Debt management firms can take many different forms. Paul Leech explains the Financial Reporting Council’s requirements to be a CASS debt management firm.
Debt management firms take many different forms from commercial debt management companies through Citizens Advice Bureau to other not-for-profit organisations. Chapter 11 of the Financial Conduct Authority’s (FCA’s) Client Assets Sourcebook (CASS) sets out the requirements that apply to CASS debt management firms if they receive or hold money of clients during the course of their activities (see CASS 11.1.1R). CASS 8 (the mandate rules) will also apply when a CASS debt management firm has mandates in connection with its debt management activity (see CASS 8.1.1R(3)).
FCA defines a ‘CASS debt management firm’ as a firm that (a) carries on the activities of debt counselling or debt adjusting, alone or together, with a view to an individual entering into a particular debt solution; (b) carries on the activity of debt counselling where an associate carries on debt adjusting with the aim in (a) in view; (c) carries on the activity of debt adjusting where an associate carries on debt counselling with the aim (a) in view; or (d) is a not for profit debt advice body.
Item 5B of the table at SUP 3.1.2R of the FCA’s Supervision Manual brought CASS debt management firms within the scope of SUP 3.10. In turn, SUP 3.10.4R and 3.10.4AR sets out the requirement for a CASS reasonable assurance report where a firm has held client money and a limited assurance report if a firm claims it had not held client money. It should be noted that a hybrid report covering both limited and reasonable assurance may arise in situations where client money was held for only part of the period covered by a CASS report.
The original scope of item 5B brought many ‘not-for-profit debt advice bodies’ within the requirement for a CASS limited assurance report. The Investment Management Committee of ICAEW raised concerns with the FCA over the cost of such CASS limited assurance reports for ‘not-for-profit debt advice bodies’ and in particular whether it was the intention of the rules to place such a requirement on these organisations.
The FCA has now implemented a rule change and from November 2016 item 5B now states that SUP 3.10 applies to a “CASS debt management firm unless subject to a requirement imposed under section 55L of the Act stating that it must not hold client money or such a requirement to the same effect”. Thus if a ‘not-for-profit debt advice body’ has imposed on it a requirement not to hold client money it will not need a CASS limited assurance report. Such a firm will need to take care that its entry on the FCA register reflects the necessary requirement not to hold client money and auditors will need to confirm this is the case before deciding not to prepare a CASS limited assurance report.