Safeguarding client assets is a fundamental regulatory requirement for any Financial Conduct Authority (FCA)-authorised firm that holds or controls client money or investments.
The FCA’s Client Asset Sourcebook (CASS) sets out detailed rules designed to protect those assets, particularly in the event your firm becomes insolvent. These obligations are essential not just for regulatory compliance, but also for maintaining customer trust and preserving your firm’s reputation.
Because CASS requirements vary depending on the nature and scale of your business, staying compliant demands a tailored and structured approach. Our financial services solicitors can help you understand how the CASS rules apply to your firm, support you in designing compliant systems, and work with you to ensure that your safeguarding procedures meet regulatory scrutiny.
Contents:
- What are ‘client assets’?
- What is CASS, and what does it aim to do?
- Which financial activities attract CASS obligations?
- Are there other financial activities which involve CASS obligations?
- What kind of protection for client assets does CASS provide?
- How is my business categorised for CASS compliance purposes?
- How do CASS obligations differ for CASS large, medium and small firms?
- Why is compliance with CASS so important to the FCA?
- Why safeguarding client assets matters for your business
What are ‘client assets’?
Businesses authorised by the FCA to undertake financial services in the UK may hold money on behalf of their customers or have custody of financial assets which belong to customers. These customer-owned funds or assets are known as ‘client assets’.
Financial services customers need to feel safe entrusting their assets to regulated financial services businesses. This includes knowing that, if a regulated business fails, client assets can be readily segregated from the firm's assets and promptly returned to customers. For this reason, the Financial Conduct Authority (FCA) has made dedicated rules to protect client assets held by regulated firms.
Protecting client assets can be a complex area requiring your business to establish robust procedures and undertake regular oversight and monitoring. Harper James’ financial services solicitors are available to provide advice and support for regulated firms (both large and small) on establishing effective protection for your client assets and complying with your regulatory obligations.
What is CASS, and what does it aim to do?
All regulated firms holding client assets must comply with FCA rules designed to protect these assets. There are different requirements for firms depending on the business they conduct and the amount of client assets they hold.
FCA rules aim to ensure that client assets can be easily segregated from assets belonging to your firm. This facilitates the quick and accurate reunification of those assets with customers if your firm fails.
FCA Principle for Business 10 requires a regulated firm to arrange adequate protection for clients' assets when it is responsible for them. Underpinning this high-level Principle is a complex set of FCA Handbook rules set out in the Client Assets Sourcebook (CASS).
CASS has 14 chapters that set out detailed technical requirements for firms undertaking various business activities and holding different types of client assets.
Which financial activities attract CASS obligations?
Financial businesses which have obligations under CASS include:
- Investment businesses which hold client assets as security (CASS 3)
- Investment businesses which provide safe custody of client assets (CASS 6)
- Investment businesses which receive or hold client money (CASS 7)
- Businesses which receive or hold client money when distributing insurance products (CASS 5)
When first applying for FCA permission to undertake relevant business activities, you will need to notify the FCA if you intend to hold client assets and, if you do, demonstrate that you have adequate arrangements in place for managing these.
If you do not wish to hold client assets, a restriction will generally be placed on your FCA authorisation, meaning that you are not permitted to hold client assets. Restrictions on holding client assets are shown against firms’ records on the Financial Services Register.
If your business model involves holding client assets, ensure you have the necessary permission to do so. You must then ensure that you are fully complying with your obligations under CASS.
Are there other financial activities which involve CASS obligations?
Yes. There are additional CASS rules which apply to firms doing specialist types of financial business. For example, there are CASS requirements for firms that have mandates allowing them to control client funds, as well as for enterprises providing prime brokerage services or offering debt or claims management services.
These aspects of CASS are outside the scope of this article, but if any of these activities may apply to your business, please seek legal advice from a financial services solicitor.
What kind of protection for client assets does CASS provide?
CASS rules can be detailed and complex, especially since arrangements for protecting client assets must be robust enough to withstand a formal process to wind up a failed firm.
If your business holds client assets, you should ensure that you obtain appropriate specialist advice to understand your CASS obligations and how they apply to your business.
Your obligations for protecting client assets might include:
- Putting in place comprehensive policies and procedures for handling client assets
- Keep detailed records of client assets held (which can include regularly reporting client assets held to the FCA)
- Keeping client money in segregated client accounts and doing regular reconciliations
- Making sure that the legal title to safe custody or collateral assets is recorded properly
- Maintaining an information pack to support insolvency practitioners and the FCA to return client assets if your firm fails
- Providing periodic statements to customers showing client assets held on their behalf
- Arranging for appropriate external auditing of client asset arrangements.
How is my business categorised for CASS compliance purposes?
CASS obligations are designed to be risk-based, in proportion to the amount of client assets held by your business.
Where your firm has permission to hold client assets, the FCA will ask you to fill in a categorisation questionnaire each year. This questionnaire confirms whether you are holding client assets and, if so, to what value. You are then given a compliance category:
- Large CASS firms: businesses holding more than £1 billion in client money or more than £100 billion in safe custody assets.
- Medium CASS firms: businesses holding from £1 million to £1 billion of client money or £10 million to £100 billion in safe custody assets.
- Small CASS firms: businesses holding less than £1m in client money or less than £10 million in safe custody assets.
How do CASS obligations differ for CASS large, medium and small firms?
Large and medium CASS firms are required to complete a Client Money and Asset Return (CMAR) every month, detailing the client assets they hold. These firms must also designate a director or senior manager who has been pre-approved by the regulators as formally responsible for compliance with CASS obligations. This individual may be held accountable if a firm fails to comply with its obligations under CASS.
Small firms are exempt from completing the CMAR. Although they should have a suitably experienced person overseeing CASS compliance, this does not need to be a director or a pre-approved senior manager.
Why is compliance with CASS so important to the FCA?
The FCA considers the adequate protection of client assets to be central to achieving its operational objectives.
- Consumer protection: Client assets are protected in the event of a firm's failure.
- Market integrity: Market participants can feel confident that their assets are protected.
- Competition in the interests of consumers: Firms providing financial services compete on the cost and quality of their services, not on the level of protection they offer for client assets.
The FCA has invested significant effort in enhancing protection for client assets. CASS is regularly updated, and the FCA has also carried out active supervisory work to ensure that firms are implementing requirements to protect client assets.
You should therefore ensure that you are aware of all the latest requirements under CASS. You should be mindful that the FCA is likely to take any failure to comply seriously.
Why safeguarding client assets matters for your business
Meeting your responsibilities under CASS is about more than just ticking boxes; it’s central to safeguarding client assets, protecting your clients’ interests and demonstrating the credibility of your business. Whether your firm is small or large, the FCA expects transparent, well-documented processes and a proactive approach to compliance.
Our financial services solicitors are here to support you in navigating the full scope of your regulatory obligations. We’ll help you put the proper protections in place, minimise regulatory risk and build long-term resilience into your client asset arrangements.
