05/12 FSA enforcement action: Another CASS-ualty
Financial services alert email
Tuesday 1 May 2012
Today, the Financial Services Authority (FSA) published Final Notices for Christchurch Investment Management Limited (Christchurch) and the firm's compliance officer, David Thornberry, for breaches of the FSA's client money rules (CASS rules).
During a visit to Christchurch in May 2010, the FSA discovered that the firm had been in breach of CASS rules since November 2007. CASS rules require firms to perform daily reconciliations of client money balances to ensure that any client money held by the firm is adequately segregated from the firm's own assets. Christchurch failed to do this. Between November 2007 and May 2010, the client accounts held an average of £1.2 million. These funds would have been at risk had Christchurch become insolvent during this time as the firm did not have appropriate trust status documentation in place.
The FSA held that Christchurch and Thornberry lacked the requisite level of knowledge and oversight in relation to the CASS rules. Thornberry had no formal training in relation to his compliance role and was not aware of the need for trust status letters for Christchurch's client accounts, putting client money at risk.
These regulatory breaches led the FSA to fine Christchurch £26,600 and Thornberry, £11,550. Thornberry was also banned from acting as a compliance officer and, for the first time in the FSA's history, the regulator has imposed a ban on Thornberry from having any further responsibility for client assets.
In the wake of the Lehman's debacle, the protection of client money will continue to be a hot topic with the FSA for the foreseeable future. Most recently, the FSA has widened the restrictions on firms granting third party liens, or other rights, over safe custody assets or any client money derived from those assets.