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The Role of a CASS Leader... with Kevin Huby
18 Plays6 months ago
CASS 15/Safeguarding
What should be the key areas of focus for the CASS Oversight Officer?
How can CASS work best with other business units?
Are the CASS rules still fit for purpose?
Transcript
Introduction and Episode Overview
00:00:11
James Carter
Hello everyone, thanks for joining episode two of the JCR pod. And yeah, for those of you that ah provided feedback from the first episode a couple months ago, um yeah, really appreciate all of the all of the feedback and them anyone who sent in any any questions. I'm here today with with Kevin um in the midst of a UK heatwave, so I really appreciate his time and today. um
CAS Leadership Challenges
00:00:37
James Carter
And yeah, we'll be sort of doing a bit of a deep dive really into um life as a CAS leader, any challenges over the next 12 months and looking specifically at the payment space. Obviously, CAS 15 safeguarding is a very hot topic and a lot of you want to hear more on that.
Safeguarding Experience and FCA Rules
00:00:53
James Carter
So yeah, thanks for joining us today, Kevin.
00:00:56
Kevin
It's a pleasure. Good to be here.
00:00:57
James Carter
so and For those of you that have
00:00:59
Kevin
You brought me away from the beach.
00:01:01
James Carter
Yeah, I'm sure. Yeah, I'm sure. Well, there's no beaches in Manchester. So, uh, yeah, I haven't taken myself away from a beach. Um, uh, but, uh, yeah, no, i appreciate your time. Um, for those of you that worked in CAS for any number of years, you'll have probably either worked with Kevin or, or at least seen, uh, sort of some of the, the, the content that Kevin produces or, um, attended some of the the conferences or or webinars that Kevin's been involved in. So, uh, yeah, i really appreciate your time today.
00:01:28
James Carter
so yeah, if we, if we jump straight into, um, CAS 15, as I said, very much a hot topic in the yeah in the payments world um and further afield, actually. A lot of people, I think, are interested in moving into into this space.
00:01:42
James Carter
and So, yeah, what are your initial thoughts with regards to the um the the new rules coming in and any challenges you think that leaders will face over over the next 12 to 18 months?
00:01:53
Kevin
Yeah, I mean, I know that Zach talked about this um in his in the in the first podcast. um So I'm not going to go over all the background and the concerns that the FCA have in this particular space.
CAS 15 Audit Changes and Firm Impacts
00:02:09
Kevin
um i've I've actually been involved in over recent years, working predominantly in the FX broking space, where typically firms have both a method license and also undertake non method FX trades, and are generally subject to the either the money regulations or the payment services regulations. So I've been in this position where
00:02:43
Kevin
within the same firm, I've been responsible for both CAS and safeguarding.
Adapting to New Audit Standards
00:02:50
Kevin
um But the thing is that situation is quite unusual and and may in fact be limited to firms working in the FX space. Generally, um firms that are subject to safeguarding have aren't subject to CAS and have had no previous experience um with CAS.
00:03:14
Kevin
Now, the concept of safeguarding and and and the requirements around safeguarding haven't really changed for some time. There's been not not only, of course, the regulations themselves, but there's been a fairly comprehensive approach document in place from the FCA for a few years now. And, and you know, that has been revised from time to time.
00:03:42
Kevin
um and looking at the proposed regulations within CAS 15, which effectively is the FCA consolidating um client asset protection um regulation.
00:03:58
Kevin
the the The proposed rules don't differ greatly, in my view, from what's been in the approach document for some time.
00:04:08
Kevin
um And certainly anybody that has experience of working in the investment space and the CAS rules, um then there's nothing really within yes proposed CAS 15 rules that should cause any any concern.
Proactive Change Management Advice
00:04:29
Kevin
um But for me, that the significant change is the, um and what might be long overdue, is the tightening of the audit requirements.
00:04:44
Kevin
I mean, I always felt it Coming from an audit background and and and and being a qualified auditor, it always seemed strange to me that um somebody that wasn't a qualified auditor could do a safeguarding audit.
