If a financial services provider holds or controls client money or assets, then they must follow the rules set out in the FCA’s Client Asset Sourcebook (CASS).  These CASS rules have been created to ensure that client assets are safeguarded in the event of a firm’s insolvency.

Firms are classified into 3 types:

  • CASS Large Firm:  If the highest total amount of client money your firm held in your last calendar year is more than £1 billion, you are most likely large.
  • CASS Medium-Firm:  If the highest total amount of client money your firm held in your last calendar year is an amount equal to or greater than £1 million and less than or equal to £1 billion, your firm is probably medium.
  • CASS Small Firm: If the highest total amount of client money your firm held in your last calendar year is less than £1 million, your firm is most likely small.

Classification is also based on the size of your custody assets, but as firms are required to complete a classification questionnaire every year, in December, identifying your CASS type will be evident.

CASS rules apply to all firm types listed above. However, the main distinction is if you are a CASS small firm you are NOT required to complete a CMAR, NOR make a director or senior manager responsible for CASS. CASS Medium and large firms are required to do both.

What is a CMAR (Client Money and Asset Return)?

This is a monthly report required by the FCA as an overview of a firms’ client assets, for more information on CMAR click here.

Why is CASS compliance important?

CASS has been a high priority for the FCA, ultimately it was a response to the collapse of the Lehman Brothers in 2008 and the need to protect clients interests over profits. The FCA has worked hard to avoid future scandals by enforcing stricter regulations and restoring consumer trust in financial services.

The importance of client assets is made clear by one of the FCA’s defining Principles for firms: –

Principle 10 Clients’ Assets – “A firm must arrange adequate protection for clients’ assets when it is responsible for them”.

If a company breaches any of the Principles for Business, the FCA has enforcement powers including imposing fines, removing authorisation and even launching criminal prosecutions. These penalties can have a significant impact on your business turnover as well as your reputation as a trustworthy company. Compounded further by the fact that individuals are more accountable than ever under the Senior Manager and Certification Regime (SMCR)- compliance is not just important, it is essential.

CASS rules and how they may apply to you?

There are 13 main sections to the CASS handbook, this is a comprehensive document that should be consulted alongside this summary to fully understand what applies to who and when.

Here, however, we have focused on the CASS rules that are most likely to have an impact on the procedures of your business:

CASS Rules Summary:

  • CASS 5 – Client money: insurance distribution activity

In relation to insurance mediation companies must follow the rules of CASS 5. In this case, client money includes premiums received from clients pending payment to the insurer, as well as claims monies and premium refunds – due to be repaid to clients.

There are 2 ways to abide by these rules:

  • Arrange for a risk transfer from intermediary to the insurer, see CASS 5.2
  • Segregation of client money in client bank accounts, see CASS 5.3 and CASS 5.4

which make clear that client accounts may not be used to reimburse other creditors in the event of the firm’s insolvency.

If CASS 5 applies to you then every 25 business days your company must conduct a client money reconciliation. This will confirm that the funds you have available to repay clients is sufficient to repay what you owe. There may be additional considerations to bear in mind if your company is supporting Appointed Representatives (AR,) see CASS 5.5.18.

  • CASS 7 – Client money rules

The rules specifically relating to holding client money are found in the CASS 7 section, the largest section of the sourcebook. CASS 7.10 clearly lays out who is required to abide by the rules and certain opt-outs.

In summary, the FCA Handbook identifies three key requirements for firms that hold client money:

  1. Submission of an accurate Client Money and Asset Return (CMAR), monthly – see above
  2. To produce CASS Resolution Packs (CASS RP) and provide annual confirmations to your boards that these are up to date.
  3. To ensure sufficient systems are in place for CASS compliance. This means that firms will need to be able to demonstrate, through records, that client money is received, segregated, reconciled, and paid on by the representatives. As well as proof that employees have been trained and senior management and directors are monitored and competent in these matters.

The rules pay consideration to the impact on client money held by a firm in the event of liquidation. CASS 7A ensures, in theory, all the clients’ money should be returned to them so long as the rules have been followed. Where a secondary pooling event occurs, there is a potential loss to the clients – see CASS 7A.1.2

  • CASS 8 – Mandates

A mandate gives an investment business or MiFID business (or an insurance intermediary or debt management firm) authority over their clients’ money or assets to manage money on their behalf.

Where a mandate is in place, the firm does not need to comply with CASS 5 or 7. Nevertheless, firms will still need to provide evidence of good record keeping and internal controls including:

  • Proof of the existence of the mandate e.g., a signed document.
  • A detailed record of any mandates held.
  • A record of any conditions or limitations that apply to those mandates.
  • Internal controls for the safeguarding of any passbook or similar document belonging to the client held by the firm.

How Can 1RS help?

With CASS compliance staying on top of regulation and good record keeping is key. 1RS provides a CASS software solution that reduces costs, saves on resources and ensures your firm complies with FCA client money and custody assets rules.

Our CASS compliance tool has been designed specifically to help manage your compliance and comply with strict regulations. We offer a cost-effective integrated CASS solution tool that will help you recognise client assets, CASS breaches, client money, as well as install systems in place to make sure everything is running smoothly. The detailed reporting our solution offers, will allow you to make sure your client money is protected and that none of your staff is liable for SMCR or CASS breaches.

To find out how 1RS solutions change your organisation, contact 1RS & book a demo.