Background The Settlements Working Group published a paper looking at automated settlement methods that explored the benefits and challenges associated with the varying options available. This is an extension to that paper concentrating on the CASS elements that should be considered.
Model The majority of net settlement solutions currently operate within TA utilising the DVP exemption as prescribed in 7.11.21R.
Adopting the normal approach can present challenges due to the net settlement timings. If monies are transferred prior to the start of the business day this can create deficits in the client money account and prudent segregation may be required. Any cash movements made later in the day can result in balances being retained within the client money bank account overnight and consideration should be given to how these are represented within the internal books and records.
Bank accounts New bank accounts and banking relationships may be required to support some net settlement solutions which will require due diligence and potential client money acknowledgement letters. Associated fees and charges require assessment to ensure that these are debited from an appropriate account. Firms should assess existing liquidity arrangements to prevent held payments, unauthorised overdrafts and potential breaches.
D2F Update - August 2019 In December 2018 the IA invited the TA Forum to consider the operational issues and challenges that might arise from the introduction of the D2F model in the UK. Phase 1 This considered the issues and challenges that might prevent a widespread take up of the D2F model. The group’s interim report is available below. The key issues identified were the requirement to operate an IAC account for each umbrella structure and the inability of the model to be used for ISA business. These limitations are in addition to the restriction to ICVCs contained within the IA’s model itself. Phase 2 The second phase of the work was to look at the required operational processes. The group identified that to conclude the work in this area further clarity was required from the IA on the situation that would arise on the insolvency of a sub-fund contained in the umbrella, which is critical as the operational processes being designed for D2F seek to mitigate any risk to investor’s assets. The IA have committed to providing the legal clarity required but until this has been received a timetable for the completion of phase 2 cannot be provided. Further updates will be published as soon as they are available.
Changes to the CASS rules were implemented 3 January 2018 in relation to MIFIDII. For information in respect of MIFIDII and the impact on client money, please click here.
Update re: CASS 7A & the Special Administration Regime Review CP17/2:- The TA Forum CASS Working Party has undertaken a review of CP17/2 and provided the following responses to the FCA, which we believe are the key areas which have an impact to TA’s:-
Post-PPE reconciliations Q8: Do you agree with our proposed clarifications in CASS 7A relating to the post-administration reconciliation under the SAR? If not, please provide reasons.
TA Forum CASS Working Party Response: We would agree with the adoption of this proposal. Further to our comments to DP16/2 we have noted from CP17/2 that this will extend to firms using the normal approach (not just to those who use the alternative approach).
Annotated sample statements Q9: Do you agree with this proposal on annotated client statements? If not, please provide reasons.
TA Forum CASS Working Party Response: We would agree with the adoption of this proposal, however, the provision of an annotated statement should be on request from the investor and not made available on the firm’s website. Even this type of sample information could be leveraged and/or manipulated by fraudsters against both the firm and its investors (if it was in the public domain).
March 2017 Update:- In last quarter the CASS working group have revised the Best Practice document and also published their first specific BP Statement. Going forwards it is our intention to produce one-pager best practice statements based on the CASS rules or a topical CASS area. These individual statements will contain more detailed information on the subject matter whilst allowing the information to be more readily accessible. Best practice statements will eventually replace the full best practice document.
We will continue to monitor feedback from our members on FRC audit standards and are working with audit firms to align expectations.
The TA Forum CASS Working Group are looking to hold a webinar in 2H’17 to provide an industry overview of TA CASS practices to increase awareness. Documentation to support the Webinar in respect of Cash Models and Audit Timeline will be made available on the TA Forum website shortly.