00:05:01
Kevin
um So, you know, at last that particular loophole has has been closed and, you know, in my experience, It's a loophole that that many firms, including firms that I've worked with, have exploited. Why pay the huge amounts that are charged for CAS audits for a safeguarding audit when you don't have to?
00:05:26
Kevin
um and and And of course, that that's going to change. um That will have a massive impact, I believe, um on on firms that are going to be subjected to to to the new rules and have no previous experience of CAS.
00:05:46
Kevin
Even those that have had previous experience of CAS, of course, it's going to cause quite a significant increase in their overall audit fees. um and ah And I think alongside that um is the issue of under what standards are auditors going to um work to in performing safeguarding audits now i you know i imagine that in time the um the frc will expand their current um assurance standards which have been in place for cass for a few years
00:06:28
Kevin
to cover safeguarding but I you know I'm not I don't know what the time frames are going to be around that um I I've had experience of a big four audit firm performing a safeguarding audit and and you know the big audit firms I guess feel that they have to hang their hat on on on some form of standard. And in my experience have gone for one of the established controls assurance standards, um which, you know, are pretty onerous. um so you know, alongside firms
00:07:12
Kevin
having to cope with um for the first time with with with a very rigorous intrusive audit. You've got auditors that may be struggling to know what they need to do to perform the safeguarding audit.
Integrating CAS Compliance Across Functions
00:07:29
Kevin
So I think overall that's going to be very significant challenge. um Of course there'll be, um that there are many firms that have entered the payments and e-money space in recent years that have had no prior experience of let alone client asset regulation, but regulation at all. So, um you know,
00:07:58
Kevin
the extent to which they understood the requirements of the of the approach document, um you know, may have been in question. um yeah That's being codified, we know, in in in the new CAS 15.
00:08:16
Kevin
um so So, yeah, I mean, you know, significant challenges, i think, overall for that sector.
00:08:23
James Carter
Do you think that one of the challenges that firms will be facing at the moment will be the, I guess, probably being in limbo a little bit at the moment? Because I know you mentioned Mifid. I was in recruitment whilst Mifid 2 was being implemented. And I think there was um yeah definitely a number of firms who...
00:08:49
James Carter
um we're in that limbo for a little bit, I think. um Do you think that, yeah, if you were, ah say, a, you know, a cast leader in ah in the payment space at the moment, do you feel like you're in limbo and what kind of, what do you, what do you do about that? you know, do you just kind of sit tight and wait or you are you already starting to, you know, sort of implement changes now? And, and um but then I guess the challenge with that is, are you going to get the buy-in and the tools needed to actually implement those changes um whilst they're in that sort of limbo
00:09:20
Kevin
Yeah, ah you know I mean, I've worked with clients um over many years, years during which there have been significant changes to to the cash
CAS Compliance During Business Changes
00:09:30
Kevin
rules. And you know ah I've always advised my clients to assume that the the the rules that are drafted in the consultation paper are going to be the final rules.
00:09:41
Kevin
you know um it that' you know It's been my experience that there may have been tweaks here and there um as a result of the consultation process. But you know generally, um once the FCA have determined their path, that's the path but that's taken.
00:10:02
Kevin
So you know i always advise firms not to wait until the consultation is finished or the the rules are made final, you know, this is the direction of travel, you know, let's crack on with it because, you know, so some of these, some of these changes require, um we you know, have fairly significant business implications.
00:10:27
James Carter
Okay.
00:10:27
Kevin
um
00:10:30
James Carter
I think, um yeah, I think where the challenge might may arise is um you're right. It's always best to get ahead of the curve and and be proactive on this on this sort of stuff. But if a business is, you know, suddenly CAS is all new to them and um they get an idea of the costs and the that come along with building out a CAS team and building out a CAS framework, um will some firms be minded to actually sort see how the land lies later on before spending
00:11:01
James Carter
the money in in case there are any changes or do you think most firms will be front footed about it?
