CASS 7A – Client Assets – Record Keeping and Reconciliation for Client Money
1. Chapter Summary
CASS 7A sets out specific rules for firms on maintaining accurate records and conducting reconciliations related to client money. The chapter ensures that firms holding client money have robust systems to track these funds properly, reconcile them regularly with bank accounts, and quickly identify and resolve discrepancies. This is crucial to safeguarding client money, preventing misuse, and ensuring prompt client repayments in case of firm failures.
2. Applicability
This chapter applies to all FCA-regulated firms that hold or control client money, including investment firms and payment institutions. It applies regardless of whether the client is retail or professional. Firms dealing only with custody assets (non-cash) are not subject to CASS 7A but rather to other relevant parts of CASS.
3. Key Rules and Their Meaning
- CASS 7A.1.1R – Record keeping for client money Firms must keep up-to-date records enabling them to distinguish client money from firm money and to identify the amounts due to each client. In practice: Firms need precise, detailed ledgers that accurately reflect client money held at any given time.
- CASS 7A.2.1R – Frequency of client money reconciliations Firms must perform reconciliations daily (or more frequently if appropriate) between their client money records and their client money bank accounts. Meaning: This frequent reconciliation reduces the risk of discrepancies going unnoticed and mitigates the risk of client money shortfalls.
- CASS 7A.3.1R – Investigating and resolving discrepancies Any differences identified during reconciliation must be promptly investigated and corrected. Nuance: Firms should have documented escalation procedures and timelines for resolving discrepancies to FCA satisfaction.
- CASS 7A.4.1R – Record retention Firms must retain all reconciliation records, investigation logs, and related documentation for at least five years. Implication: This enables FCA audits and supports transparency in client money management.
4. Interpretation Notes / FCA Expectations
- FCA guidance stresses the importance of reconciliation as a key control in client money protection.
- Firms are expected to implement automated systems to reduce manual errors and enhance reconciliation accuracy.
- FCA expects prompt escalation and remediation of any reconciliation issues, viewing delays or failures as significant compliance risks.
- The FCA may interpret repeated or unresolved discrepancies as indicative of poor governance or potential client money misappropriation.
5. Practical Considerations for Firms
- Establish clear, written policies and procedures on client money record keeping and reconciliation frequency.
- Use reliable IT systems to maintain client money ledgers and automate reconciliation processes.
- Train relevant staff on client money rules, reconciliation protocols, and escalation processes.
- Maintain detailed reconciliation reports and documentation of investigations and resolutions.
- Implement internal audits or reviews to verify reconciliation completeness and accuracy regularly.
6. Related Handbook References
- CASS 6 – Safeguarding client money (handling and segregation)
- CASS 7 – Client assets record keeping and reconciliation (broader custody asset rules)
- SYSC 10 – Systems and controls for client assets and money
- PRIN 2A – FCA Principles for Business (integrity, skill, care, and diligence)
7. Regulatory Focus / Enforcement Risk
- Client money reconciliation is a high-priority area for the FCA due to its critical role in preventing client money loss.
- Firms with weak reconciliation controls or a history of unresolved discrepancies face increased FCA scrutiny and potential enforcement actions.
- Clear audit trails, prompt issue resolution, and strong governance reduce regulatory risk.