FSA Policy Statement on CASS Resolution Packs
Introduction
Following the collapse of Lehman Brother and MF Global, the safety and security of client assets is a stated priority for the FSA. On 26 March 2012, in furtherance of this agenda and as an “initial step in a wider review of the client assets distribution regime”, the FSA published Policy Statement PS 12/6, which contains final rules requiring certain firms to create and maintain a CASS Resolution Pack.
What is a CASS Resolution Pack?
A CASS Resolution Pack is a collection of records and documentation relating to a firm’s holding of client money and safe custody assets. The purpose of creating and maintaining a CASS Resolution Pack is to provide a readily available tool which will assist an Insolvency Practitioner in locating and returning client money and safe custody assets more quickly than is currently the case.
To Which Firms do the Rules Apply?
The requirement to create and maintain a CASS Resolution Pack will apply to all investment firms which are subject to CASS Chapter 6 (Custody rules) or Chapter 7 (Client money rules). The FSA estimates there to be approximately 815 such firms in the UK. Note, however, that the rules do not apply to a firm to which CASS 6 applies merely because is arranges the safeguarding or administration of assets, or to insurance intermediaries which are subject to CASS 5.
Deadlines
Firms which are subject to the CASS Resolution Pack rules have until 1 October 2012 to be fully compliant. Each such firm must ensure that it has a CASS Resolution Pack in place from the time it begins to hold client assets and that the CASS Resolution Pack is maintained for the entire period during which it holds client assets.
CASS Resolution Pack Requirements
The CASS Resolution Pack rules are implemented by insertion of a new CASS Chapter 10 (CASS Resolution Pack) into the FSA Handbook. In broad terms, the effects of the rules are as set out below.
Cass Resolution Pack Contents
The Cass Resolution Pack rules create new obligations with respect to existing documentation, such as client categorisations, and also require firms to generate and maintain wholly new types of documentation, such as the master ‘signposting’ document and lists of individuals with significant involvement in the CASS process. The Schedule to this article provides detail on the documentary components of a Cass Resolution Pack.
The ‘48 Hour Rule’
The documentation forming part of, and referred to within, a CASS Resolution Pack must be capable of being retrieved within 48 hours of (a) the appointment of an insolvency practitioner or (b) the request of the FSA, irrespective of whether the firm in question is a going concern or has entered into insolvency/resolution. It is worth noting that the 48 hour period continues to run whether the days in question are business days or non-business days. Moreover, where documents are held by a member of the firm’s group, the firm must have adequate arrangements in place to ensure that documents are still delivered within the 48 hour timescale. The FSA notes that the 48 hour period is for retrieval of the relevant documentation and should not be used as a period during which the firm starts to produce the constituent elements of the CASS Resolution Pack.
The ‘Immediately Retrievable’ Rule
Certain documentation must be capable of being retrieved immediately so as to assist an insolvency practitioner in identifying and freezing client assets. The FSA believes that, in general, firms will already have these documents to hand and so believes that the incremental costs associated with this provision will be minimal. A full list of the documentation to which this requirement applies is provided in the Schedule to this article. Firms should note that the FSA may rely on the inability of a firm to provide ‘immediately retrievable’ documentation as tending to establish that the firm is in contravention of the general requirement that documents be retrievable within 48 hours.
Inaccuracies and Corrections
Firms must ensure that material inaccuracies in the content of any new documentation required to be produced as a result of the CASS Resolution Pack rules must be corrected within 5 business days of the inaccuracy arising.
Impact on Outsourcing and IT Systems
Firms which are subject to the CASS Resolution Pack rules must ensure that any arrangements with other group entities, external service providers or third party providers of electronic systems which form part of the firm’s CASS processes must remain operational and/or accessible even following the failure of the firm.
Reporting
Within Consultation Paper CP 11/16 the FSA had proposed that firms submit an annual report to the FSA in relation to CASS RP compliance. As a result of comments received during the consultation period, the FSA has decided to amend this requirements such that now the individual with responsibility for CASS operational oversight within a firm will be required to report at least annually to the firm’s governing body in respect of its CASS Resolution Pack and notify the FSA immediately if the firm is non-compliant.
Conclusion
PS 12/6 contemplates no kind of iterative process occurring between firms and the FSA in improving the standard of CASS Resolution Packs over time, nor does it contemplate any kind of grace period for compliance. In contrast, the message from the FSA is clear: firms must be fully compliant with the rules regarding CASS Resolution Packs by 1 October at the latest. Consequently, with only 6 months to go, firms need to start planning ahead in terms of creating new documentation, understanding where the existing documentary components of its CASS Resolution Pack reside, improving the robustness of intra-group documentation arrangements and understanding the impact of CASS Resolution Packs on resourcing needs. However, for those which begin the process soon, the current deadline should remain achievable, even with respect to CASS Large firms.
