CASS 11 – Client Assets: Client Assets Sourcebook – Client Assets Financial Instruments Rules
1. Chapter Summary
CASS 11 sets out the rules and requirements for firms safeguarding client assets in the form of financial instruments (such as shares, bonds, and other securities). This chapter is essential to ensure that client financial instruments are properly identified, segregated, and protected from the firm’s own assets, reducing the risk of loss or misuse. It governs how firms must hold, record, and return client assets in compliance with FCA regulations, providing confidence and security for clients.
2. Applicability
CASS 11 applies to all FCA-regulated firms that hold or control client financial instruments, including investment firms, custodians, and brokers. It covers both retail and professional clients, and applies regardless of the jurisdiction of the financial instruments. The chapter is focused specifically on financial instruments as defined under the FCA rules, and does not apply to client money (covered under CASS 7 and 10).
3. Key Rules and Their Meaning
- CASS 11.1.1R – Client financial instruments must be held separately Firms must hold client financial instruments separate from their own and identifiable at all times. In practice: This prevents clients’ financial instruments from being commingled or used by the firm.
- CASS 11.2.1R – Recordkeeping of client financial instruments Firms must keep accurate and up-to-date records of all client financial instruments held or controlled. Explanation: Ensures firms can demonstrate ownership and facilitate prompt return of assets.
- CASS 11.3.1R – Reconciliation requirements Firms must perform regular reconciliations between records and actual client financial instruments held. Nuance: Frequency depends on the risk profile but typically monthly or more frequent for active firms.
- CASS 11.4.1R – Prompt return of client financial instruments Upon client request or contract termination, firms must return client financial instruments promptly and in full. Regulatory intent: Ensures client access to their property without undue delay.
- CASS 11.5.1R – Use of client financial instruments restrictions Firms cannot use or dispose of client financial instruments without client consent or specific authority. In practice: Protects clients from unauthorized transfers or use of their assets.
4. Interpretation Notes / FCA Expectations
- The FCA expects firms to have robust controls and oversight to ensure segregation and safeguarding of client financial instruments.
- Guidance emphasizes the importance of timely and accurate recordkeeping, with particular focus on the risks of incorrect or outdated records.
- FCA also expects firms to have clear procedures for resolving discrepancies and responding to client requests for asset return.
5. Practical Considerations for Firms
- Maintain segregated accounts or custody arrangements with approved custodians or clearing houses.
- Implement comprehensive recordkeeping systems with audit trails linking client financial instruments to individual clients.
- Conduct regular reconciliations and promptly investigate discrepancies.
- Train staff on the importance of safeguarding client financial instruments and on processes for client requests.
- Provide clear client disclosures on how their financial instruments are held and safeguarded.
6. Related Handbook References
- CASS 7 – Client asset record keeping and reconciliations
- CASS 8 – Client asset mandates (authorisations)
- CASS 9 – Client asset information (disclosures)
- CASS 10 – Client money rules
- SYSC – Systems and Controls applicable to client asset handling
- PRIN – FCA Principles for Businesses regarding integrity and due skill
7. Regulatory Focus / Enforcement Risk
- The FCA prioritizes enforcement in cases of failure to segregate client financial instruments or poor recordkeeping.
- Misuse or unauthorized disposal of client financial instruments carries high enforcement risk.
- Firms failing timely return or reconciliation procedures face increased FCA scrutiny.