Auditing and Assurance Standards and Guidance

FRC Bulletins

Bulletin 3: Providing Assurance on Client Assets to the Financial Services Authority (Supplement addressing the use of Third Party Administrators)

Implications of standardised processes

51.

In view of the standardised nature of many processes designed and operated by TPAs, which may be difficult or expensive for a TPA to change, the CASS auditor should assess whether any applied by the TPA to the firm's transactions are appropriate to the firm's specific circumstances. For example, in relation to standard settlement processes, the CASS auditor should consider whether the firm qualifies for any relevant exemption which is being taken advantage of by the TPA, such as the delivery versus payment exemption in CASS 7.2.8B R or carve out from CASS 6 for operators of collective investment schemes) on which the processes are designed to rely.

52.

Firms and TPAs may agree to make changes or amendments to the TPA's standard systems and/or procedures to accommodate the specific types of business that a firm carries out. Often such changes are made to take advantage of circumstances where the CASS rules provide exemptions or allow firms to adopt non-standard approaches to reconciliations. It may be appropriate for some firms to rely on such exemptions, or to adopt a non-standard approach depending on the firm's specific circumstances, but it may not be appropriate for other firms served by the TPA. Therefore, the CASS auditor needs to:

Confirm that it is appropriate for the firm to rely on the relevant exemption or adopt an alternative method4 with regard to the relevant outsourced operations; and

Understand any adaptations that the TPA has made to its systems, controls or procedures for the relevant firm, and how these adaptations affect compliance with the CASS rules.

53.	The CASS auditor should consider whether:

the TPA's design of the system of internal controls will assure compliance with the CASS Rules;

the TPA's internal controls were put into place as designed and operated effectively during the period; and

the firm was in compliance with relevant CASS rules at the end of the period in relation to the functions outsourced to the TPA

separately for each firm on which it gives an assurance report.

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