Key changes in compliance
Points to note in the new accounts and accounts certificate rules, in force from 1 November 2011
The new Accounts Rules have been approved by the Lord President and take effect from 1 November 2011. New formats of accounts certificates will be required for accounting periods ending on 1 November 2011 or later.
Roadshows on the rules are taking place in September and October. Emails have also been sent to cashroom partners and MLROs highlighting key aspects of the changes. More communications are planned, including further information in the October Journal and targeted communications for specific groups of firms.
The new rules are available on the Society’s web page dealing with the consolidated rules, along with a paper summarising the changes. The Guarantee Fund Subcommittee particularly highlights rule 6.5.1(c) on drawings from a client account. Client authority has been clarified to include “complying with lender’s instructions where the lender is a client”. The subcommittee has seen cases involving regular failure to comply with the key counter-fraud provisions of instructions such as the CML Handbook, including the requirement to communicate various important details of transactions to lenders. This rule is intended for members’ protection and to reduce the risk that mortgage fraud will impact on the Guarantee Fund.
Other significant amendments include:
- rule 6.7.1(c): accounting records now defined to include records necessary to “demonstrate compliance with the Money Laundering Regulations”;
- rule 6.7.6: new options for retention of paid cheques or digital images of cheques;
- rule 6.10: new rule on interest to be earned for a client;
- rule 6.11: new rule requiring client balances to be returned promptly when no longer required;
- rules 6.13.2 and 6.13.3: revisions to responsibilities of cashroom partners;
- rule 6.23.1: money laundering rule now limited to those carrying out work within the scope of the ML regulations.
The new accounts certificate for firms holding client money comprises a self assessment checklist to confirm compliance with the rules and that some key controls are in place. Some financial information is also requested. Where a firm is not able to confirm compliance or report positively regarding a key control, it will be required to indicate the nature of the issues and the steps being taken to address them.
The object is to enable the Society to target financial compliance resources on the areas of greatest risk, and thereby more effectively manage risks to the Guarantee Fund and the profession as a whole. It is also hoped that firms will find the process of completing this certificate a useful a risk management tool.
A copy of the certificate is available on the Society’s web page noted above. More detailed guidance will be issued prior to 1 November.
One important feature is that the MLRO will be required to sign off on the money laundering section of the certificate along with the cashroom partner. Many MLROs already carry out such an assessment for their own purposes. For those who do not, this will be a useful opportunity to assess their firm’s level of compliance.
Firms which confirm that they hold no client funds will only be required to submit an annual certificate instead of the six-monthly certificates currently required. This is seen as a proportionate response to the lower level of risk with such firms.