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SUP 3.10 Duties of auditors: notification and report on client assets

Application

SUP 3.10.1R

[deleted]5

5
SUP 3.10.2RRP

An auditor of an authorised professional firm need not report under this section in relation to that firm's compliance with the client money rules in the client money chapter9or the debt management client money rules if:64

343
  1. (1)

    6that firm is regulated by:

    1. (a)

      the Law Society (England and Wales); or

    2. (b)

      the Law Society of Scotland; or

    3. (c)

      the Law Society of Northern Ireland; and

  2. (2)

    that firm is subject to the rules of its designated professional body as specified in CASS 7.10.28R (2)109 or CASS 11.1.6 R (2) with respect to its regulated activities.6

    10
SUP 3.10.3RRP

SUP 3.10.5 R(3) does not apply to an auditor of a lead regulated firm. [deleted]15

Client assets report: content

SUP 3.10.4RRP

An auditor of a firm must submit a client assets 5report addressed to the FCA which:

5
  1. (1)
      5
    1. (a)

      states the matters set out in SUP 3.10.5 R; and5

      2. 5
    2. (b)

      specifies the matters to which SUP 3.10.9 R and SUP 3.10.9A R refer; or

  2. (2)

    if the firm claims not to hold client money or custody assets, states whether anything has come to the auditor's attention that causes him to believe that the firm held client money or custody assets during the period covered by the report.

SUP 3.10.4ARRP
  1. (1)

    5For the purpose of SUP 3.10.4 R (1), an auditor must ensure that the report is prepared in accordance with the terms of a reasonable assurance engagement.

  2. (2)

    For the purpose of SUP 3.10.4 R (2), an auditor must ensure that the report is prepared in accordance with the terms of a limited assurance engagement.

SUP 3.10.5RRP

Client assets report

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Whether in the auditor's opinion

(1)

the firm has maintained systems adequate to enable it to comply with the custody rules (except CASS 6.7)13, the collateral rules,5 the client money rules3 (except CASS 5.2)13, the debt management client money rules9, the claims management client money rules14 and the mandate rules5 throughout the period ;5

353

(2)

the firm was in compliance with the custody rules (except CASS 6.7)13, the collateral rules,5 the client money rules3 (except CASS 5.2), the debt management client money rules, the claims management client money rules14 and the mandate rules5,13 at the date as at which the report has been made;

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(3)

in the case of an investment management firm, personal investment firm, a UCITS firm,2 securities and futures firm, firm acting as trustee or depositary of an AIF, firm acting as trustee or depositary of a UK UCITS16 or a MIFIDPRU investment firm17,2 when a subsidiary of the firm is during the period 5a nominee company in whose name custody assets of the firm are registered during the period, 5 that nominee company has maintained throughout the period5 systems for the custody, identification and control of custody assets which:

2278885

(a)

were5 adequate; and

5

(b)

included5 reconciliations at appropriate intervals between the records maintained (whether by the firm or the nominee company) and statements or confirmations from custodians or from the person who maintained5 the record of legal entitlement; and

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(4)

if there has been a secondary pooling event during the period, the firm has 1complied with the rules in9 43 CASS 5.6 and CASS 7A43 (Client money distribution)1,14 CASS 11.13 (debt management client money distribution rules)9 and CASS 13.11 (claims management client money distribution rules)14 in relation to that pooling event.

3
SUP 3.10.5ARRP

5In relation to a client assets report provided in accordance with SUP 3.10.4 R, an auditor must ensure that it:

  1. (1)

    is submitted in the form prescribed by SUP 3 Annex 1 R; and

  2. (2)

    is signed on behalf of the audit firm by the individual with primary responsibility for a firm's client assets report and in that individual’s own name.

SUP 3.10.5BGRP

SUP 3.10.4 R provides that an auditor must ensure that a client assets report is prepared in accordance with the terms of, as the case may be, a reasonable assurance engagement or a limited assurance engagement. However, the FCA also expects an auditor to have regard, where relevant, to material published by the Financial Reporting Council 11that deals specifically with the client assets report which the auditor is required to submit to the FCA. In the FCA's view, a client assets report that is prepared in accordance with that material is likely to comply with SUP 3.10.4 R and SUP 3.10.5 R where that report is prepared for a firm within the scope of the material in question.

SUP 3.10.5CRRP
  1. (1)

    An auditor must ensure that the information provided to it by a firm in accordance with SUP 3.11.1 G is included in the client assets report.

  2. (2)

    If by the date at which the report is due for submission in accordance with SUP 3.10.7 R or SUP 3.10.8A R an auditor has not received the information prescribed in SUP 3.11.1 G it must submit the report without that information, together with an explanation for its absence.

