Living with Lockdown - COVID-19 and client assets (CASS)

by Rob Anderson Director

Email +44 (0) 7715 487344

The last few weeks have been difficult for lots of us as we’ve got to grips with massive changes affecting both our work and social lives. That said, the way in which people have responded has been heartening. From speaking to a number of organisations over the last few days and weeks, the way in which their teams have responded and adapted has been commendable and mostly, they are successfully maintaining core operations.

Whilst this is encouraging, there is no room for complacency when it comes to CASS compliance. Given what is going on in the wider economy, it is vital that investors have confidence that their money and assets are well protected.

So what does this mean for CASS functions?

There are obvious areas where COVID-19 is making it more difficult for CASS compliance, such as the timely banking of cheques and carrying out physical asset reconciliations. In these areas we are seeing organisations trying to take sensible approaches and so far, the FCA is being sympathetic, although understandably pointing businesses back to the requirements of the rules. The FCA has recently released its own CASS and COVID-19 page which you should definitely read if you haven't already.

Once we get past the immediate challenges, it is worth thinking about some of the wider CASS implications of COVID-19. Although we aren’t going to try to address all of these in this article, here are some areas that we think should be front and centre in CASS functions’ minds over the coming weeks.

  • Control, control and more control - With the unprecedented shift to remote working, it is critical that the robustness of your CASS control environment isn’t impacted. Evidencing is obviously important (including for us auditors), but focus needs to be on controls that either don’t lend themselves to remote working, or where the operation of the control has had to move between teams.

    We have seen some organisations having to on-shore the operation of controls to what were previously oversight teams. Although they should know how the controls work, overseeing something isn’t the same as doing it. Where this is the case, how are you monitoring that control quality isn’t falling? Do you have enough capacity in that team to keep operations running? Who is doing the oversight now that the overseers are the doers?

    For other controls, like reconciliations, how easy is it to resolve discrepancies when people can’t pop round to someone else’s desk? We all seem to be spending a lot of the day on structured video calls. Does that mean that some of the quick chats to resolve some discrepancies are being forgotten about? Close attention should be placed on the MI that you have to identify slips in effectiveness of resolving reconciliation discrepancies, allocating money and other similar requirements.
  • Don’t forget your banking arrangements - Although we all know that the CASS rules aren’t designed to protect against banking counterparties going bust (there are other regulations for that), you still have responsibilities in this area. With such high market volatility, we are seeing an increased movement into cash, particularly in the Wealth and Investment Platform market, and so this area becomes even more important.

    Given the current economic uncertainty, you should consider the adequacy of both your bank due diligence and diversification policy. Have you increased the frequency and detail of your banking due diligence? Have you considered any substitute banks that you could use to hold client money if your due diligence or diversification tolerances are breached? We know that there were issues a couple of years ago with the availability of appropriate banks to place money with so these questions should be considered carefully.

    Finally on cash, let's not forget that investors would not only want to know that their money is safe, but also that it is liquid. With so much uncertainty in both economic conditions, and people’s individual circumstances, the liquidity of client money pools is important and so those firms either using, or considering using, term deposits should think very carefully about the potential profile of future withdrawals.

  • Human side of operational resilience - Other than the challenges of physically accessing mail rooms and safes, generally it seems that firms’ CASS related operational resilience plans are holding up. While a lot of focus is being placed on system stability and operations running, we can’t forget the human element of what is being done. We have heard of some examples of issues occurring because of human error which is unlikely to have happened under normal working conditions. As it looks like the government won’t be easing the restrictions this week, it is really important for firms to think about how they are managing and assessing the strain that their people may be under and taking actions to make sure that decision making and quality isn’t impacted.

So what next?

There is plenty more that can be said about how COVID-19 is impacting on CASS and I am sure that this will continue to evolve over the coming weeks and months. We will continue to share observations that we feel are important and would be interested to hear your views on other impacts that you think warrant further discussion (either in the comments section or by emailing me via the link below).

by Rob Anderson Director

Email +44 (0) 7715 487344

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