UK Financial Conduct Authority Censures Auditor For Failings In Client Asset Reports

MHA failed to notify the FCA of rule breaches by firms it had audited, which could have put customers’ money at risk.

Client asset protection is a key part of maintaining market confidence, financial stability and consumer protection. Firms that hold client assets are required to have an auditor provide a client assets report to the FCA on an annual basis except in limited circumstances. The FCA relies on the accuracy of these client assets reports to monitor whether firms are complying with its rules, so it is important that auditors ensure their reporting is accurate.

The FCA’s investigation found that between 2015 and 2019, MHA failed to prepare 4 client assets reports (relating to 2 firms) to the required standard. It failed to report 25 breaches of the rules by firms it had audited. These ranged from failings in documentation, to firm’s assets being held alongside client assets.

Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said: 'In a first of its kind, this censure underscores the important role that auditors play in providing accurate reports on whether firms are complying with our rules. 

'This information helps us to safeguard customer funds and reduce the harm caused by firm failures. We expect all firms to ensure that they’re providing full and accurate reports.'

Background

1. Read the Final Notice issued to MHA.
2. CASS rules are particularly important when firms fail or exit the market. Around 3,100 firms, holding around £175 billion of client money, and around £17.4 trillion of custody assets, such as investments, are subject to these rules.
3. Find out more about client asset reports.
4. The FCA considers MHA's failings to be serious, however the impact on consumers from the unreported breaches would not have resulted in significant harm in the event of firm failure. Therefore, it is appropriate to issue a public censure in this case.
5. The firms where the underlying unreported breaches occurred were subject to additional regulatory action.
6. MHA is a firm of chartered accountants with 22 offices in the UK. MHA now offers 4 service lines of audit and assurance, tax, advisory, and outsourcing. MHA has 128 partners and approximately 1,740 UK staff.
7. SUP 3.10 Duties of auditors: notification and report on client assets.
8. SUP 3.11 Review of auditor’s client assets report.
9. Find out more information about the FCA.