Receiving funds from investors and being able to hold these funds securely should be a bread and butter activity for investment managers. The Client Assets (CASS) regime is one of the FCA’s highest priorities, and after scandals like Lehman Brothers, being able to safeguard client funds is a core service offering for all investment managers.

Given the importance of getting CASS right as well as ever increasing expectations from investors of a streamlined online experience, how do managers ensure they have the correct infrastructure in place?

There are a number of parallels between building a CASS capability and accepting card payments. Very few platforms would build direct connections with card issuers. It’s time consuming, expensive and there is a very high regulatory burden for doing so. The Payment Card Industry Data Security Standard (PCI) sets an understandably high bar for how credit and debit card data should be processed and stored. Rather than building this infrastructure internally, most platforms (and virtually all e-commerce sites) will use a third party provider (think Stripe, WorldPay etc) that provides a good user experience and handles all the vagaries of handling card payments.

This is a good example of the case for buying in expertise where the service you are consuming is arguably better than you could build yourselves with a realistic investment of resources.

Do similar arguments work for client money?

In many ways, there are a lot of parallels between client money and accepting card payments. Both involve integrating with the often legacy infrastructure of banks and other payment institutions and both have a significant regulatory overhead.

Holding and controlling client money involves:

• Seeking a variation of permission with the FCA
• Opening one or more designated client money account(s) with a bank and registering them with the FCA
• Appointing an appropriate senior manager to the CF10a controlled function
• Appointing an external auditor to monitor ongoing client money processes
• Compiling CASS processes and a resolution pack
• Some firms have to hold regulatory capital as part of their Capital Adequacy requirements

Any client money process must work well with the Firm’s existing operational and governance framework and existing technology. Any integration needs to consider:

• How will the CASS reconciliation be conducted? Is this automated or manual?
• How will data be extracted from the client money bank accounts(s) to aid the reconciliation? Can this be done electronically or does this involve manually downloading bank statements?
• What payment methods need to be supported? Bank transfer, cheque, CHAPS, BACS, SWIFT?
• How frequently should investor balances be updated? If a reconciliation of the bank account only happens daily, can investors wait 24 hours for their funds to clear before they can invest them? Will this mean they miss investment opportunities?
• How are payments from the client money account processed? Will this be manual or automated? What controls are in place to manage this?

Building an efficient, robust client money capability is a serious undertaking and it requires significant investment if the processes are to be reliable and fast enough to meet the needs of a modern investment platform.

Historically some firms have relied on custodians to perform this function. Custodians have the regulatory expertise needed to support managing these processes however they are often underpinned by legacy technology and a lack of automation which means transactions can be slow to clear.

At Goji we provide an out of the box solution that makes it easy to integrate a client money capability into an existing investment platform. We believe investment managers should spend less time building internal processes and focus on what makes their business unique. Goji’s client money solution allows managers to pass the regulatory and operational risk to a trusted third party.

The Goji Platform gives managers:

• Automated KYC and AML checks for investors
• Unique account numbers per investor
• Automated segregation of GIA and ISA funds
• Real-time updates when investor funds clear
• API driven payments delivered over faster payments, meaning funds clear in real time
• Support for multiple payment methods (Faster Payments, BACS, CHAPS, SWIFT, Cheques)
• Data can be accessed both via a web based admin console and API
• Dedicated UK based customer service team
• Ongoing AML transaction monitoring

If you would like to find out more, please contact [email protected]