BDO’s Fung-On: Client asset rules to increase compliance costs

Neil Fung On 160 byline

The results of our research indicate that the FSA’s increased focus on client asset rules (CASS) is being supported by a change in approach and greater emphasis by firms on the adherence to this area of regulation.

Through a recent BDO survey – of accountancy and business advisory firms subject to CASS – we have discovered that despite an already “substantial” cost associated with compliance, companies still believe that more engagement is required at board level. For those not in the know, CASS rules are requirements relating to holding client assets and client money.

These firms also stated that further expenditure is required to train staff and improve systems and controls. Three quarters (75 per cent) of respondents said that cost of compliance for CASS has been substantial, with spending being allocated to systems, processes and training. However, almost two thirds (61 per cent) of respondents are planning to further enhance staff CASS training and 50 per cent of firms are still seeking to improve their systems and controls used in the administration of client money and assets.

The significant costs associated with CASS compliance has meant it has been a discussion which has been a recurrent boardroom debate. 81 per cent of respondents said the topic is regularly discussed by those charged with compliance, notably board of directors/managing partners. It is perhaps concerning that 13 per cent of companies are yet to elevate the debate to this level.

It is clear that the cost burden is a cause of consternation and vexation amongst a large proportion of senior executives, especially as the general consensus is that firms are having to foot the bill. There is little opportunity to pass this cost on given that the markets in which they operate remain highly competitive.

Despite concerns over cost, it is nevertheless evident that companies are prepared to pay for – and value – the security afforded, by additional regulation. In light of recent corporate failures, of those that expressed a view, 55 per cent of respondents, say that the FSA and the special administrators should be given additional powers to ensure client assets are safe and will be returned within a reasonable time frame in the event of a corporate failure.

There has been a subsequent and significant financial cost to the majority of organisations with complying with CASS, due in part to the implementation of more robust internal controls and staff training, but the added security appears to be appreciated by the industry.

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Neil Fung-On is head of financial services audit at BDO