Banking Exemption & Custody Asset Shortfalls

AutoRek significantly reduces the burden on firms required to meet the regulatory obligation of client asset protection as defined in the FCA CASS Handbook.

AutoRek is a data governance platform which includes automation of internal and external reconciliations, identification and treatment of shortfalls, production of CMAR and support for CASS RP. Interactive dashboards and reporting provide the CF10a and CASS governance teams with real time insight into status of processes and exception management, minimising the risk of regulatory breaches and reducing the cost of compliance.

CASS – banking exemption and custody asset shortfalls

  • Mitigate risk of regulatory breaches
  • Automatic identification and calculation of shortfalls
  • Real time insight into status and exposure
  • Automated workflow for governance and audit

Banking exemption

Firms operating under the Banking Exemption hold money from clients as Banker, and do not need to hold money from clients in segregated client money bank accounts. However, there is a certain situation where client money may arise.

Treatment of shortfalls – CASS 6.6.54

Where a firm applies the banking exemption, but is subject to CASS 6 custody rules, a custody asset shortfall could be identified in the internal, external or physical asset reconciliations. The firm must then make good the shortfall by appropriating a sufficient number of its own applicable assets or own money. Client money could therefore arise if the firm chooses and has permission to make good the shortfall by using its own money.

Application of AutoRek

By automating the processing and reconciliation of external statements from third parties, and performing the internal, external and physical asset reconciliations at the most granular level, AutoRek pinpoints where and when a shortfall has occurred.

Making good shortfalls

AutoRek ingests asset pricing files, including most recent valuations, to allow for the validation of shortfalls to be automatically calculated based on price and unit discrepancy. FX rates are applied to calculate the base currency shortfall requirement. On day 2 and each day onwards, should the shortfall persist, subsequent pricing and FX files ingested by AutoRek immediately recalculate the shortfall valuation and identify if an adjustment is needed to the shortfall requirement.

If a firm chooses and has permission to make good the shortfall using its own money, AutoRek records the client money as being held for the relevant client(s) in accordance with CASS 7.15.

If a firm is to make good the shortfall using its own applicable assets, AutoRek creates the necessary client specific safe custody asset record in respect of the relevant client(s) in accordance with CASS 6.

In conjunction with AutoRek’s case and workflow functionality, all steps taken to rectify the shortfall are recorded in AutoRek’s comprehensive audit trail. This includes full description of the shortfall and number of clients impacted.

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