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FCA answers coronavirus questions on CASS audit

The FCA set out the current position in relation to client assets in a statement on 6 April 2020 which includes some items of relevance for CASS auditors. Queries received to date have fallen into seven areas.

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Audit

There have been concerns reported around additional breaches and costs associated with the impact of COVID-19, however the FCA has not yet seen these materialise. 

If auditors are concerned about their ability to meet the four-month deadline, the late reporting rules in SUP 3.10.8 must be followed. 

CASS auditors are reminded of their statutory duty to report (via CASSAudit@fca.org.uk ) any significant matters with compliance. 

  • Have you been able to get information from outsourced locations that have similar lockdowns in play e.g. India?
  • For March year-ends, were you able to do a walk-through of processes?
  • Did COVID-19 exacerbate existing stresses in the firm’s CASS systems?
  • Where you able to conduct an appropriate review of IT General Controls?
  • Do you have wider views on aspects of going concern and ability for staff to work remotely?
  • What is your current view of the control framework in view of the firm’s BCP being executed? In some cases, controls staff have moved to a front-line role.

Cheques

Where CASS firms have issues handling cheques arriving at an unmanned office, they need to consider the customer harm caused on a case-by-case basis. 

  • Can the customer still receive the product or service even if the cheque is not cashed yet?
  • Is there a way to notify the customer?

Where there are logistical difficulties around the one business day rule, firms should ensure client assets remain protected. 

Physical asset reconciliations

It will be impossible to check physical share certificates where CASS auditors do not have access to a building on lock-down at this time. So, firms need to notify the FCA if they can’t conduct a physical asset reconciliation.

In the face of these challenges, firms must take steps where possible, to ensure client assets remain protected. 

Depositing client money

The FCA recognises there may be challenges around the segregation and diversification of client money and reminds firms accounts can be opened at; central banks, CRD credit institutions, banks authorised in a third country and qualifying money market funds. 

They also warn that if firms have issues, they need to have carried out a detailed assessment of alternative options, before contacting the FCA. 

Notification of breaches

There are the general FCA notification rules (Principle 11) and certain CASS specific requirements. Therefore, as a vital part of the regime, appropriate notifications to the FCA need to happen as we would expect more of these, other things being equal. 

Classification of firms 

This continues as normal – with firms reporting to the FCA in January, even though some firms may have since seen an increase in holdings of client assets in the subsequent period. 

Delays to improvement processes

The FCA realises that firms’ improvement programmes to address historic breaches may now be delayed because of the disruption. Firms should report delays and keep the FCA informed of their progress.