Client Money - Investment - Thematic Review 2024

Summary

This is a GFSC thematic review report summarising findings from a 2024 review of Client Money controls at investment licensees (designated administrators, asset managers/brokers and investment intermediaries). It is not new legislation but sets out the Commission's observations on compliance with existing Client Money requirements under The Licensees (Conduct of Business) Rules, 2021 (the COB Rules), highlights good practice, flags areas of concern, and includes self-assurance questions for licensees to review their own arrangements.

• Segregation and reconciliation: Licensees generally segregate Client Money appropriately and reconcile Client Money Bank Accounts at least monthly as required by the COB Rules; some reconcile more frequently.
• Policies and procedures: Detailed, firm-specific policies with clear signposting and checklists reduce error risk; reliance on experienced staff without embedded documentation creates key person risk.
• Group policies: Licensees within multi-jurisdictional groups sometimes adopt group-wide policies that fail to reference local Guernsey regulatory requirements, creating non-compliance risk.
• Overdrawn accounts: Some licensees experienced low-value overdrawn Client Money Bank Accounts, mainly due to transaction timing, all cleared within 24 hours with no client detriment; the Commission expects proactive measures to prevent overdrawn accounts.
• Audit and CMP testing: Compliance Monitoring Programme testing and audit coverage of Client Money was found adequate, with remediation actions assigned to identified issues; independence of the CMP function was noted as good practice.
• Approved Banks: Client Money must be held with an Approved Bank as defined in the COB Rules; some licensees held Client Money at non-Approved Banks without obtaining the required modification or derogation from the Commission.
• Outsourcing: Where reconciliation or other Client Money functions are outsourced, licensees must comply with the Commission's Guidance Note on Outsourcing and retain oversight and responsibility.

The report closes with a set of self-assurance questions covering categorisation of Client Money Bank Accounts, reconciliation frequency, overdrawn account history, bank communication, policy adequacy, embedding of procedures, CMP testing, and use of Approved Banks, which licensees are expected to use to review their own compliance.

Key obligations

• Licensees must reconcile Client Money Bank Accounts at least monthly in accordance with rule 9.5 of the COB Rules.
• Licensees must immediately restore any overdrawn Client Money Bank Account in accordance with rule 9.5(4) of the COB Rules.
• Client Money must be held with an Approved Bank as defined at rule 13.1(2) of the COB Rules.
• Licensees holding Client Money outside an Approved Bank without a modification or derogation must regularise the arrangement or submit a detailed, well-reasoned modification request to the Commission.
• Licensees adopting group-wide Client Money policies must ensure local Guernsey regulatory requirements are incorporated to reduce non-compliance risk.
• Licensees outsourcing Client Money functions (e.g. reconciliation) must do so in accordance with the Guidance Note on Outsourcing of Functions by Entities Licensed under the POI Law, 2020, and retain adequate oversight.
• Licensees must ensure all data submitted to the Commission (e.g. regarding Client Money Bank Accounts) is accurate.

Applies to

designated administrators, investment intermediaries, asset managers/brokers, investment licensees

Deadlines

• at least monthly: Client Money Bank Accounts must be reconciled at least once monthly under rule 9.5 of the COB Rules.
• immediately: An overdrawn Client Money Bank Account must be restored immediately per rule 9.5(4) of the COB Rules.
• within 24 hours: Reported practice observed: overdrawn accounts in the reporting period were all rectified within 24 hours (described as observed practice, not a formal deadline).