With the endless debates (arguments) about Brexit very much on the trough, the usual regulatory fillers have taken centre stage again, with CASS amongst this prominent pack.
The last ten years or so has taught us that regulations rarely fade away, in fact they typically evolve to be broader, more comprehensive and ultimately painstakingly difficult for firms to adhere with. Despite the challenges faced by firms to satisfy these more encompassing regulations, the fact of the matter is that in order for these firms to operate, meeting the regulations is requisite.
The world of CASS has shown us exactly that from the PS14/9 changes, to the introduction of the FRC Client Asset Assurance Standard (‘CASS Standard’), the MiFID II changes and most recently a revision to the CASS Standard. Just simply looking at the last 12 months alone shows us that the unwavering lens on CASS does not appear to dissipate. And why would it, considering the FCA’s first objective is ‘securing an appropriate degree of protection for consumers’ which is the essence of the CASS regime. If you needed further proof, CASS is one of the only sourcebooks within the FCA’s Handbook, that is in itself one of the 11 FCA Principles for business (i.e. Principle 10).
Senior Managers and Certification Regime (SMCR)
The implementation of SMCR has been one of the key focus points for many firms in 2019, with the expansion of the regime to include all Financial Services and Markets Act (FSMA) authorised firms - including banks, building societies, asset managers, investment firms, insurers, mortgage providers, consumer credit firms and sole traders.
Interestingly, CASS is one of the only areas in which the SMCR requires a Senior Manager Function (SMF) and a Certified Person (CP) albeit this only applies to Enhanced SMCR firms. Typically within these Enhanced SMCR firms, there are two separate individuals who are accountable for the compliance of the CASS regime thus dispersing CASS across more levels of senior management.
Ultimately, the SMCR has given the regulator new powers to hold individuals to account who are truly reckless in the way they carry out that responsibility.
Skilled person reports (s166 reviews)
A widely used trend analysis for regulatory practitioners is to establish the number of skilled persons report commissioned by the regulator, and what the Lots (i.e. topics) relate to. The last five years has seen the number of CASS s166 reviews decline from the peak of 13 in 2015/16, to just four the following year (2016/17). Since then, the numbers have remained relatively stable at around four CASS s166 reviews per year. However, there appears to be a potential reverse in this trend since the UK planned to leave the European Union (EU) on 31 October 2019. In the quarter October – December 2019, there were three CASS s166 reviews commissioned by the FCA, the joint highest of any Lots. What is even more interesting is that all three were for firms in the bracket ‘Portfolio Supervision Firm’, indicating that the firms are either small or medium-sized firms. This should ring alarm bells for firms, in particular the small/medium sized firms who have perhaps been a little unwittingly laissez faire about their CASS compliance.
The revised FRC Client Asset Assurance Standard
The end of 2019 saw the publication of the revised CASS Standard which came into effect for reporting periods commencing 1 January 2020 onwards. Whilst the revised CASS Standard is not expected to materialise into significant changes in the expectation from auditors, it does however signify the constant appetite in the market to ensure firms are adhering with their CASS obligations.
An example of this can be noted in one the changes in the CASS Standard – going forward, the auditor will be reporting to ‘those charged with governance’ in addition to the FCA. Whilst this may appear to be a technicality, it indicates that CASS should no longer be perceived as the responsibility of the CASS accountable individuals (SMF/CASS Oversight Officer) but in fact the responsibility of the Board and its directors. This subtle yet significant change makes it abundantly clear that the FRC, perhaps in conjunction with the FCA, would like the directors of firms to share the responsibility of CASS compliance and ultimately pay more attention to it. Once the revised CASS Standard does kick in, do not be surprised if your company directors are showing an increased interest in CASS.
CASS = No respite
The spectrum of industries falling into the scope of the CASS regime is only increasing, with the most recent addition to the CASS fraternity being CASS 13 for Claims Management firms. Prior to that, it was Debt Management firms. The collective continues to grow.
So, what does this all mean for CASS regulated firms? As has been demonstrated here, if you opportunistically thought CASS was on the back burner, think again. It remains to play a major role in the regulatory universe and there are no signs of that receding.
If you’d like to find out how Hydrogen Group and I are helping firms with their CASS compliance, please get in touch with me.Posted almost 2 years ago