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CASS 13 – Client Assets: Client Assets Sourcebook – Client Asset Insurance and Compensation

PostedJune 23, 2025
UpdatedJune 23, 2025
ByAndy

1. Chapter Summary

CASS 13 outlines requirements related to client asset insurance and compensation arrangements to protect clients in the event of firm failure or client asset loss. The chapter is important because it helps ensure that firms have adequate insurance or compensation mechanisms in place to mitigate risks to client assets. This safeguards clients’ interests by providing financial protection or recourse options when client assets are compromised or inaccessible.

2. Applicability

This chapter applies to all FCA-authorized firms that hold or control client assets and are subject to client asset rules, including those safeguarding client money and client financial instruments. It applies to firms across all client types and sectors unless specific carve-outs or exemptions apply, which are generally limited.

3. Key Rules and Their Meaning

  • CASS 13.1.1R – Requirement to have insurance or compensation arrangements Firms must have adequate insurance or participate in compensation schemes to cover losses arising from client asset failure. In practice: Firms must either purchase insurance policies covering client asset risks or ensure participation in schemes like the Financial Services Compensation Scheme (FSCS).
  • CASS 13.2.1R – Minimum scope and level of cover Insurance or compensation must be sufficient in scope and value to reasonably cover potential client asset losses. Nuance: The FCA expects firms to assess risks accurately to determine adequate coverage levels.
  • CASS 13.3.1R – Notification requirements Firms must notify the FCA promptly of any material changes or lapses in insurance or compensation arrangements. Explanation: Ensures ongoing regulatory oversight and reduces risk of uninsured client asset exposure.
  • CASS 13.4.1G – Guidance on assessing insurance adequacy FCA guidance recommends regular reviews of insurance policies to confirm continued suitability, including coverage limits, exclusions, and claims processes. Regulatory intent: Firms must proactively manage insurance risks to maintain client asset protection.

4. Interpretation Notes / FCA Expectations

  • The FCA expects firms to maintain a risk-based approach to client asset insurance, ensuring policies reflect the firm’s size, complexity, and client exposure.
  • Insurance should cover various risk scenarios, including fraud, theft, and operational failure.
  • FCA expects clear documentation and internal oversight of insurance and compensation arrangements.

5. Practical Considerations for Firms

  • Maintain and regularly review insurance policies or proof of FSCS membership to ensure adequacy.
  • Develop internal procedures for monitoring and reporting insurance status to senior management and regulators.
  • Disclose relevant compensation arrangements to clients as part of client asset disclosures.
  • Ensure staff understand the scope and limitations of insurance coverage.

6. Related Handbook References

  • CASS 7, 10, 11 – Client money and financial instrument safeguarding rules
  • COBS 16 – Compensation schemes rules
  • SYSC 4 – Risk control systems and governance
  • PRIN – FCA Principles regarding client protection and integrity

7. Regulatory Focus / Enforcement Risk

  • FCA enforcement activity focuses on firms failing to maintain or notify lapses in required insurance or compensation arrangements.
  • Insufficient or inadequate insurance coverage is a high-risk factor flagged by the FCA in client asset reviews.
  • Firms failing to protect clients through proper insurance may face regulatory sanctions and increased supervision.