The revised Client Asset Regulations (CAR) for investment firms, which were published by the Central Bank on 31 March 2015, will come into effect on 1 October 2015.
The revised CAR contains the following seven core principles for investment firms:
- Segregation – the firm must physically hold or arrange the physical holding of client assets separate from the firm’s own assets
- Designation and Registration – client assets must be clearly identified in the firm’s internal records and in the records of third parties as being separate from the firm’s own assets
- Reconciliation – the firm must keep accurate books and records to enable it at any time and without delay to provide an accurate record of the client assets held by the firm for each client and the total in the client asset account. The firm must conduct daily and monthly reconciliations (depending on the asset type) between its internal records and the external records of any third party holding client assets
- Daily Calculation – a daily calculation must be carried out by the firm to ensure that the balance in the firm’s client bank accounts is equal to the amount it should be holding on behalf of clients. If there is a shortfall, this must be met out of the firm’s own account
- Client Disclosure and Consent – the firm must provide information to its clients on how and where client assets are held and the resulting risks. Retail clients must be provided with certain information in a Client Assets Key Information Document including the circumstances in which their assets will and will not be subject to the CAR regime
- Risk Management – the firm must have an appropriate risk management system in place. This includes the appointment of a Head of Client Asset Oversight which will be a Central Bank “pre-approval controlled function”. The firm must also have a Client Asset Management Plan containing certain minimum provisions
- Client Asset Examination – an external audit must be conducted annually on the firm’s safeguarding of client assets and an annual assurance report from the auditor submitted to the Central Bank.
Firms should ensure that existing systems, operations and contractual arrangements comply with the new CAR regime. Contraventions of the regime will attract various penalties, including sanctions under the Central Bank’s administrative sanctions procedures.