CASS rules rule: Failure to abide by client money rules may be costly – Credit: Vu Nguyan

The Financial Conduct Authority (FCA) has publicly criticised the accountancy firm MacIntyre Hudson for failing to report 25 breaches arising from four audit reviews of client assets (commonly known as client money rules) between July 2015 and May 2019.

MacIntyre Hudson, was  obliged to provide an opinion over the relevant firm’s systems and controls for processing client money and compliance with client money sourcebook rules (CASS) and report its findings to the FCA.

For the first audit client, referred to as firm A, MacIntyre Hudson failed to report numerous discrepancies which amounted to CASS breaches.

The FCA notes firm A had failed report to perform an aggregate client money reconciliation and there were insufficient procedures detailing the steps to manage custody shortfalls.

Moreover, firm A’s terms of business lacked detail notifying customers that unclaimed client monies would be paid over to charity.

The regulator also highlighted MacIntyre Hudson’s failure to identify late client payments and the omission of a client reconciliation.

Other weaknesses included inadequate staff training for custody and client money rules.

Further discrepancies were identified with firm B, in particular the co-mingling of funds with firm A in breach of client money rules.

In mitigation, MacIntyre Hudson argued the breaches attributable to firm B were not reportable to the Authority because they were remediated during the audit period or prior to the submission of its report to the FCA.

The FCA countered by stating that irrespective of the steps taken to remediate the breaches, these should have been reported regardless.

For a third firm and report reviewed by the FCA additional CASS rule breaches were identified, e.g. lack of security over physical stock records and that internal stock reconciliation records were driven from external sources.

For the last firm sampled, the FCA discovered the existence of dummy counterparties accounts were used in the live investment management system and monies owned by appointed representatives held in the client bank account.

By censuring MacIntyre Hudson, the FCA stated: “This would deter other persons from committing similar breaches and demonstrate the need for compliant behaviour.”

MacIntyre Hudson escaped a possible fine as it did not profit directly or indirectly from the breaches and there were no losses to customers or investors.