Client assets report: period covered

SUP 3.10.6RRP

The period covered by a report under SUP 3.10.4 R must end not more than 53 weeks after the period covered by the previous report on such matters, or, if none, after the firm is authorised or becomes subject to SUP 3.11 and its auditor becomes subject to SUP 3.10.5

5

Client assets report: timing of submission

SUP 3.10.7RRP

An auditor must deliver a client assets 5report under SUP 3.10.4 R to the FCA within four months 5from the 3end of each period covered, unless it is the auditor of a firm falling within category (10) of SUP 3.1.2 R.1

[Note: article 8 of the MiFID Delegated Directive]12

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SUP 3.10.7AG

[deleted]5

35
SUP 3.10.8RRP
335
  1. (1)

    5If an auditor expects that it will fail to comply with SUP 3.10.7 R, it must no later than the end of the four month period in question:

    1. (a)

      notify the FCA that it expects that it will be unable to deliver a client assets report by the end of that period; and

    2. (b)

      ensure that the notification in (a) is accompanied by a full account of the reasons for its expected failure to comply with SUP 3.10.7 R.

  2. (2)

    If an auditor fails to comply with SUP 3.10.7 R, it must promptly:

    1. (a)

      notify the FCA of that failure; and

    2. (b)

      ensure that the notification in (a) is accompanied by a full account of the reasons for its failure to comply with SUP 3.10.7 R.

SUP 3.10.8ARRP

1The auditor of a firm falling within category (10) of SUP 3.1.2 R must deliver a report under SUP 3.10.4 R:

  1. (1)

    to the firm so as to be received within four months of the end of each period covered; and

  2. (2)

    to the FCA upon request within six years of the end of the period covered.

SUP 3.10.8BGRP

1The rights and duties of auditors are set out in SUP 3.8 (Rights and duties of all auditors) and SUP 3.10 (Duties of auditors: notification and report on client assets). SUP 3.8.10 G also refers to the auditor's statutory duty to report certain matters to the FCA imposed by regulations made by the Treasury under sections 342(5) and 343(5) of the Act (information given by auditor or actuary to a regulator). An auditor should bear these rights and duties in mind when carrying out client asset report work, including whether anything should be notified to the FCA immediately.

SUP 3.10.8CGRP

1It is the responsibility of an insurance intermediary's senior management to determine, on a continuing basis, whether the firm is an exempt insurance intermediary for the purposes of this requirement and to appoint an auditor if management determines the firm is no longer exempt. SUP 3.7 (amplified by SUP 15) sets out what a firm should consider when deciding whether it should notify the FCA of matters raised by its auditor.

SUP 3.10.8DRRP

5An auditor must:

  1. (1)

    deliver to a firm a draft of its client assets report such that the firm has an adequate period of time to consider the auditor’s findings and to provide the auditor with comments of the kind to which SUP 3.11.1 G refers; and

  2. (2)

    unless it is the auditor of a firm falling within category (10) of SUP 3.1.2 R, deliver to the firm a copy of the final report at the same time as it delivers that report to the FCA in accordance with SUP 3.10.7 R.

Client assets report: requirements not met or inability to form opinion

SUP 3.10.9RRP

If the client assets 5report under SUP 3.10.4 R states that one or more of the applicable requirements described in 5SUP 3.10.5 R(1) to (4) has or5 have not been met, the auditor must specify in the report each of 5those requirements and the respects in which it has or 5they have not been met.

SUP 3.10.9ARRP
  1. (1)

    5Whether or not an auditor concludes that one or more of the requirements specified in SUP 3.10.5 R (1) to (4) has or have been met, the auditor must ensure that the client assets report identifies each individual rule in respect of which a breach has been identified.

  2. (2)

    5If an auditor does not identify a breach of any individual rule, it must include a statement to that effect in the client assets report.

SUP 3.10.9BRRP

5For the purpose of SUP 3.10.9 R and SUP 3.10.9A R, an auditor must ensure that the information prescribed under those rules is submitted using, respectively, Part 1 (Auditor’s Opinion) and Part 2 (Breaches Schedule) of SUP 3 Annex 1 R.

SUP 3.10.9CGRP
  1. (1)

    5The FCA expects that the list of breaches will include every breach of a rule in CASS insofar as that rule is within the scope of the client assets report and is identified in the course of the auditor’s review of the period covered by the report, whether identified by the auditor or disclosed to it by the firm, or by any third party.

  2. (2)

    5For the purpose of determining whether to qualify its opinion or express an adverse opinion, the FCA would expect an auditor to exercise its professional judgment as to the significance of a rule breach, as well as to its context, duration and incidence of repetition. The FCA would expect an auditor to consider the aggregate effect of any breaches when judging whether a firm had failed to comply with the requirements described in SUP 3.10.5 R (1) to (4).

SUP 3.10.10RRP

If an auditor is unable to form an opinion as to whether one or more of the applicable requirements described in SUP 3.10.5 R have been met, the auditor must specify in the report under SUP 3.10.4 R those requirements and the reasons why the auditor has been unable to form an opinion.

SUP 3.10.11G

[deleted]5

5

Method of submission of reports

SUP 3.10.12RRP

An auditor of a firm must submit a report under SUP 3.10.4 R in accordance with the rules in SUP 16.3.6 R to SUP 16.3.13 R as if those rules applied directly to the auditor.

Service of Notice Regulations

SUP 3.10.13GRP

The Financial Services and Markets Act 2000 (Service of Notices) Regulations 2001 (SI 2001/1420) contain provisions relating to the service of documents on the FCA. They do not apply to reports required by SUP 3.10 because of the specific provisions in SUP 3.10.12 R.