making alterations to the CASS rules in response to the changes announced by the Government in March relating to the introduction of the New Individual Savings Accounts (NISAs).

NISAs will be introduced on 1 July 2014 and will mean that up to £15,000 cash can be placed into a stocks and shares ISA each year. This will allow clients to use stocks and shares ISAs for both deposit and investment purposes.

Change to the CASS rules is required to ensure that ISA managers do not need to separate client money from non-client money within the ISA wrapper.

The CP14/9 seeks to deal with three main areas:

  • Requiring all investment managers who hold any money within stocks and shares ISAs to hold these sums as client money;
  • Allowing investment firms who manage cash ISAs to opt-into the CASS regime and elect to hold money in cash ISAs as client money; and
  • Excluding any money held as client money by ISA managers from the CASS rules preventing firms from holding client money as unbreakable term deposits with terms of longer than 30 days.

The final bullet point is intended to avoid investment firms without deposit taking permission to be placed at a competitive disadvantage to those with deposit taking permissions that would not be bound by this new CASS rule.

In our opinion, the proposed changes to the CASS rules appear to be sensible in light of the changes announced by the Government. However, care needs to be taken to ensure that consumers understand the role of client money accounts, the role of the Financial Services Compensation Scheme and the appropriate protections surrounding their ISAs.

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