00:11:07
Kevin
Well, there's always a reluctance to spend money in businesses.
00:11:11
James Carter
Yeah.
00:11:11
Kevin
um um you know And I guess particularly at the moment, there are a number of cost pressures on businesses with you know increased employer national insurance and and so on. um So i imagine many businesses will be reluctant to splash the cash.
00:11:30
Kevin
um But, you know, they're gonna have to at some stage and, you know, you know, I would always advocate, as I've said, you know, let's get cracking.
00:11:43
Kevin
um
00:11:45
James Carter
Fair enough. um And just looking at cash as a whole, so outside of payments, just across the industry, um you know there is there is obviously the changes with regards to SMCR in
Automation in CAS: Benefits and Risks
00:11:57
James Carter
the last two or three years. And it seems like teams and you know structures have changed. um One of the things that a lot of people I've spoken to have have kind of really been intrigued about is that relationship with the rest of the business. So how CAS works with operations, compliance, audit, sales, um with senior managers, um and I think certain frustrations with, um yeah, how how, I guess, where CAS sits in the in the team, ah in the business and and yeah, how how they work with with other areas. um
00:12:36
James Carter
What is your experience with that, Kevin? And, you know, where where do you think CAS is best ah fitting into ah into a business to work well with other other business units.
00:12:48
Kevin
Sure. Yeah. I, you know, I've worked with a lot of firms and, um you know, a lot of different approaches to, to establishing a CAS oversight function.
00:13:01
Kevin
um I've always been a strong advocate of embedding CAS compliance across the business in the areas that impact CAS compliance.
00:13:15
Kevin
um So, you know for instance, in in in operational functions like cash in payments and so on, you know making sure that the people that are working in those areas understand
Need for CAS Reform and Best Practices
00:13:34
Kevin
what the cash requirements are. but you know fundamentally why those requirements exist, um you know, how what they do relates to protecting client assets or client money.
00:13:41
James Carter
Mm-hmm.
00:13:49
Kevin
um So, you know, I've always been a strong advocate of that. um You know, where where I see, where I have seen the most significant cash issues during the long time I've been involved in cash, i ah in cash, I guess, sort of lie in two areas. You know, first of all is business change, new products, new systems.
00:14:16
Kevin
um So I think it's really important um that we, those who are tasked with responsibility for CAS as well as other areas of compliance are heavily involved and consulted during um those processes introducing new products.
00:14:37
Kevin
um you What are the implications in terms of operational processes, you know, what does that mean in terms of CAS compliance, systems changes, you know, are we really doing enough testing, you know, are we using appropriate data when we when we perform that testing?
00:15:00
Kevin
So, you know, i think I think anything around the change agenda, the CAS oversight function has to be heavily involved with and have be part of that sign off process.
00:15:14
Kevin
um From my personal experience, you know, I've, you know, ah i I've been a CAS oversight officer where, you know, a new product that had different CAS implications was introduced and I had i knew nothing about you know. um So, um so i you know, that's one area.
00:15:36
Kevin
The second area is around reconciliations.
00:15:42
Kevin
Anybody that's ever been to one of my training courses will know um how passionate I regard reconciliations, in particular um reconciliation breaks or exceptions.
00:15:59
Kevin
You know, how are we managing those? What what you what do they mean? You know, often those mean they mean ah a potential CAS breach. um yeah because the cast rules require accurate records. If there's a proliferation of reconciliation breaks, it might suggest that the internal records aren't accurate.
00:16:22
Kevin
um So you know having proper root cause analysis and using reconciliations as a means of driving continuous improvement in internal processes and controls is something that you know I've been passionate about.
00:16:39
Kevin
um
00:16:40
James Carter
but on the On the topic of reconciliations, Kevin, um do you think that the introduction of automation and technology um is is something that um a lot of CAS leaders have have benefited from and and those that are still doing a lot of things manually. um is it Is it time that they really look into what they can automate?
00:17:02
Kevin
um ah Yes, ah but, ah you know, it can be double edged sword.
