As you will be aware from Regulatory Roundup 21 the FSA has had concerns about the quality of some auditors’ client assets reports-see FSA Consultation Paper CP10/20 “Improving the auditor’s report on client assets”.
The FSA has now published the follow up PS11/5 (“Auditor’s client assets report”) containing changes to SUP 3 (‘Auditors’).
As will be known, the need for an auditor to submit a client assets report (SUP 3.10) addressed to the FSA applies even where firms do not hold client monies or client assets.
Among the changes proposed is the introduction of a ‘template’ for the auditor’s client assets report in SUP 3 Annex 1R and the introduction of SUP 3.11 for firms. The latter includes the requirement for a firm to consider the draft of the report (SUP 3.10.8D will require an auditor to send a firm a draft of its client assets report so that the firm has ‘an adequate period of time’ to consider the findings) and for the final report to be reported to the firm’s governing body. The auditor must deliver the report to the FSA within four months of the end of each period covered, with a copy being sent to the firm at the same time.
The mandate rules (CASS 8), where firms control client assets, will be reintroduced to the scope of the auditor’s client assets report – but not if the firm is not holding client assets/money. The FSA will keep this under review to see whether this should indeed be applied to the latter type of firm.
The new requirements come into force on 1 June 2011 although auditors and firms have the option not to apply the requirements where the report concerns a period that ends on or before 29 September 2011(see SUP TP 1.7(2)).
On the matter of client money and assets, firms are reminded that the requirement to complete a CMAR (Client Money and Assets Return) begins in June for large and medium firms. For now, small firms will not have to complete a CMAR but will have to notify the FSA of their highest client money balance and value of client assets in July – see Regulatory Roundup 26 for further details. In addition large and medium firms will need to have appointed a CF10a by 1 October; please refer to Regulatory Roundup 23 for more on this new oversight function.
