Regulation  

Advisers warned of ‘hefty fines’ amid client assets overhaul

Firms could face hefty fines if they do not safeguard client assets and address the potential changes outlined by the Financial Conduct Authority, an outsourcing firm has warned.

In a 240-page consultation paper published yesterday (15 July), the FCA unveiled plans to increase the speed of return of client money on firm failure and new rules for how companies must keep tabs of investors cash.

In particular, the FCA said it plans to clarify rules to force firms to “reconcile” client assets internally where they are held by third parties - even if the firm at no point touches the funds - in cases where the client relationship is held with the firm rather than with the third party.

Outsourcing firm Multrees Investor Services said that the FCA’s review comes at a time when there is a “much-needed revamp” of the way in which firms meet the requirement to safeguard client assets.

Yvonne Clough, head of risk at the outsourcing firm, which stands to benefit if more firms outsource client asset handling, highlighted that while it has been a confusing time for the industry the paper “goes some way” to incorporate changes that have evolved as best practice.

Ms Clough said she sees the paper as a “positive step” towards improving the safeguarding of client assets, but she warned of “a danger that firms could face hefty fines or worse if they don’t start addressing the potential changes sooner rather than later”.

Ms Clough said: “The areas covered by the consultation paper are wide-ranging, and ill-prepared firms will find the process of compliance particularly onerous.

“Wealth managers may be better off focusing on their core offering and seeking advice and support around the client asset sourcebook (Cass).

“One of the best ways to do this is to pass the responsibility of Cass compliance onto organisations which are non-conflicted, perform reconciliations daily, hold all records in one place and focus on their core competencies of custody and client money protection.”