Achieving a balance
Q. The Financial Services Authority has queried if our client account is included in our balance sheet figures in the Retail Mediation Activities Return. Please explain the situation
We see accounts regularly that have included the firm's client account and associated balances in the balance sheet, but the FSA's view is that these should be excluded.
As client money is held in a trust account it does not belong to the firm legally. Related balances such as client debtors and insurer creditors effectively are assets and liabilities of the client trust, so should be excluded from the firm's own accounts.
These figures reflect the broker's client money calculation for the period's end. Any difference from removal of these 'assets' and 'liabilities' would normally be unearned commissions owed to the firm by the trust and would be added back into the debtor's figure in the balance sheet to bring it back into balance.
The FSA has been contacting firms where they feel the figures might include these balances. Including the figures can give a false impression of the firm's cashflow, and as the RMAR is usually the regulator's only supervision contact they want to make it as informative and accurate as possible.
A firm that has client trust accounts and debtor-creditor balances in its RMAR balance sheets should review its capital adequacy with these items removed and inform the FSA if there is a material change in its financial position. Seek advice and make an action plan.
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