CASS Resolution Packs: The 1 October 2012 Deadline Looms
Any UK firm which is subject to CASS 6 (custody rules) and/or CASS 7 (client money rules) is obliged to have a CASS Resolution Pack in place by 1 October 2012.
CASS Resolution Packs form part of the FSA’s wider review of the client assets regime in the UK and represent the point where the client money rules meet resolution planning. The rules require a firm to collate certain information regarding its handling of client money and safe custody assets that would be of use to an insolvency practitioner in the event of the firm’s failure. The purpose of the rules is to facilitate the return of client money and safe custody assets to clients more quickly than is currently the case.
Creating a CASS Resolution Pack
In theory, a CASS Resolution Pack should be relatively straightforward to produce. Broadly speaking, the exercise breaks down fairly neatly into four main areas:
- analysis of the institutions with which client money or safe custody assets have been placed by the firm;
- analysis of the documentation in place with the firm’s clients;
- identification of the employees of the firm who are critical or important to the performance of the firm’s CASS obligations; and
- third parties and systems on which the firm is reliant for performance of its CASS obligations.
Practical Issues to Bear in Mind
Although the theory behind CASS Resolution Packs is easy to understand, the reality of CASS Resolution Pack creation is sometimes rather different. Some firms are currently unaware of the location of all of the documentation required as part of a CASS Resolution Pack – a necessary first step in preparing the pack itself. In addition, the CASS Resolution Pack rules require firms to have arrangements in place to ensure that electronic systems which are important to CASS compliance remain operational and accessible following the firm’s failure. As such, all such contracts will require review and it may be necessary to approach the vendors of any such systems with a view to renegotiation of contractual terms – a process which often proves protracted.
Questions also remain as to the form the CASS Resolution Pack should take. PS12/6, the FSA’s Policy Statement on CASS Resolution Packs, is silent on this issue. CASS Resolution Packs in both Word and Excel formats exist, and databases designed specifically for the task of creating a CASS Resolution Pack are being developed. All formats have their pros and cons. The key factors to consider in choosing the form of a CASS Resolution Pack are:
- size of the firm – the larger the CASS operation of the firm the more robust the CASS Resolution Pack needs to be due to the sheer volume of documentation which must be assimilated into the pack itself and the requirement for collaborative input from multiple users in order to bring the pack together;
- ease of maintenance – any change of circumstances which renders the content of a document forming part of the CASS Resolution Pack inaccurate must be corrected within 5 Business Days. In reality, CASS Resolution Packs for Large CASS firms are likely to be in a constant state of updating and any solution chosen by such firms must be robust enough to accommodate this;
- flexibility – it seems likely that the rules on CASS Resolution Packs will have to be amended in the future to accommodate any changes resulting from the FSA’s general review of the UK CASS regime.
Cass Resolution Packs in Word are relatively quick and cheap to create. However, they are not well suited to collaborative working in terms of data input and suffer from issues associated with maintaining data integrity. I wouldn’t recommend using Word for any but the smallest firms. Excel is definitely a step forward as data can more readily be filtered and analysed. Again, however, the problems associated with sharing of Excel workbooks is well known and data validation is difficult to maintain over time and between multiple users. Bespoke databases do not suffer from these problems but clearly entail greater expense and a longer lead time to develop. However, on balance, I believe that they are the most appropriate solution, at least for CASS Large firms.
The FSA has made clear in its 2012-13 Business Plan that the protection of client assets sits right at the top of its agenda and it will be increasing scrutiny of firms in this area, particularly those that are systemically important. Following the MF Global fiasco, one can only assume that regulatory oversight in this area will increase yet further. As such, there is clear value for firms in getting CASS Resolution Pack planning right. With just over four months left until the rules come into force, there is still enough time to complete the process, but please don’t expect this to be something that can just be cobbled together at the last minute.
The FSA’s policy statement on CASS Resolution Packs can be downloaded via this link: