How to Comply with CASS Rules: A Guide for UK Businesses

Understanding and complying with CASS rules is essential for UK financial services firms. We guide you through the CASS rulebook key components and compliance advice.

The Client Assets Sourcebook (CASS) is a critical part of the FCA's regulatory framework, designed to protect client money and assets held by financial firms. Breaches of CASS can lead to severe penalties and reputational damage. It is essential for UK businesses to have an understanding of CASS, including CASS 6, CASS 7, and other relevant sections.

Key takeaways:

•  CASS rules are essential for safeguarding client money and assets, and non-compliance can lead to severe financial and reputational consequences.
• Understanding the distinctions between CASS 6 (custody assets) and CASS 7 (client money) is critical for implementing the right controls and procedures.
• Effective compliance requires robust segregation, reconciliation, record-keeping, staff training, and regular audits aligned with FCA expectations.

What is CASS?

CASS stands for Client Assets Sourcebook. It is a set of regulations under the Financial Conduct Authority (FCA) that outline the procedures firms must follow when holding or controlling client money and assets.

The rules are designed to ensure that firms safeguard these assets, keeping them separate from their own funds and complying with strict oversight requirements.

The CASS rulebook is divided into several sections, with CASS 6 focusing on custody assets and CASS 7 covering client money rules. Compliance with these regulations is not just about meeting legal requirements—it's about maintaining the trust and confidence of your clients.

What are the key CASS rules firms need to know?

To fully comply with CASS, it's essential to understand the core rules that apply to your business operations. Here's a breakdown of the most relevant rules for firms managing client assets:

• CASS 6 (Custody Rules): These rules apply when a firm holds or controls custody assets, such as securities, on behalf of a client. The focus is on keeping clients' assets separate from the firm's own assets and ensuring proper reconciliation and record-keeping to protect those assets in the event of insolvency.
• CASS 7 (Client Money Rules): CASS 7 outlines the requirements for safeguarding client money. Firms must segregate client funds from their own, perform regular reconciliations, and maintain robust controls to ensure that client money is not at risk.
• CASS 7A (Client Money Distribution): This section covers the rules for distributing client money in the event of a firm's failure. It outlines how client money should be returned or transferred, minimising the impact on clients during a wind-down scenario.

How can firms implement CASS 6 & CASS 7?

To comply with CASS 6 and CASS 7, firms must have a deep understanding of their obligations and implement comprehensive processes to meet these standards. Here are some key steps to take:

1. Conduct a CASS mapping exercise: Identify which parts of the CASS rulebook apply to your firm. Understanding whether you are holding custody assets (CASS 6) or managing client money (CASS 7) will determine which rules you need to follow.
2. Establish robust segregation and reconciliation processes: For both CASS 6 and CASS 7 compliance, it's essential to maintain separate accounts for client assets and funds. Implement daily and periodic reconciliations to identify and rectify any discrepancies quickly.
3. Review your record-keeping procedures: Firms must keep detailed and accurate records of all client assets and money they handle. This includes maintaining client agreements, transaction records, and reconciliation reports.
4. Conduct regular internal and external audits: Implementing regular audits helps ensure that your firm’s practices align with CASS requirements and that any issues are identified and resolved before they escalate.
5. Training and awareness: Ensuring that all relevant staff members understand the CASS requirements is critical for maintaining compliance. Tailored training programmes can help your team stay up-to-date with the latest FCA guidance and best practices.

What are the most common challenges in CASS compliance?

While understanding the rules is crucial, many firms face challenges in implementing and maintaining compliance with CASS rules. Some of the most common issues include:

• Complexity of client money and asset management
  Managing multiple client accounts and assets can be complicated, particularly for firms that deal with both custody assets and client money.
• Inconsistent record-keeping
  Poor documentation and record-keeping can lead to significant compliance risks, as CASS requires firms to demonstrate that they are safeguarding client assets effectively.
• Lack of staff awareness and training
  Staff who are not adequately trained in CASS requirements may inadvertently breach the rules, leading to potential penalties and reputational damage.
• System and control failures
  Inadequate systems and controls can prevent firms from meeting their obligations under CASS 6 and 7, resulting in a failure to segregate and protect client assets properly.

What best practices help maintain ongoing compliance with CASS rules?

To minimise risks and ensure compliance with CASS FCA regulations, consider adopting the following best practices:

Develop a CASS governance framework

Establish a governance framework that clearly outlines roles and responsibilities for CASS compliance. Ensure that senior management is involved in overseeing CASS policies and procedures.

Implement a CASS training programme

Ensure that all relevant staff members receive comprehensive CASS training tailored to their roles and responsibilities. A strong training programme helps employees understand the complexities of the CASS rulebook and stay aligned with best practices for safeguarding client assets.

Regularly review and update policies

The FCA frequently updates CASS rules to address emerging risks. Keep your policies and procedures up-to-date to reflect the latest regulatory requirements.

Implement robust monitoring and reporting systems

Use technology to automate key processes, such as daily reconciliations, to reduce manual errors and improve accuracy.

Create a CASS resolution pack

Prepare a CASS resolution pack (as required under CASS 10) to provide clear guidance on how client assets and money should be managed in the event of a firm’s insolvency.

What are the potential consequences of failing to comply with CASS rules?

Non-compliance with CASS regulations can have serious consequences, including:

• Financial penalties: The FCA can impose significant fines for breaches of CASS rules, as seen in several high-profile cases.
• Reputational damage: Failure to comply with CASS can harm a firm's reputation, leading to a loss of client trust and potential business disruption.
• Operational restrictions: The FCA may impose operational restrictions on firms that are not meeting their CASS obligations, limiting their ability to conduct business.

Ensuring compliance with the CASS rulebook is not just a regulatory requirement—it's a crucial component of maintaining a strong, trustworthy business that prioritises client protection.

Complying with CASS regulations is essential for protecting client assets and ensuring that your business meets FCA requirements. Understanding the intricacies of CASS 6, CASS 7, and the broader CASS rulebook can help firms implement effective controls and minimise the risk of non-compliance.

If your firm holds custody assets or client money, it's crucial to ensure that all relevant staff understand their obligations. Skillcast offers a range of CASS training programs, including courses on FCA: CASS 6 Custody Rules and CASS 7 & 7A Client Money Rules, designed to help your business stay compliant.

CASS Rules FAQs

Who needs to comply with CASS rules?

Any firm regulated by the FCA that holds or controls client money or assets must comply with CASS rules. This includes investment firms, asset managers, and certain insurance intermediaries.

How often should firms review their CASS compliance procedures?

Firms should review their procedures at least annually, or whenever there are changes in regulation, business structure, or risk exposure. Regular internal audits and gap analyses are recommended.

What role does staff training play in CASS compliance?

Training is critical. Staff must understand their responsibilities under CASS, know how to handle client money and assets correctly, and be able to identify and escalate potential breaches.

Want to learn more about FCA Compliance?

We have created an SMCR roadmap to help you navigate the compliance landscape, supported by a comprehensive library of FCA Courses.

We also have additional free resources such as e-learning modules, microlearning modules, and more.