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CASS 5 – Client Assets
1. Chapter Summary
CASS 5 sets out the detailed rules and requirements for firms on how to handle client money to ensure its protection. This chapter governs how firms must segregate, safeguard, and account for client money, preventing its misuse or loss. It is critical to maintain client trust and ensure financial stability by protecting client funds held by firms, especially in cases of insolvency.
2. Applicability
Applies to all FCA-authorised firms that hold or control client money, including investment firms, intermediaries, and platforms. It covers both retail and professional clients. Certain exemptions apply depending on the nature of the client money arrangement or the business model, such as specific treatment for MiFID business or exempt persons.
3. Key Rules and Their Meaning
- CASS 5.1.1R – Client Money Segregation Firms must keep client money segregated from their own funds at all times. In practice: Firms should hold client money in designated client accounts separate from firm accounts to prevent mixing.
- CASS 5.2.2R – Client Money Accounts Firms must open and maintain client money accounts with authorised banks or entities. Meaning: Firms cannot hold client money in personal or unregulated accounts, ensuring security and traceability.
- CASS 5.3.1R – Client Money Reconciliation Firms must perform regular reconciliations to ensure client money records match bank balances. Nuance: This process is critical to detect discrepancies early and prevent client money shortfalls.
- CASS 5.4.1R – Client Money Transfers and Payments Rules governing the transfer, payment, and withdrawal of client money, including client consent requirements. Meaning: Firms cannot transfer or use client money without appropriate authorisation and clear audit trails.
4. Interpretation Notes / FCA Expectations
- FCA guidance stresses the importance of timely and accurate client money segregation and reconciliation.
- Firms should have clear procedures and controls to prevent client money being used for the firm’s own purposes.
- FCA expects transparency and client disclosures regarding the handling and risks related to client money.
5. Practical Considerations for Firms
- Maintain dedicated client money bank accounts clearly labelled and used exclusively for client money.
- Implement robust reconciliation processes at least daily to compare client money ledger with bank accounts.
- Document and regularly test client money policies and procedures, including training for relevant staff.
- Provide clear client disclosures about client money treatment in agreements and communications.
- Keep detailed records of all client money transactions and authorisations for audit and compliance purposes.
6. Related Handbook References
- CASS 1 / CASS 1A – Scope and application of client asset rules
- CASS 3 – Custody and control of client assets (non-money assets)
- COBS – Client dealings and disclosures
- SYSC 10 – Systems and controls around client money and assets
- PRIN 2A – FCA principles including integrity and client interests
7. Regulatory Focus / Enforcement Risk
- Client money mishandling is one of the highest FCA enforcement priorities due to the risk to clients and market integrity.
- Firms have been fined or sanctioned for failures such as client money commingling, late reconciliation, or unauthorised use of client funds.
- The FCA continuously monitors firms’ client money compliance and expects prompt remediation of identified weaknesses.