07 April 2020

This article was written by Anna Davis.

Unfortunately, the responses are often not all that helpful. In summary, the page currently includes:

Handling cheques

Firms have noted some difficulties being caused by cheques being delivered to unmanned offices and remaining unbanked. If a cheque cannot be cashed it may, for example, mean that the customer cannot receive the product or service intended. Firms should communicate clearly with clients on this.

Where a cheque representing client money is not paid into a client bank account promptly, there are two main issues from a CASS perspective.

  • CASS generally requires a firm to bank a cheque into a client bank account within one business day (and in the interim, to hold it securely and record its receipt). Where this is not possible due to coronavirus, the FCA expects firms to 'take such mitigatory steps as are possible in the circumstances'.
  • If payment is made out of a client bank account for a client who has paid using an (unbanked) cheque, this will usually breach the CASS rules. But when a firm is aware of clients who have paid by cheque and acts upon their payment instructions without having banked the relevant cheque, it is sometimes not a breach if the firm has previously paid an amount of its own money into a client bank account. Otherwise, to act upon the client’s payment instruction without breaching the CASS rules, the firm should:
    • ask the client to make a payment directly into the client bank account by alternative means before completing the instruction; and
    • return or destroy any cheque received (in line with the client’s instructions).

CASS audit reports

Some firms are concerned the current situation could lead to additional breaches needing to be reported and costs of the CASS audit reports could increase.

In response, the FCA notes that CASS auditors usually group multiple breaches in their reports, avoiding the need for extensive repetition and additional cost. The FCA has not heard from auditors that reporting on extra breaches would result in significantly increased costs of audits.

Physical asset reconciliations

Some firms subject to CASS 6 have reported difficulties reconciling physical safe custody assets as they cannot access the location where the assets are held.

CASS 6.6.22 R requires a firm to reconcile physical safe custody assets as often as is necessary and, in any event, every 6 months. Where this is not possible due to coronavirus, the FCA expects firms to take 'such mitigatory steps as are possible in the circumstances, to ensure that clients assets remain protected.' CASS 6.6.57 R (5) requires a firm to notify the FCA if it is unable to conduct a physical asset reconciliation.

Depositing client money

Some firms subject to CASS 7 have noted that an increase in client money holdings may lead to some operational challenges in terms of meeting segregation and diversification requirements.

The FCA have confirmed that firms should continue to follow the rules on diversifying holdings in CASS 7.13. Furthermore, if a firm is experiencing any challenges in being able to segregate money, the FCA expects it to have assessed the options available to it in detail before contacting it.

Notification of CASS breaches

Firms may be required to notify the FCA of CASS breaches under Principle 11 and SUP 15. In addition to these general duties, the CASS rules contain various requirements to notify the FCA of specific issues (for example if a firm is unable to carry out a reconciliation or unable to pay any shortfall into a client bank account).

The FCA has confirmed that, as these specific requirements in CASS relate to fundamental components of the regime, firms should continue to make any notifications required under CASS.

CASS firm classification

Some firms have reported increased holdings of client money and/or custody assets.

The rules in CASS 1A.2.2 R and CASS 11.2.1 R require certain firms to categorise based on the value of client money and/or assets held during the previous calendar year (ending on 31 December 2020). The FCA has confirmed that firms should continue to operate as normal and notify the FCA of their categorisation in January as usual.

Delays to improvement programmes

Some firms are unable to progress planned improvement programmes to improve compliance with the CASS rules. Firms should consider reporting such delays to the FCA as per Principle 11 and SUP 15 and, where relevant, keep existing CASS contacts at the FCA notified of progress towards compliance.

And finally

Where a regulated firm has a query about how to apply the CASS rules in the current circumstances, it can contact the FCA by emailing CASSgeneral@fca.org.uk.

The FCA confirms it expects firms to have taken reasonable steps to research and analyse the topic before approaching it (and in some cases, including taking professional advice). The FCA will treat any such requests for guidance in line with our approach to individual guidance set out in SUP 9.2.

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