Continuing compliance will remain an issue which firms should not underestimate. The requirement that the contents of a CASS Resolution Pack must be reviewed on an ongoing basis to ensure continuing accuracy, the five business days updating requirement, the ’48 hour rule’ and ‘immediately retrievable rule’ imply a potentially significant ongoing compliance burden. Moreover, the FSA has made clear in its 2012/13 Business Plan that the focus on client money and assets will increase in the short and medium term, as will the intensity of the FSA’s supervisory approach to CASS issues in general. In light of this, firms would do well to regard their obligations with respect to CASS Resolution Packs as a ‘business as usual’ workstream from the outset and plan accordingly.
SCHEDULE
Schedule
The table below details the documentation requirements of a CASS Resolution Pack and identifies, with respect to each requirement, whether this is (a) new and specific with respect to the CASS Resolution Pack rules or is an existing requirement under the CASS rules, and (b) whether the document in question should be capable of being retrieved immediately or within 48 hours.
|
Description |
Reference |
New / Existing Requirement |
Retrieval Deadline
|
| Master document containing information sufficient to retrieve each document in the firm’s CASS Resolution Pack |
CASS 10.2.1R(1) |
New |
48 hours |
| A document identifying institutions appointed by the firm to hold client money or safe custody assets |
CASS 10.2.1R(2) |
New |
Immediately |
| A document identifying each appointed representative, tied agent, field representative or other agent of the firm which received client money or safe custody assets in its capacity as the firm’s agent |
CASS 10.2.1R(3) |
New |
48 hours |
| A document identifying each individual who is important to the performance of the firm’s CASS obligations (including the person with responsibility for CASS oversight) and the nature of their responsibility |
CASS 10.2.1R(4) |
New |
Immediately |
| Any written notification or trust acknowledgement letters which must be given or received when a firm opens a client bank account or a client transaction account with a third party |
CASS 10.2.1R(5) |
New |
Immediately |
| A copy of each agreement, side letter and/or amendment agreement with institutions with which the firm deposits client money or safe custody assets |
CASS 10.2.1R(5) |
New |
48 hours |
| A document identifying and providing certain other information with respect to each group member and/or third party (a “Third Party Outsourcer”) which is involved in the performance of operational aspects of the firm’s obligations under CASS 6 or CASS 7 |
CASS 10.2.1R(6) |
New |
48 hours |
| A copy of each executed agreement, side letter and/or amendment agreement with any Third Party Outsourcer |
CASS 10.2.1R(7) |
New |
48 hours |
| A document which describes how to (a) gain access to relevant information held by, and (b) effect a transfer of client money or safe custody assets held by, each Third Party Outsourcer |
CASS 10.2.1R(8) |
New |
48 hours |
| A copy of the firm’s manual in which are recorded its procedures for the management, recording and transfer of client money and safe custody assets |
CASS 10.2.1R(9) |
New |
48 hours |
| Records of the grounds upon which the firm satisfied itself of the appropriateness of its selection of each third party with which it deposits safe custody assets |
CASS 6.3.1R(4) |
Existing |
48 hours
|
| In relation to clients the safe custody assets of which have been used for securities financing transactions, records of (a) the consent from each such client to use the assets in question, and (b) the number of assets used |
CASS 6.4.3R |
Existing |
48 hours |
| Records and accounts which enable the firm to distinguish safe custody assets of one client from those of another client or the firm’s own assets |
CASS 6.5.1R |
Existing |
48 hours |
| The most recent internal reconciliations relating to safe custody assets |
CASS 6.5.2R |
Existing |
Immediately |
| A copy of every executed client agreement that includes a firm’s right to use safe custody assets for its own account, including disclosure annexes from Prime Brokerage agreements |
CASS 6.5.2AR |
Existing |
48 hours |
| The most recent external reconciliations relating to safe custody assets |
CASS 6.5.6R |
Existing |
Immediately |
| Records of the grounds upon which a firm satisfied itself as to the appropriateness of its selection of a third party with which it has deposited client money |
CASS 7.4.10R |
Existing |
48 hours |
| Records and accounts which enable the firm to distinguish client money of one client from that of another client or the firm’s own money |
CASS 7.6.1R |
Existing |
48 hours |
| The most recent internal reconciliations relating to client money |
CASS 7.6.2R |
Existing |
Immediately |
| Records sufficient to explain the method of internal reconciliation of client money balances |
CASS 7.6.7R |
Existing |
48 hours |
| With respect to firms which do not use the ‘standard method of internal client money reconciliation’, written confirmation from the firm’s auditor that the firm has adequate systems and controls in place |
CASS 7.6.8R |
Existing |
48 hours |
| The most recent external reconciliations relating to client money |
CASS 7.6.9R |
Existing |
Immediately |
| Record of each client categorisation together with supporting documentation |
COBS 3.8.2R(2)(a) |
Existing |
48 hours |
| A copy of any agreement pursuant to which a client is categorised or re-categorised |
COBS 3.8.2R(2)(c) |
Existing |
48 hours |
| Copies of all client agreements with retail clients and professional clients |
COBS 8.1.4R |
Existing |
48 hours |
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