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Client Asset
Regulations &
Investor Money
Regulations 2015
What are the key
changes for your
firm?
Contents
Overview of CAR/IMR 1
Key considerations for your firm: 6
How PwC can help: 7
We can help you 8
2
Overview of CAR/IMR
Implementing an improved and more robust framework
for the effective protection of client assets and investor
money has, over recent years, become a key objective for
the Irish financial services sector. The findings of
inspections by the Central Bank of Ireland (“CBI”), and
several failures by companies such as Lehman Brothers
and Custom House Capital Limited, to effectively provide
for such protection to their clients, has demonstrated the
significant improvements required and the potential costs
involved in non-compliance with client asset/ investor
money protection requirements.
supervision, better rules, stronger audits,
assumption of new powers and more
accountability for firms’ directors’.
Following a lengthy consultation process the
CBI has published the Client Asset
Regulations and Investor Money Regulations
(“the Regulations”) together with Guidance
for Investment Firms and Guidance for Fund
Service Providers for each respectively. The
objective for the revised framework is to
ensure applicable entities have an embedded
process in place that will see the expeditious
return of client assets/investor money in the
event of insolvency. The publication has
been described by the CBI as a “significant
development with regard to the
safeguarding of client assets and investor
money in Ireland”.
The Regulations
Following the consultation process and
based on significant industry feedback,
particularly from the funds services sector,
the CBI has published separate regulations,
and accompanying guidance, for investment
firms and Fund Service Providers (“FSPs”).
The decision to have separate regulations is
reflective of the differing operating models
used by the two sectors, including the
nature, mobility and quantum of funds
flowing through collection accounts in the
FSP industry and the lack of direct
relationships between FSPs and investors.
The commencement date of the Client Asset
Regulations is 1 October 2015 and the
commencement date of the Investor Money
Regulations is 1 April 2016.
The publication of the Regulations is an
important step forward in implementing
what the CBI has described will be a
‘comprehensive plan to strengthen client
asset protection through tougher
1
Scope of Client Asset/ Investor Money
Requirements
Authorisation
Client Asset
Requirements
MiFID Investment Firm
3
Investment business firm
authorised under Investment
Intermediaries Act 1995
UCITS management company
Alternative investment fund
management company under AIFM
Investor Money
Requirements
3
3
(where providing discretionary portfolio
management)
3
(where providing discretionary portfolio
management)
Fund Service Provider authorised
under Section 10 of the Investment
Intermediaries Act 1995
(administration of collective investment
schemes, fund accounting services,
transfer agent, registration agent,
custodial operations)
3
3
3
Management company authorised
under the Unit Trusts Act 1990
3
Management Company referred to
in Part 24 of the Companies Act
2014
3
General Partner referred to in the
Investment Limited Partnerships
Act
3
General Partner referred to in the
Investment Limited Partnerships
Act
3
Credit Institution acting as
depositary for investment funds/
providing funds administration
3
2
The Regulations aim to afford greater protection to
investors and provide a clearer framework for FSPs
and investment firms to implement the necessary
safeguards in their businesses. The new regime
includes the following key changes to existing
requirements:
Increased Governance and
Oversight
Client Assets Management Plan
(CAMP)/ Investor Money
Management Plan (IMMP)
The Board is ultimately responsible for
safeguarding client assets/ investor money
and for the firm’s compliance with the new
Regulations. The board is also responsible
for ensuring that the policies and procedures
adopted by the firm are sufficiently robust
and complete, taking into consideration the
risks posed to client assets/ investor money
by the FSP’s and investment firm’s
(individually “the firm, collectively “firms”)
business. A Client Assets Management Plan
(“CAMP”)/Investor Money Management
Plan (“IMMP”) must be established, signed
off and approved by the board at least
annually or more frequently as needed
(further details outlined below). Material
changes to the CAMP/ IMMP must be
notified to the board for discussion,
including any significant changes to the
firm’s business or arrangements, or any
errors, omissions or control weaknesses
highlighted from the regular monitoring of
policies and procedures in place, including
the external auditors review, to ensure it
remains current.
