CASS Client Assets: Protecting Client Money and Custody Assets

What It Is

The Client Assets sourcebook (CASS) is the FCA's rulebook governing how firms protect money and assets that belong to their clients. It sits within the FCA Handbook and imposes detailed, prescriptive requirements on any firm that holds or controls client money (CASS 7) or safe custody assets (CASS 6).

CASS is built on a simple principle: client money and assets are not the firm's property and must be kept separate from the firm's own funds at all times. If the firm fails, clients should be able to recover their money and assets without becoming unsecured creditors in an insolvency process. To achieve this, CASS imposes a statutory trust over client money and requires custody assets to be registered and held in a way that distinguishes them from the firm's proprietary holdings.

The sourcebook covers the full lifecycle of client asset handling: receipt, segregation, record-keeping, reconciliation, use, and return. It also mandates the preparation of a CASS resolution pack — a set of documents that would allow an insolvency practitioner to distribute client assets promptly if the firm enters administration or liquidation. Since the collapse of Lehman Brothers and MF Global, CASS has been substantially strengthened, and the FCA treats compliance failures in this area with the utmost seriousness.

Why the FCA Cares

The FCA regards client asset protection as a cornerstone of market confidence. When firms fail — and they do — the speed and completeness with which clients recover their money and assets is a direct measure of the regulatory framework's effectiveness. The failures of Lehman Brothers International (Europe), MF Global UK, and Beaufort Securities all exposed weaknesses in client asset protection that resulted in prolonged, costly, and uncertain distribution processes.

CASS failures do not just harm individual clients. They undermine confidence in the financial system. If retail clients believe their money is not safe with a regulated firm, the entire basis of the regulatory perimeter is called into question. This is why the FCA classifies CASS as a priority supervisory area and dedicates a specialist team — the Client Assets Unit — to monitoring compliance.

The FCA has taken significant enforcement action for CASS breaches. Fines for client money failures regularly run into millions of pounds, and the regulator has not hesitated to use Section 166 skilled person reports to investigate suspected deficiencies. In the most serious cases, CASS failures have contributed to firms losing their authorisation.

Who It Affects

CASS applies to any FCA-authorised firm that holds or controls client money or custody assets. The most directly affected sectors include wealth management firms, stockbrokers, investment managers, fund administrators, and custody providers. Payment services firms and e-money issuers have separate but analogous safeguarding requirements under the Payment Services Regulations and Electronic Money Regulations.

The scope is broader than many firms appreciate. A firm does not need to intend to hold client money to be caught — inadvertent receipt of client money (for instance, a client sending a cheque payable to the firm rather than the product provider) can trigger the full CASS 7 regime. Firms that use nominee arrangements for custody assets are subject to CASS 6 regardless of whether they physically hold the assets.

Insurance intermediaries that handle client money in the course of arranging or administering insurance contracts are subject to CASS 5 (the insurance client money rules), which operates on similar principles but with sector-specific adaptations. The scale of firm captured is large: thousands of IFA firms, general insurance brokers, and Lloyd's brokers fall within scope.

What Firms Get Wrong

The most common failure is inadequate reconciliation. CASS requires daily internal and external reconciliation of client money, yet the FCA routinely finds firms performing reconciliations weekly, monthly, or not at all. Where reconciliations are performed, they frequently contain unresolved discrepancies that have been carried forward for weeks or months without investigation. Each unresolved item represents a potential shortfall or excess that the firm cannot explain.

Segregation failures are equally persistent. Firms commingle client money with their own funds — sometimes deliberately to manage cash flow pressures, sometimes through poor operational controls. Using client money to fund the firm's operations, even temporarily, is a serious regulatory breach and a potential criminal offence under section 23 of FSMA.

Record-keeping is the third major area of weakness. CASS requires firms to maintain records that are accurate and up to date at all times, enabling client entitlements to be calculated immediately. In practice, many firms' records contain errors, are maintained on spreadsheets with no audit trail, or depend on manual processes that are vulnerable to human error.

The CASS resolution pack is frequently neglected. Firms produce a resolution pack during implementation and then fail to maintain it. When the FCA or an insolvency practitioner requests the pack, it does not reflect the firm's current arrangements — rendering it useless for its intended purpose.

Finally, firms underestimate the complexity of the trust arrangements. The statutory trust created by CASS 7.17 has specific legal consequences. Firms that do not understand these — for example, the treatment of client money in different types of insolvency proceedings, or the implications of co-mingling money from different client pools — put their clients at risk.

What Evidence the FCA Expects

The FCA expects firms to produce daily reconciliation records showing both internal and external reconciliation, with a clear audit trail of discrepancy identification, investigation, and resolution. Reconciliation breaks must be resolved within a defined and documented timeframe.

