CASS audit support case study
An insurance intermediary client contacted ICS. They had just got the report back from the latest annual FCA Client Money (CASS) audit on their client account. The auditors had recorded an Adverse opinion. An Adverse opinion is never a welcome outcome, and can result in further scrutiny or intervention by the regulator. They asked us to advise them on how to respond.
The first thing ICS did was take a close look at the CASS auditors’ report. Based on our detailed knowledge of the FCA’s Client Assets Sourcebook and our understanding of the client’s business operations, we were quickly able to establish that the shortcomings identified in the CASS auditor’s Breaches Schedule were – in context – less serious than the auditor had assumed. The CASS auditors’ Breaches Schedule identified issues around the client firm’s interpretation of when commissions were due and payable. It also flagged instances of commission having been withdrawn part-way through a month. The audit concluded that the firm had been in breach of the rules in CASS 5.5 by withdrawing funds before they were due, leaving a statutory trust account in deficit.
The report noted a couple of other minor breaches, but the issues around withdrawal of commission were the main reason for the recording of an Adverse opinion. Our experts’ analysis of the CASS auditors report highlighted a number of instances of misinterpretation or over-interpretation on the auditors’ part. We took the view that this had led to some of the breaches being viewed as more serious than they actually were.
We also noted that client funds had never been at serious risk because, in every instance cited in the Breaches Schedule, the firm had risk transfer in place with its insurer partners. Hence, the risk had always been covered, regardless of any issues noted in the CASS audit report. The auditors appeared to have taken no cognisance of this significant mitigating factor. Our analysis of the CASS report, and the apparent basis on which the auditors had arrived at their conclusions, enabled us to support the client firm in appealing the Adverse opinion. On the basis of the additional information we provided, the appeal proved successful and the Adverse opinion was downrated to Qualified.
We then worked with the client to provide extra training for some members of staff and put additional measures in place to ensure that the firm is on track to achieve a clean bill of health in its next CASS audit – with zero breaches.
In the short term, ICS’s involvement enabled the client to avoid an Adverse opinion – with all the negative implications that could have had. In the longer term, we helped put the firm in a position to demonstrate its ability to handle client money and assets in line with the FCA’s CASS rules.