CASS 6 – understanding custody rules: a guide

Understanding CASS 6 and its custody rules is essential for firms managing client assets and ensuring regulatory compliance. These rules, set by the Financial Conduct Authority (FCA), focus on protecting client money and assets, ensuring they are handled in a way that safeguards clients' interests. In this guide, we’ll break down the key requirements of CASS 6, the importance of reconciliation in compliance, and how automation can simplify the process for firms, helping them meet FCA standards efficiently and accurately.

What is CASS 6?

CASS 6 refers to the custody rules designed to ensure that client assets are properly segregated and protected. These rules are vital for businesses managing client assets, as they help prevent discrepancies and maintain efficient operations. The primary aim of CASS 6 is to safeguard client money and assets in case of firm insolvency, ensuring that assets are accounted for and that clients are protected from any financial mismanagement.

The key focus of CASS 6 is to establish a system where clients’ assets are not mixed with the firm’s own assets. This is important in situations where a business faces financial difficulties, ensuring that client funds are safe and separated. Find out more here.

CASS 6 requirements

The key rules under CASS 6 focus on:

• Segregation of client assets: Financial institutions must ensure client assets are kept separate from their own, protecting them in case of insolvency. This means maintaining accurate records for each client's assets and ensuring that no assets are improperly used for business purposes.
  
  
• Client money rules: Firms must manage client funds in a way that ensures they are accessible and safely stored. This also means taking care to track and reconcile all funds held for clients to avoid any discrepancies or breaches in compliance.
  
  
• Record-keeping and reconciliation obligations: Accurate record-keeping and regular reconciliation are crucial to ensure that client assets are always correctly reflected in the firm’s accounts. Firms need to maintain a detailed ledger that can be cross-checked during audits.
  
  
• Trust status and custody rules: Financial firms must hold client assets in trust, maintaining proper documentation to reflect their custodial responsibility. This provides clarity and transparency, which are vital for regulatory oversight.
  
  

These requirements are designed to offer firms a strong framework for safeguarding client money and assets while maintaining transparency and trust.

Key differences between CASS 6 and CASS 7

While both CASS 6 and CASS 7 aim to protect client assets, they focus on different aspects:

• CASS 6 deals specifically with the custody of client assets, ensuring they are properly segregated and protected. This includes ensuring that all client assets are safely held and that they are fully accounted for in the event of any financial difficulties.
  
  
• CASS 7, on the other hand, focuses on the management of client money, outlining how funds must be treated and ensuring complete transparency in their handling. This rule set ensures that client money is recorded and tracked accurately and that it is only used as intended, with proper reconciliation and reporting.
  
  

Understanding these differences is important for firms that need to comply with both sets of regulations, ensuring they meet the correct standards for both client money and assets. To dive deeper into CASS 7, visit our guide on CASS 7 reconciliation.

Reconciliation in CASS 6 Compliance

Reconciliation is at the heart of CASS 6 compliance. It ensures that client money and assets are accurately recorded and segregated. Regular reconciliations help identify discrepancies, errors, or unauthorised transactions, and offer the following benefits:

• Ensures compliance: Reconciliation verifies that all transactions are compliant with CASS 6 regulations, helping firms stay within the boundaries set by the FCA.
  
  
• Minimises errors: Regular reconciliation helps catch errors early, preventing more significant issues from arising later. This could be anything from incorrect asset allocation to failing to reconcile client transactions.
  
  
• Transparency and accountability: Reconciliation provides firms with transparency about the status of client assets, which is vital during audits and in cases of insolvency. It creates an audit trail that regulators can review if necessary.
  
  

Aurum Solutions’ automated CASS reconciliation software helps ensure compliance with these essential requirements more efficiently and accurately.

Challenges of CASS 6 Compliance

While reconciliation is essential, manual processes can introduce several challenges:

• Human error: Mistakes in data entry or calculation can lead to significant compliance issues, especially in high-volume environments. Errors in reconciliation can affect client money and asset segregation, potentially violating CASS 6 rules.
  
  
• Inefficiency: Manual reconciliation is time-consuming and prone to delays. As a firm grows and handles more transactions, manual reconciliation becomes increasingly difficult to manage effectively.
  
  
• Lack of scalability: As a business grows, manual reconciliation processes become more complex and harder to manage, especially when dealing with multiple clients and assets. Automated solutions make scaling easier, reducing the burden on staff.
  
  

These challenges highlight the importance of automating reconciliation processes to mitigate risks and ensure CASS 6 compliance.

How reconciliation software simplifies CASS 6 compliance

Aurum’s automated reconciliation software can significantly simplify CASS 6 compliance. Key features include:

• Automated reconciliation: Reduces errors and saves time by automating the entire process. This is particularly valuable for firms dealing with a high volume of transactions or complex client asset structures.
  
  
• Real-time monitoring and reporting: Keeps client asset records up-to-date and compliant with FCA regulations. The software offers instant updates, ensuring that data is always accurate and accessible when needed.
  
  
• Customisable workflows: Tailored to handle complex client asset structures, ensuring flexibility in diverse environments. This allows firms to adapt the software to their unique needs and requirements.
  
  
• Audit trails and documentation: Provide clear records that support regulatory audits and ensure transparency. This feature is vital for firms that need to demonstrate compliance during inspections or audits.

If you’re looking to improve your own reconciliation process, book a demo today to see how our platform can help your firm stay compliant with CASS 6.

Conclusion

Maintaining CASS 6 compliance is essential for protecting client assets and ensuring regulatory adherence. By understanding the key requirements, leveraging automated reconciliation processes, and recognising the challenges of manual reconciliation, businesses can streamline compliance and reduce the risk of errors. Aurum’s tailored reconciliation software simplifies this process, enabling businesses to meet the demands of CASS 6 efficiently and accurately.

Stay compliant and safeguard your client assets - request a demo today to see how Aurum Solutions can help you with CASS 6 reconciliation.