CASS compliance: common failings and how to address them
The Client Assets sourcebook (CASS) represents one of the FCA's most technically demanding compliance regimes. Its purpose — ensuring that client money and custody assets can be returned promptly in the event of a firm's insolvency — requires firms to maintain a high degree of operational discipline that is inconsistent with the cost-cutting and consolidation pressures that many firms face. The FCA's CASS oversight work has identified recurring failings that span firm type and size, and CASS breaches remain a significant driver of Section 166 reviews and enforcement action.
Client money reconciliation is the most frequently cited area of non-compliance. CASS 7 requires firms to perform internal client money reconciliations (comparing records of money received and held for clients against the firm's own books) and external reconciliations (comparing the firm's records against the balance held in client money bank accounts) at appropriate frequencies — daily for most investment firms. The FCA has found that many firms perform reconciliations using inadequate methodologies, treat unexplained differences as immaterial without proper investigation, or maintain reconciliation records that are not sufficiently granular to identify the source of discrepancies. Where shortfalls arise, CASS 7.17 requires immediate top-up from the firm's own funds and prompt notification to the FCA above certain thresholds.
Custody asset reconciliation under CASS 6 is a parallel obligation for firms holding financial instruments. External reconciliations against custodian records must be completed at minimum monthly (daily for prime brokers), and discrepancies must be investigated and resolved promptly. The use of omnibus accounts — where client assets are held commingled with those of other clients at a single custodian — requires specific written agreements and the maintenance of adequate records to disaggregate individual client entitlements. Firms that use sub-custodians must assess the appropriateness of those arrangements and satisfy themselves that the sub-custodian's client asset protections are adequate.
The CASS oversight function (required under CASS 1A for most firms) must be held by a CF10a SMF or, for smaller firms, by an appropriately senior individual with dedicated responsibility. The oversight officer must have genuine authority and resources to identify and remediate CASS weaknesses, must produce regular reports to senior management, and must maintain a CASS resolution pack that documents how client money and assets could be returned in an insolvency scenario. The FCA's supervisory experience suggests that CASS resolution packs are frequently out of date or insufficiently detailed to support an actual insolvency process.
Self-assessment and gap analysis
Firms should conduct annual CASS self-assessments covering reconciliation methodology, resolution pack currency, oversight officer effectiveness, and third-party custodian due diligence. Where gaps are identified, a documented remediation plan with clear ownership and timeframes is essential. CASS-related s.166 reviews are more likely where the FCA identifies a pattern of under-reported breaches or where CASS audit reports have flagged unresolved findings.