Broking Business Winter 2021: CASS 14 and how it could affect your firm

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PKF Partner Paul Goldwin analyses and explains the rules.

The CASS 14 rules were introduced by the Financial Conduct Authority (FCA) a few years ago in readiness for Brexit. However, they’ve only recently become prominent after engagement by the FCA with UK branches of European Economic Area (EEA) firms once the Brexit transition period came to an end. EEA firms, either in their own right or through the establishment of a UK branch, have been authorised to undertake insurance mediation activities in the UK under the Temporary Permissions Regime (TPR).

The FCA has now started to award ‘landing slots’ to such firms giving them a designated time-scale to make an application to apply for a Part IV Permission and become fully authorised. Previously, client asset protection for incoming EEA firms was regulated exclusively by the Home State regulator, with varying degrees of supervision across EEA jurisdictions, but none really as comprehensive as the UK client money rules. It’s perhaps against this background that the FCA introduced CASS 14, to set out the rules the FCA will apply to monitor client money for Temporary Permission (TP) firms that receive or hold client assets in respect of their UK businesses.

In 2021 the FCA has been reminding TP firms of their obligations under CASS 14 and requested all firms and, in August 2021, requested all firms to certify that they understood these obligations.

The regulator requires all TP firms to periodically prepare and submit a ‘Temporary Permission Client Asset Return’ TPCAR in relation to the activities of its UK branch. TPCAR reporting follows a similar pattern to the reporting requirements for UK- based firms under the Retail Mediation Activities Return (RMAR) system.

That’s in the: regularity of reporting; information required to be reported; and timelines for reporting. Firms with an annual relevant regulated revenue of £5 million or more will need to report on a quarterly basis, while all other firms report on a once a year basis only. What about client money audit reporting?

Unless an overseas or EEA firm sets up a UK subsidiary, which will fall squarely under the jurisdiction of the UK regulator, all clients’ money audit reporting is currently undertaken under the rulebook of the Home State regulator. There’s therefore no requirement for a TPR firm under CASS 14 to have a UK client money audit until it becomes fully authorised and then falls under the jurisdiction of CASS 5.  

What’s covered by CASS 14?

CASS 14 applies to those TP firms with UK-based risks, as any non-UK risk will be under the

jurisdiction of the Home State regulator. In its latest survey, the FCA required TP firms to provide their CASS classification as per CASS 14.2 based on the highest total amount of client money held by the TP firm in its last calendar year, with:

  • Client money balances of £1 billion or more being a CASS large TP firm;
  • Client money balances of between £1 million and £1 billion being a CASS medium TP firm; and
  • Client money balances of less than £1 million being a CASS small TP firm.

The extent to which the FCA requests sight of, and gets involved in, the monitoring of these non-UK clients’ money audit reports depends on their FCA categorisation. The position is as follows:

  • Firms subject to the EU’s MIFID II (Investment Category Firms) directive must submit an English translation of their Clients’ Assets Audit Report to the FCA either on request by the FCA or if the Home State auditor has given the firm an ‘adverse opinion’.
  • There’s currently no requirement for non-MIFID II TP firms to have a UK client money audit, as these would be supervised by the Home State regulator and so therefore it appears that insurance intermediary firms are out of scope.

CASS 14 is unlikely to affect most insurance intermediary TP firms. However, it’s important to ensure that you’re not caught out by the rules and that you review your client portfolio to check that there are no UK-based risks that would bring your firm into scope.