The FCA published a Dear CEO letter to authorised firms acting as brokers in wholesale financial markets, who currently, or may in the future, offer services (including clearing broker and prime broker services) that involve holding clients’ cash or securities as collateral.
The letter addresses the inappropriate use of title transfer collateral arrangements (TTCAs) by firms, amounting to failures of CASS compliance. The letter requests firms review the use of TTCAs and provides examples of what the FCA deems to be inappropriate.
Firms are also reminded that under SUP 15.3.11R(1)(A) it is mandatory to disclose any significant breach of a rule and therefore, firms should notify the FCA of any rule breaches that are identified in their approach to CASS compliance regarding TTCAs.
The second concern relates to firms incorrectly classifying financial transactions as falling within the prudential matched principal exemption, and therefore holding lower financial resources than may be required and also acting outside the firm’s regulatory permissions.
CEOs are asked to reply to the Dear CEO letter by 14 August 2020, confirming that the senior manager with responsibility for client assets, or alternatively the senior manager responsible for compliance, has considered the issues in the appendix and will bring any issues to the attention of the firm’s board. Where rule breaches are identified in relation to using TTCAs or regulatory permissions, the firm should take immediate steps to rectify them and notify the FCA.
