Financial Conduct Authority
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FSA confirms final rules for auditors’ client assets reports

The Financial Services Authority (FSA) has recently confirmed rules to improve the quality and consistency of auditors’ client assets reports.

The policy statement sets out ten new requirements for firms and their external auditors. In summary, these new rules will:

  • Confirm and clarify the standards required for auditors’ client assets reports in order to provide clear focus of accountability;
  • Increase the quality and consistency of information provided in the report so the FSA can better use it to undertake both firm and thematic reviews; and
  • Improve firms’ governance oversight of their auditors and their compliance with the client assets rules.

Richard Sutcliffe, leader of the FSA’s client assets unit, said:

“We have seen serious failings in relation to auditors’ client assets reports. As a result we have referred a number of auditors to their relevant auditing bodies over the past year and are currently considering referring several other cases.

“Ultimately it is a firm’s responsibility to ensure they have adequate systems in place, but we rely on their auditors to provide some of the necessary independent assurance. These new rules make it crystal clear for firms what we require of their external auditors when it comes to producing high quality and consistent client assets reports.

“The rules confirm and strengthen our requirements in this area and also mean that should we fail to see improvements we will be able to take action more easily.”

This policy statement follows a review by the FSA’s specialist client asset unit into the quality and consistency of auditors’ client assets reports. A number of serious failings were identified including: auditors providing ‘clean’ reports despite firms committing serious breaches of client asset rules; auditors’ reports covering the wrong chapters of the client asset sourcebook; and auditors failing to provide adequate details on issues and exceptions identified in their report.

The failings indicated a general deficiency by auditors in applying the FSA requirements on client assets, prompting the steps the FSA has taken to improve the quality of auditors’ client assets reports.

Notes to editors

  1. PS11/05 Improving the auditor’s report on client assets link can be found on the FSA website.
  2. The FSA's specialist Client Assets Unit was established to improve compliance with the regulatory regime to protect client money and custody assets (client assets) and to promote confidence. The actions taken in relation to auditors’ client assets reports is part of this more intensive approach to supervision and improved intelligence gathering.
  3. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.

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