Client money calculation records must demonstrate that the firm is holding sufficient client money at all times. For firms using the normal approach, this means daily calculation of the client money requirement. For firms using the alternative approach, this means ensuring that client money balances are always at least equal to client entitlements.

Bank confirmation letters or equivalent documentation must confirm that client money bank accounts are properly designated and that the bank acknowledges the trust status of the funds. These must be obtained from every bank where client money is held.

Custody asset records must show the location, registration, and beneficial ownership of all assets held in custody. Records must be reconcilable with third-party custodian statements on a regular basis.

The CASS resolution pack must be complete, current, and accessible. The FCA expects the pack to include: a master document identifying all client money bank accounts and custodians, the latest reconciliation records, a list of all client entitlements, details of the firm's client money and custody asset arrangements, and contact details for all relevant third parties.

The CASS operational oversight function holder (CF10a) must be able to demonstrate active oversight of all CASS arrangements, including evidence of reporting to the board or governing body on CASS compliance.

Good Implementation

A firm that manages CASS well treats client asset protection as an operational priority, not a compliance afterthought. Reconciliation is automated where possible, using systems that compare internal records with external bank statements and custodian records daily and flag discrepancies for immediate investigation. Breaks are resolved within 24 hours, and the escalation process ensures that persistent or material discrepancies reach senior management promptly.

Segregation is assured by robust operational controls. Client money bank accounts are clearly designated, with trust acknowledgement letters in place and reviewed annually. The firm does not use client money accounts for operational purposes under any circumstances. Sweep processes — moving excess balances from client to firm accounts — are tightly controlled and audited.

The CF10a function holder has genuine authority and visibility. They receive regular MI on reconciliation status, break levels, bank designations, and custodian arrangements. They report to the board at least quarterly and escalate any material CASS concerns immediately. Their Statement of Responsibilities clearly reflects CASS oversight.

The CASS resolution pack is a living document. It is updated whenever there is a change to the firm's banking arrangements, custodians, or client money methodology. An annual review ensures completeness. The firm has tested its resolution pack — ideally by conducting a dry-run exercise — to confirm it is fit for purpose.

How Our Tool Helps

The MEMA FCA calculator includes a client money calculation module that automates the daily computation of your client money requirement under both the normal and alternative approaches. It integrates with your transaction records and bank feeds to perform continuous reconciliation, flagging discrepancies in real time rather than waiting for end-of-day processing.

The tool generates audit-ready reconciliation reports that meet the FCA's evidential expectations, including timestamps, discrepancy logs, and resolution records. It tracks the status of trust acknowledgement letters and alerts you when annual renewals are due.

For CASS resolution pack maintenance, the tool provides a structured template that maps to FCA expectations and prompts you to update relevant sections when underlying arrangements change. This ensures your resolution pack remains current without relying on manual review cycles.

How Our Service Helps

Our compliance outsourcing service provides hands-on CASS support for firms that lack the in-house expertise or capacity to manage client asset obligations independently. We conduct CASS health checks that assess your current arrangements against FCA expectations, identify gaps, and deliver a prioritised remediation plan.

For firms facing a Section 166 review or FCA supervisory visit focused on CASS, we provide intensive preparation support. We review your reconciliation processes, test your resolution pack, assess your CF10a oversight arrangements, and help you anticipate the questions the FCA or skilled person will ask.

We also provide ongoing CASS assurance — acting as an independent second line of defence that reviews your reconciliation output, monitors for emerging issues, and ensures that your CASS arrangements keep pace with changes in your business. This is particularly valuable for growing firms where client money volumes are increasing and operational complexity is expanding.

Relevant Sectors

Wealth management firms hold the most significant volumes of client money and custody assets in the retail sector. The FCA has conducted multiple thematic reviews of wealth management CASS compliance and consistently found deficiencies in reconciliation, segregation, and resolution pack preparation. Firms with discretionary and advisory investment permissions are under particular scrutiny.

Fund management firms face complex CASS obligations arising from the interaction between CASS rules and the regulatory framework for collective investment schemes. Custody of scheme assets, treatment of subscription and redemption money, and the interaction with depositary oversight all create compliance challenges that require specialist understanding.

Payment services firms and e-money issuers are subject to safeguarding requirements under the PSRs and EMRs rather than CASS directly, but the principles are analogous and the FCA applies similar supervisory intensity. The regulator has taken enforcement action against payment firms for safeguarding failures and has signalled that this is a priority area given the sector's rapid growth. Firms holding client funds pending payment execution must demonstrate rigorous segregation and reconciliation equivalent to CASS standards.