Dear CEO | Release Date: 24th July 2020
To read a longer summary of this Dear CEO letter, click here.
To access the original FCA document, click here.
Short Summary
The FCA has issued a letter addressing concerns around the use of Title Transfer Collateral Arrangements (TTCAs) and regulatory permissions for financing transactions among FCA-authorised firms. The letter highlights misuse of TTCAs where firms have failed to comply with the Client Assets Sourcebook (CASS) rules, potentially risking client assets. Firms are urged to review their use of TTCAs to ensure they only hold client assets under these arrangements when there is a legitimate and proportional obligation to the firm. Additionally, the letter identifies issues with firms misclassifying certain financing transactions as matched principal trading, thus potentially underestimating their financial resource needs and acting outside of their regulatory permissions.
The FCA stresses the importance of protection of client money and custody assets, noting the increased risk of client defaults and firm failures. The letter reminds firms that clients whose assets are held under TTCAs may face delays or shortfalls in the return of assets if the firm fails, as these clients would be treated as general creditors.
Key Takeaways and Actions:
Firms are directed to thoroughly review their TTCAs and ensure strict adherence to CASS rules, making sure that any client assets held are proportionate to the obligations owed by clients. Firms are also reminded to assess their financial transactions and ensure they hold the correct regulatory permissions, particularly in relation to the prudential matched principal exemption. Any identified breaches should be promptly rectified and reported to the FCA. Firms must respond to the FCA by a specified deadline to confirm that these reviews have been conducted and necessary actions taken. This will help ensure that firms operate within regulatory requirements, safeguarding client assets and maintaining market integrity.