Industry Efforts and FCA Support
00:17:08
Kevin
You know, I've been involved in some very significant projects that have been a result of implementing automated reconciliation software, but not implementing it properly.
00:17:20
Kevin
So, you know again, it falls into that business change agenda. um you know Everything has to be ah meticulously planned and tested before going live. But yeah, clearly, particularly if you're in a high transaction volume environment, you need to have some form of automated reconciliation system.
00:17:42
James Carter
Okay. And then just moving over to the CAS rules as a whole. um um Yeah, one of the things that I recently polled on on LinkedIn was, and do the CAS rules need any reform? um In recent years, the financial services landscape has changed dramatically with the introduction of yeah crypto and Bitcoin.
00:18:07
James Carter
you know, the the sort of fintech space is, his his you know, it's a lot busier than it was and there's new products. And um yeah, do you you know, do you think that the cash rules are still 100% fit for purpose or do there need to be some ah some reform to kind of keep up with a continually advancing financial services space?
00:18:30
Kevin
so ah So your poll was with cast professionals.
00:18:35
James Carter
Yeah, well, i put it out into my network and, um yeah, it was it was asking CAS leaders and CAS professionals whether they believe that some reforms are due with regards to the CAS sourcebook as a whole.
00:18:37
Kevin
Yeah, yeah.
00:18:48
James Carter
And I think it was something like 96% said at least some reform is needed. And actually about half of those said that a complete overhaul is is due.
00:19:00
James Carter
um So, yeah, my gut tells me that some reform is needed, but I'd be keen to get your thoughts on that.
00:19:06
Kevin
I'm thinking who are the 4% that were happy with the cash rules as they're currently written.
00:19:10
James Carter
Yeah.
00:19:13
Kevin
Look, you know,
00:19:17
Kevin
the kind And again, you know, this this will come as no surprise to anybody that's attended one of my training sessions, that the casseroles aren't written in a very helpful way. They're not written in a way that you can look at them and, and you know, pretty clearly know what you need to do from an operational point of view.
00:19:41
Kevin
um so from yeah from that point of view all all of us that work in the area of cast will benefit from um from a more helpful set of of of rules um but you know i i think you've got to look at this pragmatically yes you know there will be changes no doubt in terms of um crypto and and ah digital assets.
00:20:09
Kevin
um You know, and I'm sure the FCA, that's that's a major area of that's under review by the FCA currently. um But in in in terms of, you know, what we've currently got, I mean,
00:20:25
Kevin
many Many of the client money rules that exist now have been in place for, well, longer than I've been involved in CAS, more than 30 years.
00:20:37
Kevin
um And and and I think what us that work in CAS have to recognise is that you know, alongside change comes cost.
00:20:49
Kevin
You know, if you run the same poll amongst business leaders, finance professionals, I'm sure it would be the, ah you know, it would be 97, 96% that wouldn't want change because they know that change ah brings um brings additional costs.
00:20:50
James Carter
Yep.
00:20:55
James Carter
Yep.
00:21:08
Kevin
um so you know, we i think we have to be you know pragmatic about that. And and I don't honestly, and again, it's cost for the regulator. um And so i I don't think there'd be a great appetite for for them to overhaul the casterls as they stand.
00:21:29
Kevin
well What I guess i I'm a bit disappointed about it is that there hasn't been more work done around establishing best practice in various industry sectors that are subject to the cash rules, you know, i I mean, one, you know, one, I guess a big issue with the cash rules is it's one set of rules for for all firms.
00:21:57
James Carter
Yeah.
00:22:01
Kevin
And
00:22:03
Kevin
firms that are subject to CAS come in very different shapes and sizes, work in very different types of environments. and And this one set of rules doesn't lend itself very well to that.
00:22:19
Kevin
But what I'm disappointed in in is that, you know some of the some sectors haven't sort of got their heads together and say, look, let's develop, ah you know, these are particular issues for us in our sector when it comes to complying with CAS.
