The FCA recently released a statement emphasising the importance of protecting client assets during the peak of the coronavirus pandemic. With most businesses are operating a “work from home” programme during this time, the FCA advised that there are certain scenarios that would require a physical office presence such as the prompt lodgement of cheques and reconciliation of physical assets. But what is clear is that otherwise the FCA expects CASS firms to be able to cope. This is after all what we trained for; this is what a resolution pack is for.
I don’t think we can honestly say that we were not given plenty of warning that coronavirus was coming. There were outbreaks of bird flu and the likes over the last decade and Bill Gates did his Cassandra-like Ted talk, and yet I am not sure our thinking on CASS has really moved on from the efforts to solve the problems that materialised during the financial crisis of the noughties.
When all this is over and the FCA comes to revise the CASS regulation from what we have learnt from this crisis, what will it think is necessary for robust CASS control? Well, if it was up to me, I might suggest that we start with the following three suggestions:
CASS systems need to be in the cloud and hosted by a reputable (or even regulated) third party that you can rely on. Your third-party provider should be able to ensure continuity of service and be able to add the necessary capacity to their service for times of crisis when volumes peak in a panicked market.
With the correct systems set up, CASS work is perfect for working from home. On a rotation basis you should have members of your CASS team working from home one day a month or even one day a week. Working from home is no longer a perk. It is necessary to give people the work-life balance they want, and it adds resilience to operation beyond the theory in your resolution pack.
Automate as much as possible. If your operations are of a decent size, you have probably already automated the reconciliation process to achieve at least the minimum regulatory standard of daily end-of-day reconciliations. However, your firms really must now consider:
- Intraday reconciliations. This is to allow you to fund intraday short falls, spread resolution work across the day and to ensure your resolve errors and reconciliation breaks as rapidly as possible to minimise any funding required.
- Integrated sweeping of top up. With the Open Banking revolution that it is now underway, it is possible to automate all the daily reconciliation and protection steps required by CASS regulations.
Internal and external reconciliations can be automated, and the Open-Banking-powered CASS system can then sweep the automatically calculated top up amount from the firm money bank account to the client money bank account to protect client positions.
Now I am not suggesting that in normal circumstances you would “close the loop” on these processes with total automation. Normally internal and external reconciliation will be reviewed, and adjustments made and the top up amount for errors subsequently resolved, prudent segregation or stock adjustments before the top up sweep would be initiated. However, in extraordinary times when you are down key CASS oversight staff and your volumes are exceptional, it is surely reassuring to think that the Chief Operations Officer or other senior manager, suddenly parachuted into CASS compliance, could, as well as frantically reading the procedures in your firm’s resolution pack, flick a switch to ensure automatic compliance and the avoidance of CASS breaches.
Even in more normal circumstances, this level of integration of CASS control into the banking, cash operations and reconciliation functions give the regulated firm a scalability, robustness and automation that helps prevent breaches and deliver superior compliance and client service.
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