A more rigorous regime for auditors of FCA firms

  • By Jeremy Williams
  • 1 December 2015 00:00

In November 2015, the FRC issued a new Standard: Providing Assurance on Client Assets to the Financial Conduct Authority (FCA). A copy of the standard can be accessed here.

The standard follows a recent overhaul to the FCA's client assets (CASS) regime for investment business, effected by the FCA in response to the Lehman Brothers and similar cases. The new standard aims to improve the quality of CASS engagements, support and challenge CASS auditors, set and manage expectations about such engagements and support CASS auditor training, monitoring and enforcement.

The standard replaces the existing guidance for auditors on FCA assurance engagements concerning client assets currently found in APB Bulletin 2011/2 and FRC Bulletin 3.

What has changed?

The standard is shorter than its predecessor guidance, moving detail into an accompanying 'Contextual Material' section. However the standard's approach to CASS engagements places new demands on auditors - in particular, more emphasis on understanding the client's business model, on developing risk-based responses and on testing controls relevant to implementing CASS rules.

Significantly, the standard also requires that, since firms holding client assets do so in the public interest, every 'reasonable assurance' engagement on CASS should be subject to Engagement Quality Control Review (EQCR), which involves second partner review at all stages of the engagement. This has proved controversial, with several respondents to the draft standard calling for a less comprehensive application of EQCRs, which is likely to increase time and costs on such assignments.

Effective date

The standard is effective for reports to the FCA with respect to client assets, for periods commencing on or after 1 January 2016. Earlier adoption is allowed.

Help with your FCA CASS assignments

Mercia has two Specialist Assignment Manuals (for Designated Investment Firms and Mortgage and General Insurance Intermediaries) that have been updated for the new standard.

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