CASS 7 reconciliation guide - avoid fines, stay compliant

The FCA enforce CASS 7 to protect client money; however, for companies to protect themselves from fines they must do more than segregate funds from their own – they must also reconcile if they are to stay compliant.

After all, regulation is non-negotiable and therefore so too is reconciliation considering how heavily it features within CASS 7 rules. Another defining aspect of all regulations is that they are to be followed precisely without any deviation. As such, staying compliant with CASS 7 isn’t simply a matter of reconciling however a firm deems fit; instead, it must be done in line with the FCA’s rulings.

With that in mind, let’s delve into what is really required of firms when it comes to reconciliation and why it is so important.

Who does CASS 7 apply to? Classification of firms

First and foremost, it is important for companies to know if they are subject to CASS 7 rules. If they fail to recognise this, they’ll be failing the regulation without even knowing it!

Basically, firms that hold client money are subject to CASS 7 regulations and they are organised in terms of their size. There are large, medium, and small classifications based on the total value of assets that a firm has held over the last calendar year; however, all firms – regardless of their size – are subject to nearly exactly the same rules. The only exception is that small CASS firms are not required to produce CMAR reports and make a senior manager or director responsible for CASS operations.

What makes reconciliation a crucial part of CASS 7?

Although failure to enact the fundamental requirement of CASS 7 – segregating client funds – doesn’t automatically mean that they will be lost, a lack of reconciliation will mean a loss of trust in individual firms, potentially having a negative impact on the UK financial sector.

After all, in the eyes of regulators and no doubt customers too, failure to produce evidence that client money is segregated from company money is the same as it not being so. Hence why reconciliation is a pivotal part of CASS 7.

What reconciliation demands feature in CASS 7?

Reconciliation requirements permeate throughout the entirety of CASS 7; however, they are particularly emphasised in CASS 7.15 (Records, accounts and reconciliations) and CASS 7.16 (The standard methods of internal client money reconciliation).

Across these regulations, the fundamental reconciliation demands of CASS 7 can be found:

• Internal client money reconciliation must be conducted every business day.
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• External client money reconciliation must be conducted at least once a month.
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• Via internal and external reconciliation, firms must keep the necessary accounts and records that will enable them to distinguish between client money for one client, from the client money of another client, and their own money.
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• Records of client money and their own money must be retained for a period of at least five years and be accessible at any time and without delay, along with being supportive for any auditing activity.  
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• Firms must accurately document reconciliation actions such as:
  • The date when the relevant process was conducted
  • The actions the firm took to carry out the relevant process
  • The outcome following the relevant processes, related to its client money requirement and client money resource

• For internal client money reconciliation to take place, the client money resource (the aggregate balance on a firm’s client bank accounts) and the client money requirement (calculated via either the individual client balance method, or the net negative add-back method) must both be known.

How to reconcile to stay compliant with CASS 7

Reconciliation in the context of CASS 7 therefore requires accurate documentation, tight timeframes to be met, and utmost levels of accuracy. To achieve all of this, firms that come under CASS 7 regulations really have little choice but to automate their reconciliation. If they choose not, they are highly unlikely to:

• Complete an internal reconciliation every single day
• Guarantee that they have records stored for at least 5 years
• Access data instantly
• Gather watertight audit trails

Yet by deploying an automated reconciliation software such as Aurum:

• Reconciliation is completed in seconds
• Records are safely stored indefinitely
• Data is easily accessible from one single source
• Automatic audit trails generate and develop with every action
• Relevant information is populated into CMAR reports with ease

Prove you clients’ money is safe

Ultimately CASS 7 is all about segregating client money to keep it safe. However, as shown by the subsections of CASS 7.15 and CASS 7.16 in particular, firms will be in breach of it unless they can prove that client money is segregated and in turn safe.

To stay safe from FCA repercussions, firms therefore have no choice but to reconcile in line with CASS demands. That means doing so regularly and with complete accuracy, like firms such as Moneybox, Swinton Insurance, and many more achieve with Aurum’s automated reconciliation platform.

To find out how you can too, book your demo today.