CASS 10 – Client Money: Client Money Rules for Firms Holding Client Money
1. Chapter Summary
CASS 10 sets out the detailed requirements firms must follow when holding client money to ensure its protection and proper segregation from the firm’s own funds. This chapter governs the receipt, handling, and safeguarding of client money, mitigating risks of loss or misuse. It is a cornerstone of the FCA’s client asset regime, ensuring that client money is held securely and can be returned promptly in case of firm insolvency or other issues.
2. Applicability
CASS 10 applies to all FCA-regulated firms that hold client money, including investment firms, banks, and insurers acting as custodians or intermediaries. It applies regardless of client type (retail or professional) and across various financial products, but only where firms hold money that is client money under the FCA’s definitions. Carve-outs include firms that do not hold client money or where money is held under separate regulatory provisions.
3. Key Rules and Their Meaning
- CASS 10.1.1R – Requirement to hold client money separately Firms must segregate client money from their own money and ensure it is identifiable and protected. In practice: This prevents client money from being used for firm operations or exposed to firm insolvency.
- CASS 10.2.1R – Proper account handling Client money must be held in designated client money accounts with approved banks or custodians. Nuance: Firms must not mix client money with other monies except in specified circumstances.
- CASS 10.3.1R – Client money calculations and reconciliations Firms must perform daily or frequent reconciliations of client money held against records to identify shortfalls or errors. Explanation: This ensures continuous monitoring and prompt resolution of discrepancies.
- CASS 10.4.1R – Restrictions on use of client money Firms can only use client money for specific permitted purposes, such as paying client-related transactions with consent. Regulatory intent: Prevents unauthorized use or misuse of client funds.
- CASS 10.5.1R – Prompt return of client money Upon client request or contract termination, firms must promptly return client money. In practice: This guarantees client access to their funds without undue delay.
4. Interpretation Notes / FCA Expectations
- FCA guidance stresses the importance of robust controls around client money segregation and reconciliations to avoid breaches.
- Firms are expected to have contingency plans to manage client money in events like operational failures or insolvency.
- The FCA emphasizes transparency in client money handling and expects firms to communicate any changes affecting client money protection.
5. Practical Considerations for Firms
- Establish and maintain dedicated client money accounts with reputable banks.
- Implement daily reconciliation procedures with documented reviews and follow-ups on discrepancies.
- Develop clear policies outlining permissible use of client money and train staff accordingly.
- Maintain client money records with audit trails to demonstrate compliance.
- Provide clear disclosures to clients regarding client money arrangements and protections.
6. Related Handbook References
- CASS 7 – Client asset record keeping and reconciliations
- CASS 8 – Client asset mandates (authorisations)
- CASS 9 – Client asset information (disclosures)
- SYSC – Systems and Controls for client money handling
- PRIN – Principles for Businesses on acting with integrity and due skill
7. Regulatory Focus / Enforcement Risk
- FCA enforcement attention is high on client money segregation breaches and reconciliation failures.
- Firms with poor client money controls face significant enforcement risk and reputational damage.
- Prompt detection and remediation of client money shortfalls are critical to mitigate FCA scrutiny.