Senior compliance professionals continue to stumble over fundamental misconceptions about Client Asset Sourcebook requirements as the FCA’s new CASS 15 safeguarding rules near implementation
We have spent years advising financial services firms on CASS compliance. We continue to help clients navigate the same fundamental misconceptions week after week. These myths don’t just create regulatory headaches – they can expose firms to prudential risks and potential FCA enforcement action. With the FCA’s PS25/12 now final and the Supplementary Regime taking effect on 7 May 2026, firms need clarity on the fundamentals.
Myth 1: “We can include anything in our CASS Resolution Pack”
Many firms approach their CASS Resolution Packs with the best intentions, including comprehensive documentation to demonstrate robust governance. However, the FCA expects specific, actionable information that would help an insolvency practitioner return client assets quickly, retrievable within 48 hours.
Your pack should contain client money and custody asset records, details of client bank and custodian accounts, executed acknowledgement letters, key third-party agreements, and records showing segregation and reconciliation processes – not your entire compliance manual. With the new CASS 15 rules introducing mandatory Resolution Packs for safeguarding, this requirement is extending beyond traditional investment firms.
We recently helped a payments firm streamline its draft pack. Instead of a 200-page policy bundle, we created a focused set of records showing exactly where relevant funds were held. They also made it clear how an insolvency practitioner could access them. The FCA’s guidance remains clear: relevance trumps volume every time.
Myth 2: “Prudent segregation happens when we get round to it”
CASS 7 requires firms to pay client money promptly. In any event, it must be paid no later than the next business day after receipt into a client bank account. Client Money must also be allocated to the relevant client promptly and within 10 business days. It requires that internal client money reconciliations are performed each business day. If you use prudent segregation you must document that via a prudent segregation record. We often find firms have established informal processes that create longer timeframes, particularly around month-end when reconciliations prove challenging.
We recently worked with a boutique investment firm to restructure their client money processes after they recognised they were holding £2.3 million of client money in house accounts for several days at a time. By implementing daily segregation procedures and improving their reconciliation processes, they achieved full compliance while reducing their operational burden.
Myth 3: “CASS audits only matter for large firms”
Every CASS firm needs appropriate independent oversight, but smaller firms often believe their annual accountants can handle CASS requirements alongside their general audit work.
The enhanced audit standards require independent, qualified audit firms with proven CASS expertise. For designated investment firms, a CASS auditor’s report remains mandatory and must be delivered within four months of period end.
From 7 May 2026, payments and e-money firms must obtain an annual safeguarding audit by a qualified auditor. They must file a monthly safeguarding return, with a de minimis exemption where relevant funds did not exceed £100k at any point in the previous 53 weeks. The first audit is due within six months, then four months thereafter.
We help firms select appropriately qualified auditors who understand custody chains and settlement arrangements for investment firm CASS audits. CASS auditors should grasp segregation and safeguarding requirements for payments and e-money audits – not just general accounting principles. As CASS assurance is performed without materiality under the FRC standard firms need auditors with deep CASS knowledge to avoid compliance gaps.
Myth 4: “Client money doesn’t need daily reconciliation”
CASS 7 requires firms to perform an internal client money reconciliation each business day. Comparing client money requirement to client money resource. In most circumstances, firms that transact daily should also perform the external client money reconciliation each business day, using statements from banks or other third parties that hold client money. The new CASS 15 rules for payments and e-money firms extend this further. Requiring safeguarding reconciliations once each reconciliation day (excluding weekends and bank holidays).
Some firms still run weekly or monthly cycles because their systems can’t produce daily reports or external data arrives late. Internal reconciliations must be carried out on each business day; for firms that transact daily, external reconciliations should also be daily – so firms need to upgrade processes or change providers where gaps exist. We’ve helped firms automate reconciliations and secure more timely reporting to meet these enhanced requirements, where “compliance without materiality” applies.
Myth 5: “Breaches only matter if clients lose money”
CASS compliance failures represent system and control breakdowns, regardless of client outcomes. The FCA regularly fines firms for procedural breaches even where no client money goes missing.
We worked with one firm that initially dismissed a three-day segregation delay because “the money was safe in our house account anyway.” By helping them understand the regulatory perspective and implement proper procedures, we avoided potential enforcement action. CASS rules exist to prevent harm, not merely respond to it after the fact.
The FCA’s current supervisory focus includes change management failures that create CASS implications, demanding root cause analysis of all breaches, and continuing scrutiny of inappropriate use of Title Transfer Collateral Arrangements (TTCA). Under both the current and new regimes, every breach matters – there’s no materiality threshold.
Getting CASS compliance right
CASS compliance requires precision and genuine client protection focus. These misconceptions persist because firms sometimes prioritise compliance appearance over substance. The FCA’s outcomes-based approach, combined with Consumer Duty obligations, means robust arrangements matter more than ever.
The clock is ticking. The FCA’s PS25/12 is now final, and the Supplementary Regime takes effect on 7 May 2026. Payments and e-money firms should prepare for CASS 15 and CASS 10A, daily safeguarding reconciliations, a monthly safeguarding return, and (where in scope) an annual safeguarding audit. The FCA’s proposed ‘CASS-style’ post-repeal end-state will follow if and when the EMRs and PSRs are repealed.
The fundamentals remain unchanged: segregate promptly and no later than the next business day, reconcile each business day, maintain accurate records, and ensure your skilled persons have genuine CASS expertise. Everything else builds from these foundations.
How we can help
Whether you’re preparing for CASS 15 implementation, need to upgrade your reconciliation processes, or want an independent review of your current arrangements, we have the expertise to guide you through these complex requirements. Our team works with firms of all sizes to develop practical, compliant solutions that protect both your clients and your business.
Contact us to discuss how we can support your CASS compliance journey and help you avoid these common pitfalls.
