Assessing and enhancing the legal and contractual aspects of CASS compliance

In the years since the Lehmann collapse there is no doubt that firms have been heavily focussed on CASS compliance, particularly on operational detail and accuracy. But last week's record CASS fine is a reminder of the critical need to understand, assess and verify the legal and contractual architecture underpinning those processes; and to develop and maintain strong governance oversight. 

Many firms across the industry have invested significantly in resourcing their operations around the FCA's Client Money and Assets (CASS) rules on systems and controls.  There has been a focus on the sophistication and modernity of operational technology, the rigour, accuracy and interconnectivity of operational processes, and the granularity and reliability of record-keeping.  That work has helped firms to ensure that reconciliations of client money and assets can be completed accurately and on time, and that discrepancies can be identified and addressed.

It is easy to lose sight of the legal analysis with the accretion and globalisation of business models through the growing size and complexity of a business; through changes to group structure and management; and not least through the complexity and opacity of some of the CASS rules.  The risks for firms of not applying a legal lens to certain aspects of CASS can be serious: existing embedded errors might not be identified, and the December 2014 and forthcoming June 2015 changes to the CASS rules (including on contractual terms) might not be implemented correctly, comprehensively or on time.  The impact of these risks materialising is intensified for those individuals at firms affected by the forthcoming Senior Managers Regime and the ensuing presumption of responsibility against senior managers with responsibility for CASS.

Our briefing aims to provide some practical insights into the legal and contractual issues identified by the FSA's most recent Final Notice published on 15 April 2015.  We also consider some steps you can take to begin to health-check compliance in these areas.