Is a review of firms’ arrangements with auditors on the horizon?
In April this year, Wealthtek, a DFM, was placed into special administration following an application to the High Court by the Financial Conduct Authority. Ever since, worrying questions have been posed to the regulator, including why Wealthtek’s accounts not being audited was never highlighted as a problem.
Here at ComplyCraft, we have already seen the impact of this criticism on other FCA work. For example, FCA asking whether auditors have been appointed during recent applications to vary firms’ permission. However, we think it’s very likely a more focussed review of MiFID firms is on the horizon to check whether firms have appointed an auditor and whether they are producing audited accounts and client money and asset reports (the latter being required whether you actually hold client money or not!).
There are many firms that do not have an auditor, that should. We’ve advised several of this fact in the last year or so, and pointed out why it is important. We have also commented on the complexity of the relevant rules in SUP Chapter 3 before, but in short:
if you are a MiFID firm, or simply holding client money or assets (even as a Small AIFM with just share certificates), you need an auditor.
And that auditor should be preparing annual accounts and an annual client money and assets report.
You may believe you do not need an auditor or a client money report. There are some (very limited) circumstances where you may be right, but before you look very silly in front of a regulator looking to punch back at critics, it’s best to double check and confirm what you are relying on.
Auditors provide solid third-party assurance from qualified persons. There is a good reason some firms are made to use them. The FCA may remind you of this in no uncertain terms, and it could open the door to an extensive and expensive review of other important rules you may be ignoring...
If you’re unsure about any of the points raised in this article, please get in touch.