A new requirement has been placed on all
firms within scope of both Regulations to
establish a CAMP/ IMMP. The CAMP/ IMMP
is a comprehensive and detailed document,
the key purpose of which is to demonstrate
that the firm’s systems and controls meet the
objectives of the new regime and set out the
firm’s business model and the related risks
and contols in place in respect of the
safeguarding of client assets/ investor
money. The CAMP/IMMP shall enable the
board to document and monitor material
changes to the firm’s business model,
controls and processes. It will also serve to
make information readily available to assist
in the timely distribution of client assets/
investor money in the event of insolvency.
The CAMP/ IMMP must be approved by the
board, and reviewed and updated at least
annually. It is essential that firms
demonstrate a clear understanding of how
their businses model works, why the firm
holds client assets/ investor money and how
such assets would be returned to clients in
the event of insolvency.
3
Head of Client Asset Oversight
(HCAO)/ Head of Investor Money
Oversight (HIMO)
For the first time, firms shall be required to
appoint an individual to a HCAO/ HIMO
role, which is a Pre-Approval Control
Function (“PCF”) with accountability for
client assets/ investor money. This is a new
PCF role under the Fitness and Probity
regime and one which will have to be
appointed and approved by the CBI by 1
October 2015 for investment firms and 1
April 2016 for FSPs. Notwithstanding, the
board is ultimately responsible for
safeguarding client assets/ investor money,
the requirement to appoint a HCAO/ HIMO
PCF does not diminish this responsiblity.
The role of HCAO/ HIMO is considered
pivotal to the revised Regulations for firms.
While the CBI expects a director to be
nominated to the role of HCAO/ HIMO, if the
firm proposes a non-director to fulfill the
role, it should be a senior manager with
direct access to the board in respect of the
client assets/ investor money function. The
CBI has also stated that the HCAO/ HIMO
should be sufficiently removed from the
performance of day to day operational
functions relating to the administration of
client assets/ investor money. The HCAO/
HIMO shall regularly report to the board on
its oversight responsibilities, which include:
•Oversight of the documentation setting
out the risks to client assets/ investor
money associated with the firm’s business
model, including the rationale for the
business model and the mitigants in place
to protect client assets/ investor money,
ensuring such documentation remains
relevant and up to date;
•Reporting relevant matters to the board at
least annually (e.g. providing an update on
the Client Asset Examination/ Investor
Money Examination, advising of any
breaches of the Regulations, confirming
that relevant returns have been submitted
to the CBI);
•Ensuring the CAMP/ IMMP is produced, is
up to date and is readily available;
•Notification and reporting of any breaches
and other material issues to the CBI under
the Regulations; and
•Approving returns for submission to the
CBI.
4
Annual Client Asset Examination
(“CAE”)/ Investor Money
Examination (“IME”) and
Targeted Reviews
CBI Enforcement Priorities
The new regime includes a requirement to
have a CAE/ IME completed by the external
auditor on an annual basis, or more
frequently as required by the CBI. While the
existing client asset rules contain a
requirement for a review to be undertaken
by the external auditor of the firm’s client
asset systems and procedures, the new
Regulations are a lot more prescriptive in
terms of what is expected to be reviewed and
reporting to the CBI. Firms must ensure that
the auditors report to the CBI on the
adequacy of the firm’s arrangements to
comply with the new requirments for the
safeguarding of client assets. The CAE/ IME
will include consideration as to whether or
not the firm’s CAMP/ IMMP captures the
risks faced by the firm in holding client
assets/ investor money and whether or not
the firm is acting in a manner consistent
with the CAMP/ IMMP. In addition to the
annual CAE/ IME, the CBI may instruct a
firm to engage an auditor to complete a
‘Targeted Review’ which involves a deep dive
examination of one or more aspects of the
firm’s compliance with the Regulations.
