PS14/9 – will it truly make a difference to client protection?

The advent of PS14/9 highlights the FCA’s continued focus on the importance of client protection. PS14/9 mandates that firms must put in place systems and controls that are necessary to meet their obligations to maintain their records and accounts, in a way that ensures their completeness, accuracy and in particular their correspondence to safe custody …

by | January 12, 2015 | AutoRek

The advent of PS14/9 highlights the FCA’s continued focus on the importance of client protection.

PS14/9 mandates that firms must put in place systems and controls that are necessary to meet their obligations to maintain their records and accounts, in a way that ensures their completeness, accuracy and in particular their correspondence to safe custody assets and client money held for clients.

The FCA expect better recordkeeping and record retention to prove controls are in place, operating effectively and that clients are indeed protected.

The countdown is upon firms

In less than 5 months’ time the final phase of the CASS regulations will come into force. AutoRek’s PS14/9 whitepaper highlights the key changes that will come into force on 1 June 2015 for both custody assets and client money. The impact on reconciliations is significant, arguably the strongest control firms have at their disposal for ensuring that clients are protected.

However, with fines at record levels and S166 Skilled Persons Reviews on the rise again, is PS14/9 really going to make a difference?

The FCA are clearly trying to drive up client protection, but at the same time it could be argued that PS14/9 is mandating what firms should have been doing all along. Fines within the financial services industry are almost considered the norm these days, and so it will be interesting to see how the FCA react post 1 June 2015. The new CASS rules potentially give the FCA a bigger stick to shake at firms.

So what now?

The CF10a position was established over 3 years ago. Could we now expect to see the CF10a being personally sanctioned – after all the CF10a oversees the operational effectiveness of systems and controls designed to achieve compliance with CASS.  It will be interesting to see the direction of travel the FCA decide to take.

No one says it’s easy

At a time when financial institutions already face a range of significant economic and regulatory challenges, there is no doubt that their capability and capacity to deliver on PS14/9 will be tested. Multiple products, multiple systems, multiple currencies and multiples locations all add to the complexity.

But is there a more fundamental issue that still needs to be addressed? Do organisations need to take a step back and ask themselves a simple question – do those who work within the remit of custody assets or client money, irrespective of their level within an organisation, know what they do, why they do it and the implications to clients if it goes wrong. Perhaps a CF10a would sleep more comfortably at night, in the firm knowledge that the right people are in the right jobs.

What’s the answer?

Labour intensive, manual processes and manual reconciliations which strive to match multiple transactions are not part of the answer.

Without streamlining the collection, reconciliation and reporting processes around custody assets and client money, businesses are likely to spend less time understanding the business impact of terms of business and client behaviours. Furthermore, without scalable processes, the organisation is susceptible to significant failings and regulatory and reputational risk.

Fully understand your data, your custody asset and client money data flows, and ensure you have robust, automated financial control regimes in place. Demonstrate to the FCA that you are indeed in control, and meeting PS14/9 requirements. Otherwise your firm may be the next to hit the headlines.

 

By Gillian Boston, Associate Director, Business Consulting, AutoRek

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