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COBS 17 – Client Money and Assets – Safeguarding and Handling Requirements

PostedJune 24, 2025
UpdatedJune 24, 2025
ByAndy

1. Chapter Summary

COBS 17 governs how firms must safeguard and handle client money and assets to protect client interests in the event of firm insolvency or operational failures. It sets out detailed rules for segregation, custody, record-keeping, and client consent to ensure that client funds and assets are kept safe and identifiable. This chapter is fundamental in maintaining market confidence and client trust by reducing risks related to misuse, loss, or commingling of client property.

2. Applicability

Applies primarily to firms conducting regulated activities involving the receipt, holding, or control of client money or assets, including investment firms, banks, and asset managers. It is especially relevant to those providing MiFID investment services or carrying out activities under FCA client money rules. Some carve-outs may exist for firms holding client money solely as intermediaries or under specific limited circumstances, but the core safeguarding obligations remain broadly applicable.

3. Key Rules and Their Meaning

  • COBS 17.1.1R – Client Money and Asset Segregation Firms must keep client money and assets separate from their own funds and assets and maintain appropriate client money accounts and asset custody arrangements. In practice: This prevents firms from using client money/assets for their own purposes and protects clients if the firm becomes insolvent.
  • COBS 17.2.1R – Client Money Handling Firms must handle client money according to prescribed rules, including timely segregation, reconciliation, and restrictions on its use. Meaning: Ensures client funds are accurately accounted for and not subject to undue delay or misuse.
  • COBS 17.3.1R – Record-Keeping Requirements Firms must keep detailed and accurate records of client money and assets held, transactions, and reconciliations to demonstrate compliance. Nuance: Records must be sufficiently detailed to allow for clear tracing of client property at all times.
  • COBS 17.4.1R – Client Consent and Disclosure Firms must obtain client consent for the way client money/assets are held or transferred, including the use of third parties or nominee arrangements. In practice: Transparency with clients about safeguarding arrangements is essential for informed consent.
  • COBS 17.5.1R – Reconciliation and Controls Firms must perform regular reconciliations between internal records and client money accounts and investigate and resolve discrepancies promptly. Meaning: Critical internal control to detect and prevent errors or misuse early.

4. Interpretation Notes / FCA Expectations

  • The FCA expects firms to implement robust systems and controls to ensure ongoing compliance with client money and asset rules.
  • Guidance stresses that client money protections are paramount and firms should take a conservative approach in safeguarding and segregation.
  • The FCA looks for evidence of senior management oversight and regular internal audits on client money handling.
  • Firms should be transparent in client disclosures and promptly communicate any issues or breaches affecting client property.

5. Practical Considerations for Firms

  • Maintain separate client money bank accounts and custody arrangements that meet FCA requirements.
  • Establish detailed recordkeeping systems for client money and assets with audit trails.
  • Implement comprehensive policies and procedures for client money handling, segregation, reconciliation, and incident management.
  • Provide clear, accessible client disclosures and obtain consents related to safeguarding arrangements.
  • Conduct regular internal and external audits of client money processes and remediate identified gaps promptly.
  • Train staff involved in handling client money/assets on the regulatory framework and firm policies.

6. Related Handbook References

  • COBS 11 – Client order handling and aggregation (overlaps where client money relates to execution)
  • COBS 10 – Communications with clients (client disclosures)
  • SYSC 10 – Systems and controls (governance of client money handling)
  • PRIN 2A – FCA Principles for Businesses emphasizing integrity and client protection
  • CASS (Client Assets Sourcebook) – detailed client asset and money rules complementary to COBS 17

7. Regulatory Focus / Enforcement Risk

  • Client money and asset safeguarding breaches remain high enforcement priorities due to potential client harm and systemic risk.
  • Common enforcement triggers include poor segregation, inadequate reconciliation, improper use of client funds, and weak recordkeeping.
  • Firms face significant penalties and reputational damage if found non-compliant, especially if client detriment results.
  • The FCA encourages firms to maintain proactive controls and timely disclosures to reduce enforcement risk.