AutoRek has issued a strong warning to financial institutions that it will be imperative to rethink current processes in light of the recent proposals outlining client money changes. Now that the FSA has closed its consultation period on Client Assets (CASS), asset managers, banks and insurance providers need to examine how they will reconcile their accounts in order to provide regulators with a clear picture of how client money is being handled.
The creation of sub-pools and more frequent CASS calculations will require firms to frequently align balances with details that are stored in administration systems so that positions can be calculated on a daily basis. Many firms will therefore be forced to examine their current processes and adopt new systems to improve financial data management. To achieve better controls, businesses will need to develop deployment methodologies that identify how they can move away from time-consuming, manual processes towards automated systems that enable the firm to complete more frequent reconciliations and meet client money regulations.
Jim Muir director of AutoRek comments on the challenges that the client money changes pose to financial organisations: “The FSA has vastly increased the size of its client money inspection teams in the last year and in today’s regulated markets anything that belongs to a retail client is subject to controls designed to reduce the risk exposure surrounding investments. However, in financial services where businesses are managing a high volume of operations and relying on a variety of different legacy systems, reconciling accounts can be a very cumbersome process, resulting in delays to the level of protection being provided and an over-reliance on those people that have historical knowledge of the business and can effectively operate the controls.”
Jim Muir continues to explain the importance of rethinking these processes: “There’s more to the client money rules than simply calculating the position clients are in. The operational processes need to be redesigned to capture adequate data, for example, clear client documentation regarding set-offs and the legal status of each bank account. There is also a real opportunity to put clients on a different commercial footing so that the firm’s funding requirements can be reduced, helping to free up valuable capital for other investments.”
