Diversifying Balances to Mitigate Risk and Enhance Compliance

FCA CP24/20: Diversifying Balances to Mitigate Risk and Enhance Compliance

Following the publication of CP24/20, and the FCA’s continuing commitment to minimise consumer harm where firms have entered insolvency or have safeguarding shortfalls, the new relevant funds regime requires firms to consider diversification of safeguarding balances. Diversification mitigates concentration risk and increases the speed at which funds can be returned to customers.

As we have discussed in a previous insight concerning third party due diligence, diversification is a component of this activity with safeguarding institutes now required to consider the continual need for diversification under CASS 15.9.1.R (2) and CASS 15.9.6 G. Not dissimilar to the equivalent rules in CASS 7, firms are also required to consider limiting balances held at third parties within same group structures and to consider market conditions when developing their diversification models.

Grath’s GRC platform allows firms to navigate such change across all impacted areas, allowing a firm to demonstrate the steps it takes in due diligence evaluation, including diversification considerations through control and attestation functionality and periodic due diligence assessment reports produced and served via the audit manager module.

The decision to diversify safeguarding balances is no small undertaking and any change to internal systems and corresponding bank accounts set up is a critical component of a firms CASS & Safeguarding model, with any updates to a firm ledger structure, books and records requiring a comprehensive and well-documented approach to technology change. Significant operational and reconciliation redesign impacts multiple business areas including the governing board, compliance, risk and any number of operational support teams. How such change is designed, delivered and then embedded across an organisation must be considered at all times, not only from a corporate governance perspective but also with the knowledge that significance change is an increasing area of scrutiny by CASS & Safeguarding auditors. Firms will be expected to provide their auditor with comprehensive evidence, explaining how and why such change has occurred and most importantly how it has been accomplished compliantly.

Grath’s Reconciliation solutions are flexible, designed to support changes to ledger and account structures as a firm’s model adapts and changes over time. Straightforward and accessible configuration of a firm’s ledger structure is possible allowing for controlled updates that are capable of inspection and interrogation during an audit engagement.

Ready to strengthen your safeguarding compliance?

Contact Grath today to learn how our platform can streamline your processes and support your diversification strategy.