Chapter 7: Client Asset Examination  

  1. The assurance report required under Regulation 73(1) of the Client Asset Requirements (CAR) may be prepared by the investment firm’s statutory auditor or another auditor. An investment firm should provide the external auditor with all information and explanations that the external auditor requires for the purposes of performing the client asset examination and preparing the assurance report.
  2. As set out in Regulation 73(1) of the CAR, the assurance report may be prepared as part of, or in addition to, the report required under paragraph 7 of Schedule 3 to the MiFID Regulations. Investment firms are reminded of the requirement in paragraph 7 of Schedule 3 to the MiFID Regulations to ensure that their external auditors report at least annually to the Bank on the adequacy of the firm's arrangements under Regulation 23(1)(k), (l) and (m) and the Schedule.
  3. The assurance report should provide a reasonable assurance opinion in respect of Regulation 73(2)(c)(i) and (ii) and a limited assurance opinion in respect of Regulation 73(2)(c)(iii) and (iv) of the CAR.

    Information to be included in the assurance report

  4. In relation to the assessment of the Client Asset Management Plan (CAMP) required under Regulation 73(2)(c)(iv), an investment firm should ensure that the external auditor reviews the process undertaken by the investment firm to assess the on-going appropriateness of the CAMP, including evidence of the steps taken by the investment firm to test and maintain the CAMP.
  5. In relation to the requirement in Regulation 73(2)(c)(ii), an investment firm should ensure the external auditor reports on all breaches of the CAR, regardless of whether they were identified by the auditor or disclosed to it by the investment firm, or by any other party. Where breaches are identified these may be set out in a schedule appended to the assurance report.
  6. As part of the Client Asset Examination (CAE) and preparation of the assurance report, an investment firm should ensure that the external auditor reviews the client asset breach and incident log, as maintained by the investment firm, the location of which should be documented in the CAMP pursuant to Regulation 72(4)(p) of the CAR.
  7. In addition to all other procedures which the external auditor deems necessary for the performance of the CAE, subject to the considerations as set out within the auditor’s technical standard, the Central Bank expects the investment firm to engage with the external auditor to seek, at a minimum:
    • Third party confirmations (external confirmations) for a representative sample of balances deposited in respect of client assets, both at year-end and also on one other randomly scheduled date during the reporting period; and
    • Positive confirmation requests from a representative sample of clients, as determined by the external auditor, of client asset balances at the randomly selected date during the reporting period, other than the period end date.
  8. The assurance report should make provision for the investment firm to comment and set out any necessary remedial actions arising from the assurance report that it has taken or will take in accordance with Regulation 73(4) of the CAR. The auditor is not required to comment on the appropriateness of the investment firm’s proposed remedial actions.

    Period to which the client asset examination relates

  9. The period covered by the CAE and assurance report must not exceed 53 weeks from the date of the previous assurance report.
  10. Where an investment firm has been newly granted permission by the Central Bank to hold client assets, the period covered by the CAE should not exceed 53 weeks from the date on which the investment firm received prior written approval from the Central Bank to hold client assets in accordance with Regulation 48 of the CAR.
  11. If the written approval to hold client assets is granted in conjunction with the authorisation of the investment firm, then the authorisation date can be considered to be the beginning of the period to which the CAE relates. In this scenario, the assurance report should cover the period not exceeding 53 weeks from the date of authorisation (i.e. the date on which the permission to hold client assets was granted to the investment firm).
  12. The periods defined in the preceding paragraphs apply regardless of whether an investment firm held client assets at all times throughout the period to which the CAE relates (e.g. where a newly authorised investment firm does not commence holding client assets immediately, the date on which the investment firm was authorised and received written permission to hold client assets will still be considered the start date of the period to which the CAE relates).
  13. Where a newly authorised investment firm does not commence holding client assets immediately upon its authorisation, as part of its first annual CAE, the investment firm may arrange for its external auditor to do the following:
  • Prepare the assurance report required under Regulation 73(5) of the CAR in respect of the period between the date of authorisation and the date on which client assets were first held; and
  • Prepare the assurance report required under Regulation 73(1) of the CAR in respect of the remaining period between the date on which client assets were first held and the date not exceeding 53 weeks from the date of authorisation.

Issued: 4 July 2023

Last revision: 4 July 2023