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

Application

SUP 3.10.1R

Where this section requires an auditor of a firm to report on a firm's compliance with rules, this section applies to the auditor only to the extent that the firm is required to comply with the relevant rules.

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 non-directive client money chapter, if that firm3 is regulated by:

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  1. (1)

    the Law Society (England and Wales);

  2. (2)

    the Law Society of Scotland;

  3. (3)

    the Law Society of Northern Ireland.

SUP 3.10.3RRP

SUP 3.10.5 R(3) does not apply to an auditor of a lead regulated firm or an incoming EEA firm.

Client assets report: content

SUP 3.10.4RRP

An auditor of a firm must submit a report addressed to the FSA, signed in his capacity as auditor, which:

  1. (1)
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    states the matters set out in SUP 3.10.5 R; 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 3.10.5RRP

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, the collateral rules and the client money rules3 (except CASS 5.2)13 throughout the period since the last date as at which a report was made;

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(2)

the firm was in compliance with the custody rules, the collateral rules and the client money rules3 (except CASS 5.2),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 or BIPRU investment firm,2 when a subsidiary of the firm is a nominee company in whose name custody assets of the firm are registered that nominee company has maintained throughout the year systems for the custody, identification and control of custody assets which:

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(a)

are adequate; and

(b)

include 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 maintains the record of legal entitlement; and

(4)

if there has been a secondary pooling event during the period, the firm has 1complied with the rules CASS 4.4,3 CASS 5.6 and CASS 7.93 (Client money distribution)1 in relation to that pooling event.

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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 a firm to which SUP 3.10 applies.

Client assets report: timing of submission

SUP 3.10.7RRP

An auditor must deliver a report under SUP 3.10.4 R to the FSA within a reasonable time from 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

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SUP 3.10.7AG

3A period of four months, in ordinary circumstances, would be considered by the FSA as a reasonable time for the auditor to deliver the client assets report to the FSA.

SUP 3.10.8RRP

If an auditor is unable to report to the FSA within a reasonable time,3 the auditor must notify the FSA and advise the FSA of the reasons why it has been unable to meet the requirements of SUP 3.10.7 R.

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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 FSA 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 FSA imposed by regulations made by the Treasury under sections 342(5) and 343(5) of the Act (information given by auditor or actuary to the FSA). 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 FSA 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 FSA of matters raised by its auditor.

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

SUP 3.10.9RRP

If the report under SUP 3.10.4 R states that one or more of the applicable requirements described in SUP 3.10.5 R have not been met, the auditor must specify in the report those requirements and the respects in which they have not been met.

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

An auditor may at the firm's request include the matters required under this section in a separate report to that required under section SUP 3.9.

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 FSA. They do not apply to reports required by SUP 3.10 because of the specific provisions in SUP 3.10.12 R.