Banking News

The Central Bank of Ireland are updating their Client Asset Regulations (CAR) from 2017. These new regulations came into effect for Investment firms on the 1st July 2023 and will come into effect for Credit institutions on the 1st January 2024. The updated regulations will affect all firms which hold client assets. They are intended to maintain public confidence in the client assets regime, minimise the risk of loss or misuse of client assets, and to enable the effect and cost-effective return of assets to clients in the event of insolvency. The key changes are:

• Enhanced governance requirements: Firms will be required to establish a client asset oversight function (CAOF) to oversee the firm's compliance with the client asset regulations.
• Strengthened client asset reconciliation requirements: Firms will be required to perform daily reconciliations of client asset accounts.
• Additional disclosures: Firms will be required to provide clients with more information about the risks associated with the holding of client assets.
• Expanded scope: The regulations will apply to a wider range of firms, including credit institutions, fund service providers, investment managers, and alternative investment fund managers.
• Increased focus on technology and cybersecurity: Firms will be required to have adequate technology and cybersecurity measures in place to protect client assets.
• New reporting requirements: Firms will be required to repor material breaches of the client asset regulations to the Central Bank of Ireland within 24 hours.

There are seven key principles for safeguarding client assets. The first principle requires the clear segregation of client assets and the firm’s own assets, meaning they are physically held separately as well as accounted for separately. This is followed by Designation and registration; Client assets should be clearly identifiable and registered as such in both firm and third-party records.

Firms also need to keep accurate books to enable them to provide an accurate record of client assets and be able to reconcile these at any time. The firm should calculate the aggregate balance of its client asset accounts at the close of business the previous day and ensure that this matches the amount it should be holding on behalf of clients.

All information should be disclosed to the client in a way which ensures that they know how and where their assets are being kept and can consent to any risks. These risks should be managed using appropriate systems and controls, alongside implementing mitigants where appropriate. Finally, firms need to engage an external auditor to examine the safeguarding of client assets at least once a year.

To prove compliance with CAR, firms need to establish and maintain a Client Asset Management Plan (CAMP). The CAMP brings together the firm’s overall strategy regarding how to deal with risk in relation to client assets. It includes things such as details of a firm’s business model, the range and type of client assets held by the firm, and the processes and controls to mitigate risks.

The CAMP is an integral part of a firm’s risk management, and it is important that adequate time and resources are allocated to creating and maintaining it as a living document. Ultimately, it is the responsibility of the board of directors to maintain compliance with the CAR.

The CAR includes a requirement for an external auditor to perform an annual examination of the firm’s compliance with the relevant regulations, within 4 months of the yearend. KPMG can assist in-scope firms meet this regulatory requirement. If you have any questions, or would like to learn more, please reach out to our Audit practice.

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