After a primary review, FCA representatives are now doing some footwork. Forex Magnates has learned from people close to the matter that a number of FCA authorized broker-dealers have had a semi-surprise visit from the authority. The move signifies the regulator’s pro-active approach in maintaining stability, efficiency and credibility in the UK financial system.
The FCA has been formally visiting firms in light of the recent moves in the Swiss Franc which caused leading London-based firm Alpari UK to file insolvency and go into administration. Several brokerages have informed Forex Magnates that they suffered severe losses after the crisis unfolded last week.
“Client money has been on the agenda since the demise of Lehman, MF Global, and the FSA’s appointment of a specific unit, furthermore it has the watchdog, has introduced new rulings that came into effect last June, but the current fiasco has triggered an outcry,” said a Madrid-based compliance professional who asked not to be identified.
“Many more firms are expected to be impacted by the CHF crisis and that’s why the FCA has reacted. I think it’s a good move as it shows that the regulator is keen to make amends,” he adds.
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FCA authorised firms that hold retail client funds are obliged to follow the Client Assets Sourcebook (CASS) as per the FCA Handbook. Depending on the size of the firm, an employee or consultant that holds the title of CF10a will be responsible for ensuring clients’ funds are segregated from firm money, with daily reconciliation a core function.
Client money rules and procedures were questioned after UK-based spread-betting firm WorldSpreads was found guilty of cherry picking some funds from the client money pot for the funding of its overseas offices.
UK authorised firms adhere to the handbook and all regulated firms have guidelines for operations. During this visit, the FCA will most likely request firms to present their CASS Resolution Pack, which shows the firms’ procedures on holding client funds at their bank, their trust letter and other important aspects relating to client funds.
Since establishing a stand-alone unit for the monitoring of client money, the unit has been actively reviewing firms and, consequently, censured firms that were in breach of rules. On its website, the FCA comments about the unit: “The client asset specialist unit (Client Asset Unit) was specifically created to provide confidence in the UK regulatory regime’s ability to deliver adequate protection of client money and safe custody assets (client assets); a critical component for a successful financial services industry. The Client Assets Sourcebook (CASS) in the FCA Handbook sets out the requirements with which firms must comply when holding or controlling client assets.”