Where did CASS as we know it come from? The Lehman collapse was the first time that the CASS rules had been put to the test on a large scale. The sums of money claimed by the UK investment bank’s clients were vastly greater than the sums segregated by Lehman’s as client money.
A lengthy period of litigation followed, before the FSA embarked upon a review and overhaul of the CASS rule book. This culminated in Policy Statement 14/9, which was the most significant update to the rule book since its creation.
Perhaps even more significantly, PS 14/9 also signalled the beginning of a steady increase in the regulator’s expectation of the policies, procedures, processes and controls that CASS firms should have in place to enable compliance with the rule book.
We see this level of expectation, the bar that firms are expected to meet, continuing to move higher – an example being the granularity of the CASS risk assessment that is now expected to be performed.
Where is CASS going?
It will remain a focus for the FCA, particularly given the significant volume of intelligence that CASS audits have provided to them since the introduction of the FRC standard and the significant increase in the breadth and depth of breaches reported in CASS reports.
We also know that the FCA CASS supervision team review each and every CASS report received, both limited and reasonable assurance, so firms can expect to receive targeted questions from their supervisor.
Inaccurate records are the underlying root cause of many of the current CASS issues that we see, and firms can expect this to be a focus of the regulator.
What should firms be focusing on?
We do not see the spotlight on outsourcing and offshoring dimming in the near future, and firms should continue to ensure that they really understand and oversee CASS activities at their third party administrators.
Any firms that are making use of the new 95 day unbreakable term deposits should satisfy themselves that all the necessary conditions to allow such deposits to be used have been met – and should expect the regulator to be reviewing the use of these deposits across the industry.
Firms should reassure themselves that the arrangements they have in place to address the MiFID II changes to the CASS rules - we expect the FCA to begin to look at the implementation of these over coming months.
Trade date vs settlement date will continue to be a source of disagreement between firms and the regulator – any firms that reconcile on trade date should make sure that the rationale for taking this approach is sound and documented.
How far have the CASS rules come?
Ten years on and we have come full circle, with the collapse of Beaufort Securities providing a window into whether the CASS regime will deliver what it sets out to achieve.
What is already clear is that the CASS rules and the FCA’s expectation of firms will continue to evolve and will continue to require focus and investment by CASS firms of all sizes.