Client Money Segregation

With public opprobrium of bankers reaching record levels regulators are increasing their focus on effective segregation of funds to protect clients’ money in the event of a failure.

The UK FSA revised its CASS regulations and introduced CMAR reporting (CMAR for large firms is monthly), and created the position of ‘CF10a’, a board-level member of each Financial Institution that is personally liable for compliance with penalties theoretically including jail terms. The US Commodity Futures Trading Commission passed rule 76F33813 in June 2011 saying “customer segregation is the foundation of customer protection” and has acted swiftly in the collapse of MF Global and its shortfall of over $600m client money. Furthermore, the Lehman collapse, in which only certain clients’ money was protected and in part prompted the revision of CASS and introduction of CMAR, reached the Supreme Court in November 2011 and judgment is awaited. However, for many firms the daily task of precisely calculating a correct value for segregation proves challenging as the process is typically manual, fragmented and time consuming. The creation of CMAR is onerous and risky; the FSA rules even mandate that the CF10a must personally submit the CMAR every month. Continual adherence to manual processes leaves firms exposed to operational and reputational risk and creates a barrier to maximising profitability. To support these mandated requirements, SmartStream’s TLM Client Money solution delivers a unique enterprise-wide process to automate the Client Money and Assets segregation process and provides all the key information for the CMAR.

Using a unique and flexible workflow-based approach, the solution calculates the requirements, checks the resource, handles cash breaks, supports manual determination where needed, calculates the correct payments to adjust the seg accounts, takes care of distribution and diversity rules, executes the payments intraday or at end of day, provides full authorisation and adjustment capability and generates reports (daily as well as periodic such as CMAR) to deliver:

• Improved compliance through a proven segregation process suitable for FSA (CASS, CMAR) or CFTC
• Increased operational control with a standardised approach and a single view across the entire organisation
• Enhanced operational efficiency through a better investigation of exception items and a more precise segregation process
• Improved reporting and greater analysis for continuous business improvement