What is a Client Assets Sourcebook (CASS) Audit?
A Client Assets Sourcebook (CASS) audit is a crucial regulatory requirement for financial firms that hold or control client money and assets. The purpose of a CASS audit is to ensure that firms comply with the Financial Conduct Authority (FCA) rules designed to protect client assets and money. These audits assess whether firms have implemented adequate systems and controls to safeguard client assets against misuse, fraud, and financial instability.
Depending on whether you are a regulated entity that holds client money, custody assets or you are an insurance broker, you will require a CASS audit under either/or CASS 5, CASS 6 or CASS 7.
CASS Audits and the FCA
The Financial Conduct Authority (FCA) is the regulatory body in the UK that oversees the conduct of financial firms to ensure market integrity and consumer protection. Under the FCA’s mandate, CASS rules are enforced to provide a robust framework for the protection of client assets. The FCA requires firms to undergo regular CASS audits to verify compliance with these rules, thereby ensuring that clients’ money and assets are adequately protected and segregated from the firm’s own funds.
What are CASS Audit Rules and Requirements?
CASS audit rules and requirements are comprehensive and detailed, aiming to cover all aspects of client asset protection. Key requirements include:
- Segregation of Client Assets: Firms must segregate client assets from their own to prevent the risk of misuse or loss.
- Accurate Record-Keeping: Detailed records of client assets and transactions must be maintained to ensure transparency and traceability.
- Reconciliations: Regular reconciliations between the firm’s records and external sources (e.g. bank statements) must be conducted to identify and rectify discrepancies.
- Control Mechanisms: Adequate internal controls and risk management processes must be in place to safeguard client assets.
- Reporting Obligations: Firms are required to submit regular reports to the FCA detailing their compliance with CASS rules.
Firms must appoint an independent auditor to conduct the CASS audit. The auditor assesses the firm’s compliance with the CASS rules and identifies any weaknesses or breaches.
What is a CASS Audit Report?
A CASS audit report is the formal document prepared by the independent auditor at the conclusion of the audit process. This report outlines the findings of the audit, including:
- Compliance Status: Whether the firm complies with CASS rules.
- Identified Breaches: Any instances of non-compliance or control weaknesses.
- Recommendations: Suggested actions for remediation and improvement.
- Assurance Level: The level of assurance provided by the auditor, indicating the thoroughness and reliability of the audit.
The CASS audit report is submitted to the firm’s senior management and the FCA. It is a critical tool for both regulatory oversight and internal governance, providing a basis for corrective actions and improvements in client asset protection practices.
CASS Audit Deadlines
Timeliness is a critical aspect of CASS audits. The FCA mandates strict deadlines for the completion and submission of CASS audit reports:
- Annual Audits: Most firms are required to undergo an annual CASS audit. The report must be submitted to the FCA within four months of the firm’s financial year-end.
- Special Circumstances: In certain situations, such as significant changes in the firm’s operations or following a major compliance breach, the FCA may require additional audits.
Adhering to these deadlines is essential for regulatory compliance and to avoid potential penalties or enforcement actions by the FCA.
Conclusion
CASS audits play a pivotal role in the regulatory framework governing financial firms in the UK. They ensure the protection of client assets through rigorous compliance with the FCA’s rules. By understanding and adhering to CASS audit requirements, firms can maintain high standards of client asset protection, build trust with clients, and mitigate risks associated with financial mismanagement. Regular CASS audits and timely reporting not only fulfil regulatory obligations but also enhance the overall integrity and stability of the financial market.
For more information about our Financial Services sector, click here. If you would like to get in touch with a member of the team about CASS audits or the services we provide to FCA regulated businesses, please email hello@gravita.com.
