The FCA and other regulators are clamping down on firms’ controls around cash in response to recent failures in risk management processes that have come to light during the COVID-19 pandemic.
The collapse in consumer spending over the last quarter has led to a significant decline in income for many firms, leading to concerns that more than one company may fail in the near future.
With this worst-case scenario in mind, the FCA has stepped in with new regulation to ensure that customers are adequately protected by requiring firms to separate their customers’ funds from their own funds. This ringfencing of customer money is to protect it from being wrongly used by struggling firms to support their operational cash needs.
The FCA has particularly focused on Payment Institutions (PIs) and eMoney Issuers (EMIs), whose business it is to handle client money.
Like any regulation, the FCA’s outline is lengthy and complex, so we’ve simplified it down to the four key things you need to do to ensure compliance with the new FCA approach.
(Disclaimer: This is not legal advice and we recommend consulting a lawyer to ensure regulation in your own firm. This blog is simply meant to provide key takeaways and ideas for next steps.)
What does it mean? The FCA rules state that PIs and EMIs must keep client money separate from their own operational cash. They must also be able to show that client funds are appropriately identified and separated from business funds.
What can you do? You should have separate bank accounts for client money and business funds, and track these in your ERP, accounting, or back-office system. A daily reconciliation of “Client Money” and “Restricted”, versus “Own Funds” and “Firm Accounts” should be performed and kept as evidence to demonstrate that you ensure proper separation and protection of customer funds.
2. Prudential Risk Management
What does it mean? The FCA rules state that a firm should ensure that the amount it reflects in its “internal client money reconciliation” as its “client money resource” is equal to the aggregate balance on its “client bank accounts”. A firm must maintain its records so that it is able to promptly calculate the total amount of client money it should be holding for each client.
What can you do? Daily bank reconciliations covering all client money bank accounts must be performed and reviewed, with evidence to show the reviews took place. Any such reconciliation should refer to the value of the client account monies per client, as outlined in the firm’s core system of record.
In the case of clients with funds in multiple bank accounts, the totals for each account must be aggregated into one number, which can be cross-checked against the value held in the firm’s system of record.
3. Financial Crime and Governance & Oversight
What does it mean? The FCA reminds senior officers at firms that they are expected to have oversight of – and provide evidence that they know – the financial position of the firm and the key movements of funds in and out.
What can you do? Firms should take steps to eliminate blind spots in their processes where errors can occur – particularly, the manual transfer of payment and finance data between back-office systems and banks. By automating the movement of data to and from their banks and by having that data on an executive dashboard, the firm can eliminate the risk of innocent errors , minimize opportunities for criminals to commit fraud and show evidence of review of operational activities.
4. Records Management & Reporting
What does it mean? Finally, the FCA rules state that firms must know the exact number and value of payments made through each payment channel and currency. They must also keep a record of the authorization method used when executing these payments. In addition, for Indirect Banking Participants, firms must provide their Intraday Liquidity Reports per the Basel Committee on Banking Supervision (BCBS).
What can you do? Ensure all payments are authorized by senior officers, with evidence being kept of such authorization. In addition, a further audit check of payments processed compared to the payments authorized is needed. An alternative is to automate the entire process of payments and approval and to build this audit trail into the automated process.
How can AccessPay help?
If your business is endeavoring to meet these FCA requirements, AccessPay is here to help by automating the transfer of data from your back-office systems to your banks.
With our industry-leading platform integrating your ERP to all of your bank accounts around the world, you’ll have the ability to easily identify and separate your own funds from your client’s funds in your ERP to ensure effective safeguarding and prudential risk management.
You’ll also gain real-time insights into your current cash position, automate processes at risk of fraud and error, and gain detailed audit trails of the whole process, providing you with the reporting and oversight you need to meet FCA requirements.
Automating the delivery of data from your bank to your ERP using AccessPay provides confidence in the accuracy of your reporting, whether to your stakeholders, your board, or to the FCA.
Ready to take the next compliance step?
If you think we can help your internal finance processes, contact us to set up a consultation or call us on +44 020 3282 752.