CASS 15: Things to consider Zakir Karim??

In the 13th edition of the JCR Journal, we speak to Zakir Karim about the introduction of CASS 15 and what to consider over the next 12 months and beyond.

All of Zakir's thoughts and opinions below are his own.

What is CASS 15 & why has it been introduced?

CASS 15 is the new set of rules being introduced by the FCA as part of its effort to enhance safeguarding for payments and e-money firms. It has been established following a series of firm collapses where client funds were not adequately protected, resulting in an average shortfall of 65% in funds owed to clients.

The aim is to move the safeguarding requirements for these firms from guidance-based to rule-based, similar to the existing CASS rules for investment firms. By doing this, the FCA intends to ensure better protection of client funds, swifter return of client funds in the event of insolvency, and stronger governance and monitoring frameworks.

Who is affected by CASS 15?

CASS 15 affects authorised payment institutions, e-money institutions, and credit unions who issue e-money in the UK. These are firms responsible for holding customer funds as part of their operations. By aligning with existing CASS principles for investment firms, CASS 15 seeks to protect the funds held by these businesses to ensure customer protection, particularly in scenarios of firm insolvency.

What are the main areas firms will need to look at to ensure compliance with CASS 15?

The CASS 15 rules cover off many areas - some of them reinforcing existing guidance, and in other instances introducing new requirements.

Improved Record-Keeping and Reconciliation: There will be mandatory daily reconciliations of relevant funds and more detailed record-keeping requirements.

Resolution Packs: A comprehensive 'CASS Resolution Pack' will be required to be maintained, documenting the firm's safeguarding arrangements to expedite the return of client funds in case of insolvency.

Enhanced Monitoring and Reporting: Firms will be required to submit monthly safeguarding returns to the FCA, similar to CASS 7's CMAR.

Statutory Trust: Relevant funds will be held in a statutory trust, providing greater protection in the event of insolvency.

Protection of invested funds: Additional considerations where payment firms invest relevant funds in secure liquid assets, and more comprehensive requirements when availing the insurance or comparable guarantee method.

What will auditors likely be looking for in next year's audits?

With it being a first year audit under an enhanced regulatory regime, auditors will be laser focused in evaluating firms' adherence to the new CASS 15 regulations by examining how well they have implemented the necessary controls and processes.

Instinctively, the culture, governance & oversight arrangements will be a key determinant in sensing how seriously the firm has taken the enhanced regime. Weaknesses in this will likely create a sense of doubt on the comprehensiveness of the firm's adaptation to the enhanced requirements.

With reconciliations being such a key process/requirement, and considering the CASS 15 rules are far more stringent than what is currently required, auditors will be eagerly assessing the completeness and accuracy of it.

Does AI/technology have a part to play in supporting compliance with CASS 15?

AI and technology have a place to play in almost all aspects of the compliance and regulatory world however, before firms get to that point, they must intimately understand their regulatory footprint and the applicability to its business. Undoubtedly, technology will continue playing a part in the daily processes however, at this early stage, AI will be probably be limited in use.

What 3 things would be useful considerations for CASS leaders to ensure compliance with CASS 15?

1? Early Preparation: Begin preparing for the new rules now by revisiting internal systems and ensuring that reconciliation and reporting capabilities align with CASS 15 requirements.

2? Governance and Oversight: Senior management should prioritise CASS compliance, establishing clear governance frameworks with dedicated resources and oversight. Regularly reviewing compliance policies and processes will ensure continuous alignment with CASS 15 requirements.

3? Training and Awareness: CASS leaders should invest in regular training for their teams, ensuring that employees at all levels understand the importance of compliance and are aware of the new requirements under CASS 15. A culture of awareness and accountability will be key to avoiding costly compliance failures and/or avoidable regulator scrutiny.

A huge thank you to Zakir for his insight into CASS 15??

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