Understanding CASS Audit to Safeguard Client Money and Client Asset Sourcebook
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The financial industry has placed a significant focus on safeguarding the assets of clients since the Lehman Brothers collapsed in 2008. The Client Assets Sourcebook (CASS) outlines all those important rules that ensure the proper protection of the regulated firms and thorough management to keep client money and assets safe. Primarily, the protection and management need to be effectively executed in line with the CASS rules. Moreover, the FCA (Financial Conduct Authority) regulates more than 42,000 businesses in the UK to ensure the smooth functioning of financial markets. It requires compliance with CASS rules; this is necessary to prevent mishandling of client assets. Also, it keeps a close check to maintain the market stability. The ongoing scrutiny highlights the importance of accountability in managing client assets amid economic uncertainty and potential insolvencies. So, you need to get in touch with a reputable CASS auditor.
Before moving ahead, let’s have a look at CASS rules:
CASS Rules to Protect Client Money or Custody Assets
CASS rules are those rules that steer governance matters-how regulated firms handle client money and custody assets. Moreover, the implementation of these rules makes sure that all these fiscal assets are well-protected in the event of the insolvency of the firm. However, there must be a stark balance between client money and the funds of the firm. All the regulated firms must separate the two moneys to safeguard against misappropriation. Lastly, the CASS rules cover critical areas like the segregation of funds, processes and controls of reconciliation, and managing the funds of client accounts properly.
Arranging a Risk Transfer from the Intermediary to the Insurer
According to FSCom, Firms that engage in risk transfers need to make sure that adequate protection of client money and assets when passing risks from an intermediary to an insurer is properly managed. This arrangement guarantees that the firm avoids any undue responsibility while continuing to comply with CASS requirements. Nonetheless, proper documentation and reporting are the foremost crucial aspects that guarantee client protection and risk management.
Compliance with CASS to Protect Client Assets
CASS provides comprehensive protection for clients’ money and assets:
- For client money and safe custody assets
- Shield clients in circumstances like a firm’s insolvency.
- Segregates client money into client bank accounts
- Protect these assets from being considered part of the firm’s estate during liquidation.
- Prioritising clients’ money for return over the firm’s creditors
- Minimising the risk of loss for clients.
Who Should be Preparing for a CASS Audit?
According to the FCA (Financial Conduct Authority), firms that hold or control client money or custody assets require a CASS audit. The audit process includes general insurance firms, designated investment firms, and financial institutions that are part of regulated activities that attract CASS obligations. The CASS auditor will issue an assurance report or a CASS audit report to provide either reasonable assurance or limited assurance that the firm complies with its CASS obligations.
CASS Auditor's Report and Opinions
The CASS auditor is responsible for preparing a report that provides two key opinions regarding a firm’s compliance with the CASS rules, which primarily are in accordance with rule SUP3.10.5R in the FCA Handbook.
Adequacy of Systems: The auditor must determine whether the firm maintained systems that were adequate for compliance with the CASS rules throughout the audit period.
Compliance at the End of the Period: The auditor must also assess whether the firm complied with the relevant CASS rules at the end of the audit period.
These are known as reasonable assurance opinions, which are positive assurances that the firm has complied with CASS requirements over the reporting period.
Hybrid Reports for Firms Holding Only Client Money
If a firm holds client money but does not hold custody assets, then the CASS auditor prepares a hybrid report. This report includes:
- A reasonable assurance opinion on the firm’s compliance with the client money rules (CASS 7).
- A limited assurance opinion regarding the custody asset rules (CASS 6).
Opinion on the Report: Reasonable Assurance vs. Limited Assurance
Let’s have a look at the breakdown of the opinions:
Reasonable Assurance: A positive opinion confirming that the firm’s systems have complied with the CASS rules throughout the audit period.
Limited Assurance: On the basis of the review procedures performed, limited assurance is a negative opinion which confirms that nothing came to the auditor’s attention to suggest non-compliance.
Determining the Type of Report
The type of report which is required depends on the specific permissions of firms and whether they hold client money, custody assets, or both.
