Consultant KPMG has warned that investment managers have underestimated the funding impacts of the latest changes by the Financial Conduct Authority’s on client money protection.

Consultant KPMG has warned that investment managers have underestimated the funding impacts of the latest changes by the Financial Conduct Authority on client money protection.

The FCA’s Client Money and Asset Protection (CASS) new rules concern how firms look after money and assets that they hold on behalf of clients to prevent misuse and allow their return in the event of an insolvency. The rules continue to remain a focus area for the regulator over five years on from the issues identified in the winding down of Lehman Brothers and other subsequent failures.

KPMG's lastest report found that some firms are worryingly underestimating the impact the rules will have on their businesses as they work towards full compliance on 1 June next year.

Many surveyed failed to understand the significant implications the regulation would have on funding arrangements and challenges to the current business models employed by management companies. The impact on funding arrangements means that investment managers may need to raise more capital to meet their liabilities, potentially impacting on shareholder return, the consultant adds. 

“While we are almost half a year away from the FCA’s deadline for CASS, given the timeline needed to design, implement and test new business processes, firms must take a more proactive approach to ensure they are fully compliant in advance of June. There is a heavy reliance on administrators and service providers to get this right, but firms need to engage to understand the full impacts on their business models,” said Paul McKechnie, senior manager, investment management at KPMG.