What does CASS stand for?

We see a lot of acronyms thrown around in the finance world, and sometimes it can be hard to keep up. There’s a good chance you’ve encountered “CASS” before, but what does it actually stand for? Well, literally CASS stands for Client Assets Sourcebook, but what this practically refers to is a set of regulations developed by the Financial Conduct Authority (FCA)  in the UK.  

These regulations are designed to protect client money and custody assets, ensuring that firms adhere to the stringent standards, including segregation, reconciliation, and safeguarding. Meeting these standards assures clients working with such firms as they know their money is safe, and also protects firms from potential regulation breaches.  

To understand more about what CASS is about, let’s take a look at why it exists and what firms it applies to.  

Why does CASS exist?

The inception of CASS regulations can be traced back to 2001 but long before the Financial Services Authority announced them, there were a series of SIB and SRO rules that had the same aim.

However, the CASS rules that we know today are a result of the need for greater financial security and trust in the wake of several financial crises such as that in 2008. One notable example during that time includes the collapse of Lehman Brothers in 2008, where the mismanagement of client assets led to significant financial losses for clients. Inevitably, events such as this highlighted the need for a more robust regulatory framework to protect client assets and maintain market integrity.

This is why the FCA continues to evolve CASS; to prevent the misuse of client funds and to ensure that, in the event of a firm's insolvency, client assets are adequately protected and returned to their rightful owners as efficiently as possible. This regulatory framework is a cornerstone of the FCA’s mission to protect consumers, ensure they are treated fairly, and enhance the integrity of the UK’s overall financial system.

What firms must comply with CASS?

If you work in a finance team which deals with client money, you may be wondering whether the CASS regulations apply to you. So, let’s take a deeper look at what firms CASS applies to.  

Broadly speaking, firms that must be compliant are classified into three types based on the amount of client money they held in the prior calendar year: a CASS large-firm (a firm that holds over £1 billion in client money or more than £100 billion in safe custody asset), a CASS medium-firm (a firm that holds between £1 million and £1 billion of client money or £10 million to £100 billion in safe custody assets), and a CASS small-firm (a firm that holds less than £1 million in client money or less than £10 million in safe custody assets).

Still unsure whether this applies to your organisation? Well, worry not – as we’ve outlined in full the wide range of firms in the financial sector who offer investment accounts, are FCA regulated, and who CASS rules apply to, including:  

• ‍Investment firms: Firms dealing in investments must comply with CASS to ensure client assets are properly segregated and protected. Examples include asset managers, investment advisers, and stockbrokers.
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• Asset management firms: These types of firms manage clients’ assets and are required to adhere to CASS regulations to safeguard these assets.
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• Custodians: Used by CASS-regulated firms to act as "banks for shares", custodians must not only hold but also safeguard clients' securities and therefore comply with CASS to ensure the security and proper management of these assets.
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• Retail banks: When banks hold money for retail customers, up to £85,000 of their funds are protected by the Financial Services Compensation Scheme (FSCS). However, they must also abide by CASS rules if they offer investment services.
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• Wealth managers and financial planners: When firms offer more than advice but also hold client money and assets, CASS is a set of regulations they must adhere to.
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• Insurance firms: Firms that handle client money in the course of their insurance business must also follow CASS rules.

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It should be noted that Electric Money Institutions (EMIs) are not currently on this list. However, they also have a responsibility to safeguard client funds. You can find out more about how EMIs can fulfil their safeguarding requirements here.

What is CASS regulation made up of?

Simply put, the overarching objective of CASS regulations is to protect client assets and ensure their return in case of firm failure. The CASS rules are divided into several sections, each addressing different aspects of asset protection – let’s look at some of the most commonly applied a bit more closely below:  

CASS 5: Client money rules for insurance intermediaries

CASS 5 applies to insurance intermediaries and outlines the requirements for handling client money. The key aim here is to ensure that client money is kept separate from the firm's money, reducing the risk of misuse and ensuring it is available to clients when needed.

CASS 6: Custody rules

CASS 6 deals with the custody of client assets (such as shares, bonds, etc.). These rules require firms to keep accurate records and accounts, perform regular reconciliations, and segregate client assets from the firm’s own assets in order to ensure compliance. This segregation helps to ensure that client assets are protected and can be easily identified should a firm fail or if it suffers major operational issues.

CASS 7: Client money rules

CASS 7 sets out the rules for handling client money in other types of financial businesses, including investment firms. It requires firms to segregate client money from their own finances, conduct regular reconciliations, and ensure the correct allocation of interest on client money accounts. To find out more about CASS 7 and how to stay compliant with its regulation, please see our dedicated blog.

What principles do CASS stand for?

While the intricacies of CASS can seem intimidating at first glance, ultimately these regulations stand for the principles of transparency, accountability, and client protection. Let’s take a final look at what these regulations aim to do:  

• ‍Protect client money and assets: Simply put, this is about ensuring that client money and assets are safe from misuse and loss.‍
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• Enhance market integrity: CASS is key in promoting trust in the financial system more generally by ensuring firms manage client assets responsibly.‍
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• Ensure accountability: Requiring firms to maintain accurate records and conduct regular audits and reconciliations so that nothing is missed or misplaced, even accidentally, means that firms must act responsibly.

Overall, protection, integrity, transparency and accountability are fundamental to CASS. Likewise, at Aurum, we share these principles. That’s why we are committed to helping our clients navigate the complexities of CASS regulations so that they are always safe and reputable for both existing and prospective clients.  

Want to find out more about how Aurum can support you in achieving CASS compliance? Book your demo today.