The CBI has advised that they will undertake
a review of investment firms’ compliance
with client asset legislation in 2015. While
the CBI will be reviewing compliance against
the old Client Asset Requirements, it is
expected that they would also be reviewing
investment firms’ preparedness for the new
rules, as part of their review. The CBI is
comitted to ensuring robust protections are
in place for investors at all times. Firms need
to implement procedures and have controls
in place regarding client assets and the CBI
has reiterated that where inadequate
safeguards are in place, the cost of fines and/
or remediation could be significant. While
firms have up to 1 October 2015 and 1 April
2016 to implement the Client Asset and
Investor Money Regulations respectively, we
would expect the CBI to maintain client
assets as an enforcement priority throughout
2015 and 2016.
5
Key considerations
for your firm:
How confident are you that
your firm would receive a
positive report from the CBI if
subjected to a targeted review
of the firm’s compliance with
the Regulations?
Is your firm
sufficiently resourced to
implement the changes
necessary to ensure the new
legislative requirements are
met, including appointment
of the HCAO/ HIMO and
documentation of the CAMP/
IMMP within the
specified deadlines?
Is a transparent
system of governance in
place that includes clear
reporting lines and
accountability to provide a
satisfactory level of assurance
to the board that the firm has
complied with the
Regulations?
Is your firm’s process
and control infrastructure
robust enough to support
effective safeguarding of
client assets and mitigate
risk, and where gaps exist, is
an appropriate remediation
plan in place to address
them?
6
How PwC can
help:
Our multi-disciplinary team has a
comprehensive understanding of the
underlying regulations and requirements
relating to client asset/investor money
arrangements. PwC has worked with the
CBI on a number of the new requirements
and have been members of the CBI CAR
joint working group. In addition, we have
supported several financial services
companies in implementing effective
processes and controls to safeguard client
assets/investor money.
Assessing the completeness and
relevance of your firm’s existing policies
and procedures over client assets/
investor money as required under the
new Regulations, including advice on
the documentation of the CAMP/ IMMP
Conducting governance reviews to
assess the effectiveness of the firm’s
governance framework, including
reporting lines, roles and responsibilities
PwC can assist you to comply with the new
regulatory requirment and to meet best
practice standards in client asset/ investor
money arrangements. In this respect we
can deliver a broad range of expertise and
experience to help your firm to evaluate
your compliance with the Regulations by:
Testing the operating effectiveness of
your firm’s controls over client asset/
investor money arrangements
Performing the qualitative critical
assessment of the CAMP/ IMMP on its
adoption, assessing the applicability
thereof in relation to the size and
complexity of the firm in line with CBI
requirements and its executability
Training of relevant personnel on the
new requirements, in particular the
board of directors and individuals
assuming the HCAO/ HIMO with
accountability for client assets/ investor
money
Assessing relevant risk and control
procedures documentation around
segregation of client funds/ investor
money, designation of accounts, daily
and monthly reconciliations, daily
calculations, written confirmations and
client statements
Assisting your firm with the
requirements for completing the Fitness
and Probity approval process for the
newly appointed HCAO/ HIMO
Undertaking design and operating
effectiveness reviews of your firm’s
controls over client asset/ investor
money arrangements
Provision of insolvency expertise to
review the relevant aspects of the
CAMP/ IMMP
7
We can help you
If you would like more information on any of our
client assets services please contact one of the team
or our line of service partners.
Regulatory Expertise
John McDonnell
Partner, FS Risk and Regulatory Practice
T: + 353 1 792 8559
E: [email protected]
Industry Specialist
Ken Owens
Partner, Asset Management
T: + 353 1 792 8542
E: [email protected]
Dervla McCormack
Partner, Asset Management Consulting
T: + 353 1 792 8520
E: [email protected]
Insolvency Practice
Declan McDonald
Partner, Insolvency
T: + 353 1 792 6092
E: [email protected]
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