The Financial Conduct Authority (FCA) has published a Consultation Paper CP25/37, which proposes targeted amendments to the Client Assets Sourcebook (CASS). These changes address longstanding operational challenges and introduce clearer expectations for firms that hold client money or safe custody assets. While not a comprehensive rewrite of the regime, the proposals will require firms to update processes, governance documentation and consumer disclosures.
The consultation is open until 27 January 2026, with the FCA expected to publish a final policy statement afterward. Firms that engage early will be better placed to implement the new requirements.
Why CP25/37 matters for CASS regulated firms
The FCA’s proposals focus on four key themes:
- Reducing avoidable CASS breaches.
- Updating rules to reflect modern market practices.
- Strengthening protections for retail clients under the Consumer Duty; and
- Improving consistency across record keeping and reconciliations.
These changes will impact reconciliations, due diligence, client money interest handling and retail client disclosures.
Client money interest: clearer rules that reduce avoidable breaches
Summary: The FCA proposes a new election for early interest and conditional permission for firm owned interest to be paid into a client bank account.
Under current rules, interest credited to a client bank account before it becomes due and payable creates operational challenges. Removing and later reinstating the interest can increase insolvency risk, while leaving it in the account may result in a regulatory breach.
CP25/37 proposes a new election that permits firms to treat early interest as unallocated client money from the moment it is received, provided the interest will become due and payable to clients at a specified point within one month of receipt. When the firm can identify the portion belonging to clients or the portion belonging to the firm, it must allocate or remove those funds promptly and no later than the next business day.
This new treatment removes ambiguity and provides a compliant method for managing early interest.
Firm owned interest paid into a client account
Where banks insist on crediting firm owned interest to a client bank account, the firm currently breaches CASS even when it has taken reasonable steps to prevent this.
Under the proposals, a firm may accept such payments only if it has:
- Requested in writing that the bank directs the payment to a firm account; and
- Removed the firm owned interest from the client account by the next business day.
Due diligence records: updated retention requirements across CASS 6 and CASS 7
Summary: Firms would only need to retain due diligence records for five years from creation or modification, not five years after the relationship ends.
CASS 6 and CASS 7 currently require firms to retain initial due diligence on custodians and banks until five years after the relationship ends. In long standing relationships this can result in persistent breaches when old records cannot be sourced.
CP25/37 proposes that firms retain these records for five years from the date the record is created or last modified. This applies to both:
- Due diligence on custody service providers under CASS 6.3; and
- Due diligence on banks and qualifying money market funds under CASS 7.13.
This amendment improves proportionality and ensures record keeping requirements align with wider CASS principles.
External custody reconciliations: modernisation and clear conditions for exceptions
Summary: Euroclear IFS would be formally recognised, and new exceptions allow firms to reconcile less frequently when statements cannot be obtained.
Firms frequently rely on Euroclear’s Investment Funds Service (IFS) for fund unit holdings. But currently require a modification to reconcile against IFS data. The FCA proposes to formally permit the use of IFS records as an external reconciliation source. Subject to contractual undertakings that cover daily and monthly reconciliations and prompt notification of discrepancies.
This modernises CASS 6 and supports more efficient reconciliation processes.
Exceptions to the monthly reconciliation requirement
The FCA acknowledges that fund managers and third parties sometimes cannot provide monthly statements, either temporarily or on a structural basis.
CP25/37 introduces two scenarios in which firms may reconcile less frequently:
- Temporary disruption arising from circumstances inherent to the asset, for example insolvency proceedings, delisting’s or complex corporate actions.
- Structural refusal by a third party to provide statements monthly despite reasonable efforts by the firm to obtain them.
Firms must document all attempts to obtain the required information, adjust their systems and controls to mitigate the risk of less frequent reconciliations and conduct an annual review of the situation.
This approach avoids recurring breaches while maintaining robust oversight.
Consumer Duty: explicit requirements for interest retention and the lending of retail custody assets
Summary: Firms must ensure certain CASS permissions for retail clients meet Consumer Duty expectations, including fair value and client understanding.
The FCA proposes amending CASS 7.11 to allow firms to retain interest on retail client money only if:
- The client has been notified in writing; and
- The arrangement is compatible with the Consumer Duty, including the fair value and consumer understanding outcomes.
This change ensures that interest practices for retail clients reflect the Duty’s emphasis on good outcomes.
Lending retail clients’ custody assets under CASS 6.4
The consultation introduces a separate rule for retail clients when safe custody assets are used for securities financing transactions. Firms would be required to:
- Obtain express prior consent on specified terms.
- Restrict use of the assets to those agreed terms; and
- Ensure the arrangements and consent process are compatible with the Consumer Duty.
If assets are held in an omnibus account, firms must either obtain consent from every retail client whose assets may be used, or operate controls that ensure only consenting clients’ assets can be included. Aside from the direct consequences of an agreed transaction, firms must not use retail clients’ assets for their own account or the account of any other person.
Consumer Duty excluded from the CASS audit
Although the Duty is embedded within these rules, the FCA proposes that the CASS auditor will not be required to test firms’ Consumer Duty compliance. Duty related assurance must therefore be addressed through firms’ internal governance rather than the statutory CASS audit.
Wider Handbook changes with indirect relevance to CASS
The FCA also proposes retiring legacy Treating Customers Fairly material and modernise references to Principles 6 and 7 across many parts of the Handbook.
Although not CASS amendments, firms may need to update client facing materials, governance documents and policy language that reference these older frameworks.
What firms should consider now
Firms should begin assessing how CP25/37 affects their CASS environment and plan ahead for implementation. Key actions include:
- Reviewing the operational impact of the new interest rules.
- Reviewing retention and completeness of due diligence records.
- Evaluating the use of Euroclear IFS or other reconciliation sources.
- Updating disclosures and consent processes for retail clients under CASS 7.11 and CASS 6.4.
- Assessing how the Consumer Duty requirements influence internal governance and monitoring; and
- Preparing to update policies, procedures, MI and training.
The FCA intends for the CASS changes to take effect three months after the final rules are made.
Conclusion
CP25/37 demonstrates the FCA’s focus on simplifying the Handbook while preserving strong client protection standards. The proposed amendments reduce unnecessary breaches, improve clarity and strengthen safeguards for retail clients under the Consumer Duty. Firms that act early will be better prepared for implementation and will benefit from improved efficiency and clearer expectations.
If you would like support assessing the impact of CP25/37 on your firm’s CASS arrangements, our team is available to help.