Difference of CASS Obligations for Large, Medium, and Small Firms by FCA
CASS differentiates between CASS large, medium, and small firms based on the level of client money or client assets they hold. Large firms face more stringent rules, including frequent reconciliations and increased reporting requirements. Medium and small firms still need to comply with the client money rules, but may have reduced reporting burdens based on their size. Successful teams (such as MMBA FCA accounting) take your output to new heights.
1. Large Firms
Large firms are those that hold significant amounts of client money or custody assets. These firms face the most stringent obligations under CASS due to the higher risks associated with holding larger sums of client funds. The key obligations include:
- Frequent Client Money Reconciliation
- Detailed Record-Keeping
- Enhanced Reporting Requirements
- Higher Level of Assurance
- Robust Internal Controls
2. Medium Firms
Medium firms hold a moderate amount of client money and assets, so they are subject to slightly reduced obligations compared to large firms. However, the level of oversight and compliance is still significant due to their potential risk.
- Less Frequent Reconciliation
- Simplified Reporting
- Limited Assurance Audits
- Tailored Internal Controls
3. Small Firms
Small firms, which hold relatively small amounts of client money or no custody assets, have the fewest CASS obligations. The FCA recognises that the risk associated with these firms is lower, allowing for reduced regulatory burden.
- Infrequent Reconciliations
- Minimal Reporting Requirements
- Exemptions from Full Audits
- Simplified Internal Controls
By adhering to these CASS obligations, firms can protect client money and assets and maintain regulatory compliance. So, even if you are a large, medium, or small firm, understanding and complying with the CASS rules is mandatory to protect your business and your clients’ interests.
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Segregation of Client Money in Client Bank Accounts
Segregation of client money from the firm’s funds into client bank accounts is very important, and it is one of the primary requirements of CASS. This is an important step that necessitates that firms control client money and assets through rules and prevent the commingling of client and firm money from misuse. An important question in this regard is how segregation protects clients’ funds? If both the funds are separate and the firm becomes insolvent, then a prompt return of client money can save the clients from a huge financial loss.
Financial Activities that Attract CASS Obligations
Activities that attract CASS obligations
- Managing client accounts
- Handling client money
- Supervising custody assets.
Firms Subject to CASS Rules
Firms which offer certain financial services, such as brokerage, wealth management, and insurance, are typically subject to these rules, the MMBA FCA Accountant team in the UK. Moreover, firms that are part of regulated activities must comply with CASS to certify that all the assets of the clients are properly protected and to shield clients pending payment.
Bottom Line - Understanding Client Money Rules Under CASS
The client money rules under CASS mainly instruct how the firm needs to manage, control and safeguard the client money. Moreover, these rules include how firms should segregate and reconcile client money and what steps to take when a secondary pooling event occurs. Proper handling of client funds is essential for compliance with the CASS requirements and to provide adequate protection to clients.
FAQs about CASS Audit
What Do You Need to Have in Place for a CASS Regime?
Firms need to have robust internal processes and internal control because it is necessary for compliance with CASS rules to protect client assets and is a requirement to prepare for a CASS audit. Moreover, they need to maintain detailed records of client assets, which include reconciliation processes, methods of segregation, and reporting. Lastly, regular reviews and audits of these processes can provide the necessary reasonable assurance to pass the audit.
How MMBA Accountants Can Help You Before, During, and After a CASS Audit
MMBA Accountants provides specialised services for firms that prepare for annual CASS audit and guides them through compliance with the CASS regime. So, be it reviewing controls for client money or to make sure proper segregation of client accounts, MMBA FCA Accountants ensure that the client gets comprehensive support. Also, being a thorough financial conduct authority, the MMBA Accountants team help you address CASS issues and improve your CASS assets reports.
How Is My Business Categorised for CASS Compliance Purposes?
CASS firms’ categorisation under the CASS rules depends on the amount of client money or assets they hold. It’s important to understand your CASS audit. However, the FCA handbook provides guidance on this to guarantee the correct categorisation, which is crucial for compliance with the CASS regime and to be in a better position before the next CASS audit.
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