At any given time, there exists an inventory of undiscovered embezzlement in, or more precisely not in, the country’s banks and businesses….In a depression all this is reversed. Audits are penetrating and meticulous. (JK Galbraith on the “bezzle” in his book The Great Crash, 1929)
The FSA recently revised its client money (CASS) regulations and created the position of ‘CF10a’, a board-level member of each Financial Institution that is personally liable for compliance, with penalties including jail terms. Regulators are increasing their focus on the control of clients’ money. Platform propositions, insurance companies, fund administrators and custodians, and the banks that support them, are all in the line of fire.
Galbraith’s teaching tells us that there is no comfort in past years of apparent compliance; client money in many surprising cases involving the biggest and best, and audited by firms of equal stature, has not been properly controlled over many years since 2000.
The problem is that the systems and controls over client money were designed many years ago. The good times demanded that the front line got the resource and investment. This is why many big institutions are still spending millions on teams that are sorting out mountains of premiums, contributions and payments in the back office. In the good times the cost of those teams could be spared – not any more. This is not an acceptable cost of doing business in the wealth sector.
The front line systems, and many middle office systems, are now essentially real time. These real time systems need client money to be controlled in real time in the back office operation. A senior manager will need to demonstrate a good understanding of where the money is as it passes through the internal processes. As Warren Buffet said ‘risk comes from not knowing what you are doing’.
For many firms the task of monitoring the correct balance of a client’s money in a segregated account is fragmented, time consuming – and historical. The senior executives that I help are deliberating over how best to prioritise the management of risk in relation to the FSA’s Client Money rules (CASS regulations).
Wealth businesses with internet based propositions direct to consumers will differentiate with demonstrable core competencies in cash functionality that deliver fast, straight through processing of cash.
Regulators will increasingly be looking for visible real time assurance that client money is safe, accessible and transparently segregated. It is a business imperative.
‘Bezzles’ and fines will ensure the protection of client money remains headline news in 2012.
Malcolm Flanders
020 7920 2784
Malcolm Flanders
Malcolm joined CashFac in 2011 as Sales Director, Wealth after spending two years understanding the dynamics of commercial outsourcing with Williams lea and Capita.
He is responsible for the business development and sale of CashFac Virtual Bank Technology to the Wealth sector in the UK/Europe: Platforms, Life Companies ,Pension Administrators, Wealth Advisors and Asset Managers where the management of client money is a core competency.
Prior to that, he was Managing Director of Aegon UK Pensions/Wealth business where his responsibilities included the marketing, proposition development and operational delivery of the SIPP/Pensions portfolio through the intermediary distribution.
Malcolm started his career as a management trainee with Lloyds Bank and over twenty years, successfully fulfilled a number of senior roles in retail, business and commercial banking.
