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FRC consults on a new Assurance Standard over client assets

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14 May 2015

The Financial Reporting Council (FRC) has today published an exposure draft of a proposed new Assurance Standard over Client Assets.

The Financial Conduct Authority (FCA) regulates entities that hold client assets and rules around their safeguarding are contained in the FCA’s Client Assets Sourcebook (CASS).  The CASS requires those firms that hold client assets to hold them separately from their own to minimise the risks of loss to their clients in the event of insolvency. 

Where an entity holds client assets the FCA's Supervisory Manual (SUP rules) require the CASS auditor, annually, to provide a Reasonable Assurance Client Assets Report and to report, among other things, on whether the entity has adequate systems in place to safeguard their client assets.  Where an investment business claims not to hold client assets, a Limited Assurance Report is required.

The Assurance Standard Providing Assurance on Client Assets to the Financial Conduct Authority has been developed to support and challenge auditors when providing these reports.  The proposed new Standard will contain requirements relating to: reasonable assurance engagements, limited assurance engagements, special reports and non-statutory client money trusts.  The FRC highlights that the Standard will (taken directly from the consultation):

  • improve the quality of CASS audits;
  • adequately support and challenge CASS auditors when undertaking CASS engagements and, in particular, to define the nature and extent of the work effort required for both reasonable assurance and limited assurance CASS engagements without undermining the importance of the CASS auditor’s judgment;
  • support the objectives of the FCA’s Client Asset regime regarding the effective safekeeping of client assets and client monies and in particular to guard against systemic failure of the CASS regime;
  • manage the expectations of:
    • The management of firms that hold client assets; and
    • Third party administrators

    when they engage a practitioner to provide assurance to the FCA on client assets that they handle or account for;

  • support the effective training of CASS auditors by both the accounting bodies and other training organisations;
  • help to establish realistic expectations regarding the integrity of the UK Client Asset Regime with the beneficial owners of client assets; and
  • underpin the effectiveness of the FRC’s enforcement and disciplinary activities with respect to CASS assurance engagements.

The proposed new Standard will be effective for reports to the FCA with respect to client assets covering periods commencing on or after 1 January 2016, with early adoption permitted.

Comments are invited until 31 July 2015.

The press release and the exposure draft are available on the FRC website.

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