Michael Faulkner says there are still concerns over compliance with the client money rules
It's been a difficult journey for brokers in terms of compliance with the FSA's client money rules. For the past two years the regulator has been concerned with the level of compliance (or, more appropriately, non-compliance) by brokers, principally due to a lack of understanding of this fiendishly complex area of regulation.
But this week the FSA has given the broker market cautious approval in terms of its handling of client money.
The regulator visited over 160 brokers and found most of the firms were complying with the regulations in this area – setting up trust accounts correctly and performing the necess-ary calculations and audits etc. So far, so good.
Worryingly, however, the FSA has admitted that some firms were only mugging up on the client money rules and reviewing their procedures when they found out that that the regulator was paying them a visit.
This begs the question of how compliant the rest of the broking market is with the rules. The FSA refuses to make any claims about overall compliance for this reason.
The regulator also found a significant number of the brokers visited (7%) had not implemented the proper procedures for handling client money. Continued confusion over the rules in this area was also encountered.
Given this, there must still be concern over the true extent to which the broker market has implemented the necessary procedures and controls for managing client money.
The FSA has indicated it will not be undertaking any further thematic work in relation to this part of the rules. But client money will continue to be a high priority, with spot checks, routine supervision and desk-based analysis by supervisors.
Brokers who are non-compliant should expect short shrift from the FSA if they are caught out. IT