The collapse of MF Global, only a matter of weeks before, provides us with all too timely a reminder of the damage that can be caused to clients in an insolvency, when firms have failed to fulfil their regulatory obligations to protect clients' assets. With an estimated $1.2 billion missing from client accounts and investigations underway to determine if client funds were diverted into the firm's own account, MF Global's failure to protect client assets highlights exactly the risk that the CASS regulations are designed to prevent from crystallising.
The quality of the protections afforded by the client assets regime is relied upon greatly by the FSA, to protect clients and promote market confidence. The regulator has emphasised repeatedly that its CASS supervision will become more intensive and intrusive. The direct cost of non-compliance is a clear incentive - penalty fines, commissioning of enforced Skilled Person's (S166) reports and undertaking of any required remediation activities, but there are reputational considerations as well. As the FSA's attention on identifying non-compliant firms continues to increase, so in turn does the awareness of clients as to the protections they should be afforded; non-compliant firms may start to lose business, if their houses are not in order.
The FSA's message is clear - this is a priority area of regulation; their attention on CASS will continue to grow and so should that of firms holding client assets. Crossbridge has worked this year with firms strengthening their CASS governance, oversight and controls and developing operating models that are sufficiently flexible to adapt to changes in business and regulation. Ensuring these are embedded next year will be a key area of focus.â