00:22:36
Kevin
ah let's develop um some good practice. Now, I know, um' i'm very aware of the great work that the TISA CAS forum and and committee has has done in that space. i was actually I actually helped set up those projects.
00:22:56
Kevin
um those working parties, you know, 13 years ago, ah whenever. And it's been really encouraging to see how that that particular forum has has has flourished.
00:23:11
Kevin
But, you know, that that covers, you know,
00:23:11
James Carter
Mm-hmm.
00:23:18
Kevin
ah I'm going to say a relatively small number of firms that are subject to CAS. I don't know the figures, but clearly, you know, the own members of the TISA, CAS working party are members of TISA. So it's only firms that the that manage tax incentivised savings and investments.
00:23:38
Kevin
um So, but but, you know, what I'm also, this what I'm really disappointed about is that where there has been efforts to develop codes of good practice, that's not being supported necessarily by the audit fraternity.
00:23:58
Kevin
um and and by the FCA them themselves. So, you know,
00:24:07
Kevin
I think there are very significant cash challenges in particular sectors that are still not being properly addressed, where there's still um some very differing interpretation of the rules. ah ah and And that's not been helped um by by auditors, or the FCA themselves.
00:24:31
James Carter
do you think that I guess one way that cast leaders can do all they can really to to sort of stay on top of the the rules and any changes and best practice is actually by getting involved in events and peer-to-peer discussion and sharing knowledge you know I don't I don't think personally i don't think enough of that happens and obviously there are you know there are quarterly or annual events and
00:24:49
Kevin
Thank you.
00:24:58
James Carter
But things change so quickly.
Conclusion and Listener Engagement
00:25:00
James Carter
um Do you think that there is ah definitely a sort of more of that needs to happen, more content needs to be released and more knowledge sharing and best practice?
00:25:10
Kevin
ah Absolutely. i mean, you know, not and I think more of that needs to be hosted by the FCA themselves. um
00:25:17
James Carter
Yeah.
00:25:18
Kevin
You know, back, you know, 15 years ago, 12, 15 years ago, when the FCA were in the process of of making significant changes,
00:25:31
Kevin
to the CAS rules following the financial crisis, then they would often host you know big events, um which were really helpful and created that forum for discussion and feedback.
00:25:47
Kevin
um But that doesn't happen now. In fact, you know many there are conferences that do take place where the FCA don't attend, and um you know which is disappointing.
00:26:02
James Carter
Okay. All right. Good stuff. All right, Kevin. Well, appreciate your time. i think we've covered some really good topics there. um Yeah, really appreciate your your insight and your expertise. And I'm sure many of the people who are who are listening, um yeah, hopefully either learn some new stuff or, um you know, giving them some some sort of things to think about and consider.
00:26:24
James Carter
um So yeah, thank you everyone for for tuning in and listening. The plan is to continue to ah release a new episode every four to six weeks. um But yeah, in the next episode, Kevin, um anything in particular that you'd like me to kind of ah focus on, whether it's CAS or or elsewhere in the financial services world?
00:26:44
Kevin
Now, I'll let you be driven by what the viewers want. you know You know, I'm reaching the end of my of of the road in terms of my my my career in CAS.
00:26:49
James Carter
Okay.
00:26:59
Kevin
And, you know, hopefully I've been able to share something that's of that's of interest or use to those that are either you know, starting out on their journey or all sort of part way through.
00:27:12
Kevin
um But yeah, I'll let you be driven by whatpe tell what people are asking you for.
00:27:17
James Carter
Great. Well, if anyone has any ideas that they want us us to focus on next time, drop us a comment or drop me ah a DM over LinkedIn. And yeah, but appreciate your time.
00:27:29
James Carter
hope you enjoy the ah the rest of the good weather and now have a great weekend.
00:27:30
Kevin
i
00:27:34
Kevin
Yes, and you. Thank you, James.
00:27:36
James Carter
Cheers, Kevin. Take care.
00:27:37
Kevin
Bye-bye.