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CASS 6 – Safeguarding of Client Money

PostedJune 23, 2025
UpdatedJune 23, 2025
ByAndy

1. Chapter Summary

CASS 6 outlines the rules and procedures that firms must follow to safeguard client money, ensuring it is properly identified, segregated, and protected from misuse or loss. This chapter is a cornerstone of the FCA’s client asset protection regime, designed to maintain market confidence and protect clients in case of firm insolvency or operational failures. It details how client money must be handled, accounted for, and reconciled to prevent risks of misappropriation or error.

2. Applicability

This chapter applies to all FCA-regulated firms holding client money, including investment firms, payment service providers, and other entities permitted to hold client funds. It applies broadly to both retail and professional clients unless otherwise specified. Some carve-outs may exist, for example where client money arrangements are outside the scope of FCA rules or where other regulatory regimes apply.

3. Key Rules and Their Meaning

  • CASS 6.1.1R – Requirement to safeguard client money Firms must take reasonable steps to safeguard client money by segregating it from their own money and holding it in designated client accounts. In practice: Firms cannot mix client money with firm funds and must keep client money in separate bank accounts clearly identified as client money accounts.
  • CASS 6.2.1R – Client money accounts Client money must be held in an account with an authorised institution or as otherwise permitted by the FCA. Meaning: Client money must be held safely with regulated banks or custodians, reducing risk of loss or misuse.
  • CASS 6.3.1R – Client money reconciliation Firms must perform timely reconciliations of client money records against bank balances to identify and rectify any discrepancies. Nuance: Reconciliations should ideally be performed daily, and any shortfalls must be investigated and reported immediately.
  • CASS 6.5.1R – Client money transfers Rules around transfers of client money require firms to ensure transfers are made only with proper authorisation and for legitimate client purposes. Meaning: This prevents unauthorised or improper use of client funds, requiring traceability and audit trails for all movements.
  • CASS 6.7.1R – Client money distribution on insolvency If a firm becomes insolvent, client money must be returned to clients promptly and fairly according to the distribution rules set out in the chapter. Implication: This protects clients’ assets and limits losses in insolvency scenarios.

4. Interpretation Notes / FCA Expectations

  • FCA expects firms to implement strong internal controls and systems to monitor and safeguard client money consistently.
  • Guidance highlights the importance of prompt investigation and reporting of any client money shortfalls or anomalies.
  • FCA places emphasis on clear client communication regarding client money handling and the firm’s responsibilities.
  • The FCA may interpret delays in reconciliation or poor controls as indicative of heightened risk or misconduct.

5. Practical Considerations for Firms

  • Maintain designated client money accounts with authorised banks, ensuring segregation from firm accounts.
  • Develop and document detailed client money policies and procedures, including handling, reconciliation, and transfer processes.
  • Conduct daily reconciliations of client money ledgers with bank statements, investigating and resolving discrepancies promptly.
  • Train relevant staff regularly on client money rules and controls.
  • Provide transparent disclosures to clients regarding client money protections and use in client agreements.
  • Retain comprehensive records and audit trails for all client money transactions and reconciliations.

6. Related Handbook References

  • CASS 1 / CASS 1A – Scope and definitions for client assets and client money
  • CASS 3 – Custody and control of client assets (non-cash assets)
  • CASS 5 – Client money handling (operational requirements)
  • SYSC 10 – Systems and controls around client asset and money safeguarding
  • PRIN 2A – FCA Principles including integrity, skill, care and diligence

7. Regulatory Focus / Enforcement Risk

  • Client money mishandling remains a critical area for FCA enforcement due to risks to clients and financial stability.
  • Failure to segregate client money properly, delayed reconciliations, and unauthorised transfers often lead to FCA investigations and penalties.
  • FCA has prioritized supervision and enforcement in firms with complex client money arrangements or prior compliance issues.
  • Firms should ensure continuous compliance and robust remediation to avoid regulatory sanctions.