Enforcement: UK's FSA fines Integrated Financial for failures in recording client funds
he Financial Services Authority (FSA) has fined Integrated Financial Arrangements plc (Integrated Financial) for failings in relation to its protection of client money. Integrated Financial offers one of the UK's largest wrap platforms, Transact.
Under the FSA's client money rules, firms are required to keep client money separate from the firm's money in client bank accounts with trust status. Firms that undertake client transactions and hold client money should perform daily client money calculations (referred to in the CASS rules as internal reconciliations) to check that the amount in the client bank accounts matches the firms' records. The primary purpose of this reconciliation is to safeguard the client money so that in the event of the firm's insolvency client money is returned to clients as quickly and easily as possible.
The FSA visited Integrated Financial in May 2010 and found that although it had segregated client money from its own money upon receipt it had failed to comply with client money rules between 1 December 2001 and 30 June 2010. The amount of client money held by Integrated Financial during the period averaged £508m.
Specifically, Integrated Financial did not perform any client money calculations between 2001 and 2010 and as a consequence failed to identify or fund any shortfalls in its client money bank accounts. This meant that money belonging to one client was used to cross fund other clients and resulted in clients' money being at risk if Integrated Financial became insolvent.
Integrated Financial also failed to put in place adequate trust documentation for three of its 28 client bank accounts which also put client money at risk in the event of the firm's insolvency.
Furthermore, Integrated Financial failed to put in place adequate risk management systems in relation to client money.
Source: FSA
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