December 2016 Quarterly Update: The recent focus of the TA Forum CASS Working Party has been assessing the impact of the new Financial Reporting Council’s Providing Assurance on Client Assets to the Financial Conduct Authority guidance publication, which came into effect in January 2016. Auditors are now looking in far greater detail than ever before at firms and where CASS rules impact organisations, how firms assess their CASS risks and controls, their general CASS culture and by extension their Transfer Agents (with whom the firm has outsourced CASS functions to). The TA Forum CASS Working Party continues to maintain dialogue with representatives of the major Audit firms as we move towards this sizeable shift in approach to CASS Assurance reviews.
Prudent Segregation - August 2016 Please be aware that ongoing discussions are being held between auditors, regulated firms and transfer agents regarding a requirement to treat a known pre-funding event as prudent segregation. An update to our Best Practice Statement in this regard will be made during Q4 2016.
June 2016 Quarterly Update: Much of April was spent reviewing CASS 7A & the Special Administration Regime Review - DP16/2. This culminated in the TA Forum submitting our response to the FCA before the 9th May deadline. A summary of this response is available in the May update below. We also spent time this quarter preparing for the “CASS Seminar - PS14/9 One Year on”, which was held in London on 26th May. The seminar was very well attended and included presentations from the FCA, KPMG, IFDS and Aberdeen Asset Managers. The feedback we have received from those who attended has been very positive and a copy of the presentations are available to view in the “26/5/16 CASS Seminar – PS14/9 One Year On!” update below. During the quarter, we also continued to work on other deliverables, as outlined in our Terms of Reference document. These include continued analysis of audit oversight observations and the possible impact to Third Party Transfer Agent services and to also identify any inconsistencies with our Best Practice document. As well as this, we are looking at other regulatory changes such as MIFID II and UCITS V for any potential CASS impacts. Look out for further updates on these topics in future posts.
May 2016 Update: The TA Forum have undertaken a review of CASS 7A & the Special Administration Regime Review DP16/2 and have responded to the FCA, a summary of our response can be found in the attached document:-
31st March 2016 Update: In June 2015 we reviewed our Best Practice Statements following the introduction of the new rules and experiences from working party members. An updated version this document was loaded to the website in September 2015. In January we began 2016 by ratifying a number of objectives for the CASS Working Party, these included; an ongoing review of CASS Audits, an associated review of the Best Practice Statements and the hosting of a CASS Seminar which will be held on 26 May 2016 (as above).
The TA Forum has recently added 4 new members to the working party (Franklin Templeton, Smith & Williamson, FNZ & T. Bailey). In terms of AUM the TA Forum now covers approximately 95% of the UK TA Industry.
In March 2016, the FCA issued a discussion paper relating to CASS 7A & the special administration regime review. The CASS Working Party is currently reviewing this DP (16/2) in order to provide feedback to the FCA by the May 9th deadline.
Update July 2015: PS14/9 - Review of the client assets regime for investment business In April 2015, the CASS Working Party reviewed CP15/8 Quarterly Consultation No.8 and provided feedback to the FCA requesting clarification on the term “immediate payment” in the context CASS 7.11.21 R 2 (b). Following consultation with representatives of the TA industry it has been agreed that this should be considered as the same day.
During May and June 2015, the CASS Working Party increased its meeting frequency (to fortnightly) to ensure TA industry readiness for the new CASS rules. As a result of those discussions, some updates have been made to the TA Forum PS 14/9 Best Practice Statements (to be published shortly) - revisions have been made to the ISEM process, the internal client money requirement and CASS 8 mandate definitions. These changes represent further consideration and experience across the industry.
Post implementation analysis will continue by the CASS Working Party to ensure the Best Practice Statements continue to contain current industry views.
2013/14 Updates
December 2014 Update: PS14/9: Review of the client assets regime for investment business
Following detailed analysis of CP13/5 by the TA Forum CASS Working Party, the FCA published PS14/9: Review of the client assets regime (PS) for investment business on 10 June 2014. The changes take place in three phases:
1 July 2014 Certain rules and guidance have come into force which provide clarification of existing requirements. These included limiting the placement of client money in new unbreakable term deposits and the introduction of the option to operate multiple client money pools.
