Management Clinic: Off the radar?

'DREAM ON', would be my first response. May I respectfully remind you that the FSA rules apply to all regulated firms, whatever their size.

However, the FSA will take the view that response should be proportionate, so for example, your procedures manual will be a slightly less weighty tome than Aon's, for example.

The solvency issue which you mention and the subject of the 'Dear CEO' letter reflects concern expressed by the FSA following work they have done in the sector.

You will be aware of the threshold condition (condition 4) which states that the firm has enough regulatory capital with which to operate.

In the letter, the FSA asks firms to look at circumstances should their financial position weaken, or that of any other company in a group of which they might be a part, as a result of prevailing economic conditions.

The letter reminds firms of the need to demonstrate adequate resources at all times, not just twice a year when the Gabriel return is due. It also reminds firms that the threshold condition should be seen as a minimum and that firms should have adequate reserves to protect them against unforeseen future threats.

For a small firm, for example, you would need to consider how you would deal with the loss of a substantial client, irrespective of how good your relationship is, as if his firm failed, your income would disappear.

The letter also expresses the FSA's concern over some firms' weaknesses in client money procedures which in turn could lead, in the event of failure of that firm, to the trust status of the client account being challenged, and as a result, client money being at risk.

The FSA urges firms to carry out a review of their solvency and you can be in no doubt that they will be looking closely at both this issue and client money procedures in the coming months, when engaging with firms.

You can see the full text of the letter and the supporting information (only six pages in all) at the web address www.fsa.gov.uk/pubs/ceo/Dear_ceo_ltr.pdf.

As with other compliance consultancies, we have spent considerable time in recent months ensuring that client money procedures are fully compliant and adhered to.

As a controller of your firm, it is your responsibility to know. In the event of something going wrong and you being called to account by the FSA, it will be no defence to say that you relied on your book-keeper or even the firm's auditors to keep you informed.

So my advice would be to carry out a review of your solvency position and of your client money arrangements.

Your compliance officer (if you have one) or your compliance consultant should be fully conversant with what action you need to take.

By Ian Ritchie, director, RWA Group