1 December 2014 Rules and guidance will come into force on the provision of information and consent obligations when entering into custody agreements with new investors and the documentation of agreements and arrangements with any new counterparties with whom firms deposit or otherwise place custody assets or client money. These new obligations include a requirement to notify the investor of certain matters if operating under the banking exemption and mandating the use of template acknowledgement letters with new client bank and client transaction accounts.
1 June 2015 All of the remaining rules and guidance will come into force and all firms will need to ensure they fully comply with all of the new rules.
On receipt of the PS, the TA Forum CASS Working Party carefully reviewed its contents before holding a series of workshops to fully understand and agree an industry interpretation of the rules.
Further discussions were then held to agree the application of new rules. These discussions focused on the following key areas:
CIS 24 window
Investor information
Physical receipts
Intra-day client money funding
Changes to client money reconciliations
Previous Update 10 June 2014 - Policy Statement Released The TA Forum will be holding a series of meetings to discuss the impact of the Policy Statement which is effective from 1 July 2014, the first meeting will be held on 18 June (for TA Forum members only), to discuss the impact to the high priority issues published previously below:-
CASS 13 5 Impact Summary.pdf Adobe Acrobat document [390.5 KB] Previous update dated 10 October 2013 - The TA Forum have today sent a collective TA response to CP 13/5 Review of the client assets regime for investment business, to the FCA, please see attached document: - UK Transfer Agency Forum - CASS Working [...] Adobe Acrobat document [423.1 KB]
Previous update September 2013- The TA Forum has formed a sub working group, chaired by Paul Mitchell of BNY Mellon to focus on CASS. The working group first met on 5th September 2013 and agreed that this should be the first of an ongoing series of meetings. All firms who are members of the TA Forum are welcome to participate in the CASS working group. In view of the immediate requirement for a collective TA response to CP 13/5 Review of the client assets regime for investment business, this was agreed as the initial objective of the group. Subsequent objectives will be agreed after the CP response is finalised and ratified by the TA Forum.
The impact of CP 13/5 Review of the client assets regime for investment business for TAs The following areas were discussed and agreed as the main challenges for TAs:
Client reporting and information
DVP removal for regulated collective investment schemes
Client money reconciliations and record keeping (removal of method 2)
Physical receipts and allocation of client money
Policies and procedures
Money ceasing to be client money/client money held by 3rd parties
Internal custody reconciliations (requirement to use separate internal records)
Allocated but unclaimed client money
A document confirming a collective TA view on the CP will be produced and published on this website to provide the following:
A summary of the changes which are considered to have a significant impact to TAs
The impact of those changes
Where necessary a request for clarification or further explanation as to why the changes are being proposed
Note TA firms will also provide individual feedback on the CP to the FCA. This will be on a consistent basis for the areas within the TA collective document. The following timeline was agreed for the document: 13/09/2013 - BNYM to produce initial draft for group comment 20/09/2013 - Revised draft with track changes to be issued 27/09/2013 - Working group to agree final draft version and provide to TA Forum for comment/approval 04/10/2013 - Final version to be presented to FCA by TA Forum In addition to the CP response, there was an outstanding action from the TA Forum to agree the key CASS challenges to the TA industry. As this was an action prior to the issue of CP 13/5, it was agreed that progress would need to be addressed through the CP response. The key areas are confirmed below:
Key CASS challenges to TAs prior to CP 13/5
The potential need to re-mandate investors where original (typically old pre imaging) mandates cannot be located.
Approach to intraday exposure over or under segregation (e.g. due to banking system timings)
General challenges surrounding diversification of client money
An issue was raised by a firm at IFOC and at the last TA forum relating to how they had arranged their agent agreements treating them as clients, resulting in a requirement to treat commission as client money. This is not a general issue within the industry, however, post RDR and the CP, concerns were raised by the working party on the broader requirements of a non DVP model and this would be contained within the CP response (on the removal of DVP).