CASS 6 and CASS 7: Changes for firms holding client money
If your FCA-regulated firm holds client money or custody assets, it’s important to be aware of the latest regulatory changes as part of the FCA’s Consumer Duty Requirements Review, and the practical steps you should take.
Background
The Financial Conduct Authority’s consultation paper CP35/37 proposed targeted amendments to two chapters of its Client Asset Sourcebook: CASS 6 (custody assets) and CASS 7 (client money).
The changes aim to reduce admin and streamline operations for firms and auditors, while continuing to protect client money and custody assets.
Most of the changes came into force on 26 June 2026 as part of FCA Handbook Notice 142. The remaining changes will be in effect by 25 September 2026.
Summary of changes and practical actions
Due diligence record-keeping
Your firm must now retain due diligence records on third parties holding client assets for five years from the date the record was created or last modified, rather than five years after the relevant relationship ends.
What to do next:
Update your due diligence record retention policies and systems so records are kept for five years from creation or last modification. Amend existing retention schedules as needed
External custody reconciliation – record sources
Your firm may use Euroclear UK and International’s (EUI) Investment Fund Service (IFS) System Record for external custody reconciliations, subject to conditions.
Daily reconciliation using EUI’s records is best practice.
What to do next:
If currently using, or considering using, EUI’s IFS System Record for external custody reconciliation, confirm the conditions for reliance are met and consider moving to daily reconciliation
External custody reconciliation – reduced frequency in limited cases
Your firm may reconcile less frequently than monthly where a third party fails (for asset-related reasons, e.g. insolvency/de-listing) or refuses to provide statements monthly and no alternative third party is practicable.
To use the exemption, your firm must record its endeavours to obtain the information, and annually review whether the exemption still applies.
What to do next:
Review arrangements with third parties that do not provide monthly statements. Where the new limited exemption might apply, put a process in place to record the endeavours made to obtain information and schedule the required annual review
Consumer Duty – retained interest (CASS 6.4) and safe custody assets (CASS 7.11)LLP
Your firm may only retain interest on retail client money where clients are notified and this is compatible with the Consumer Duty.
Your firm must comply with the Consumer Duty when obtaining consent for, and using, retail clients’ safe custody assets in securities financing transactions.
What to do next:
Review consent arrangements for securities financing transactions involving retail clients’ safe custody assets to ensure evidence of your firm’s Consumer Duty compliance
Review client communications and notifications regarding retained interest on client money to ensure clients have been clearly notified. Assess this against the Consumer Duty outcomes
Settlement activity and safe custody assets
The prohibition on ‘otherwise using’ retail clients’ safe custody assets excludes ordinary settlement activity carried out through commercial settlement systems, including use of omnibus accounts. Your firm must still have adequate arrangements to minimise the risk of los
What to do next:
Check settlement processes (including any use of omnibus accounts) against the clarified settlement activity provisions.
Confirm organisational arrangements adequately mitigate risk of loss to safe custody assets
Firm-owed interest received into client bank accounts
From 27 July 2026, your firm may receive firm-owed interest into a client bank account in limited circumstances, with guidance on when this may reasonably be expected.
Your firm must request that the bank pay such interest into a separate firm account (a single request can cover multiple named accounts and may be made by email) and must remove any firm-owed interest no later than one business day after receipt if the bank does not comply.
What to do next:
Where firm-owed interest may be received into client bank accounts, prepare the required request to the bank (covering multiple accounts as needed).
Set up a process to identify and remove firm-owed interest within one business day if the bank doesn’t comply
Bank interest received before it’s due to clients
From 25 September 2026, where your firm receives bank interest before it’s contractually due and payable to clients, you may elect to treat the receipt as unallocated client money until due: firmwide, for named clients, or for an identifiable line of business.
Once able to allocate, you must do so per the client agreement and remove firm money by the following business day.
What to do next:
Decide whether to make the election to treat bank interest received before it is due as unallocated client money, and if so, at what level (firmwide, named clients, or line of business).
Update systems and procedures to allocate and remove firm money by the following business day once able
How BKL can help
Our financial services and fintech audit specialists work closely together, sharing knowledge and supporting clients as a team.
We can apply our years of experience working with and auditing e-money institutions and payment service providers to ensure that your business is compliant with CASS 6, CASS 7, and other FCA regulations (including CASS 15) – putting the right changes in place at the right time.
By working closely with regulatory advisers and solicitors who also specialise in financial services and CASS rules, we’ll give you extensive support throughout your fintech’s journey.
Together we will reduce the stress around regulatory compliance, freeing you to focus on innovating, helping your customers and securing your EMI’s future.
For a chat about how we can help your firm, get in touch with Alisha O’Donovan using the form below.
Contact Alisha
Frequently asked questions: CASS 6 and CASS 7 changes
What changes has the FCA made to the CASS 6 and CASS 7 rules in 2026?
The FCA’s 2026 changes to CASS 6 and CASS 7 are primarily clarifications rather than major policy reforms. They cover areas including due diligence record retention, custody asset reconciliations, treatment of interest, Consumer Duty interactions, and settlement processes.
The FCA’s stated aim is to reduce unnecessary operational burden while maintaining existing levels of client asset protection. Firms handling client money or custody assets should review their procedures to ensure they remain compliant with the updated requirements.
Who is affected by the FCA’s CASS 6 and CASS 7 amendments?
The changes affect FCA-regulated firms that hold client money or safe custody assets. This includes investment firms, wealth managers, stockbrokers, custodians, platforms, and certain other financial services businesses subject to the Client Assets Sourcebook (CASS).
Compliance, risk, operations, finance, and internal audit teams may all need to understand how the amendments affect their responsibilities, policies, and controls.
Do firms need to change their client asset record-keeping processes?
Yes. The FCA has changed the retention requirement for due diligence records relating to third parties holding client assets. Records must now be kept for five years from the date they were created or last updated, rather than five years after the relevant relationship ends.
Firms should review document retention schedules, record management systems, and compliance procedures to ensure they reflect the new approach.
Can firms now reconcile custody assets less frequently than monthly?
In limited circumstances, yes. The FCA has introduced a narrow exemption where a third party cannot provide information because of issues inherent to the assets involved, such as an insolvency, or where statements are unavailable and changing provider is not practical. The exemption is not intended for routine operational difficulties such as systems outages.
Firms must continue reconciliations as frequently as possible, document their efforts, and perform annual reviews of the arrangement.
What is the FCA’s view on using Euroclear’s IFS System Record for custody reconciliations?
The FCA now formally recognises Euroclear UK and International’s Investment Fund Service (IFS) System Record as a potential source for external custody reconciliations, subject to conditions around accuracy and reliability. The regulator also notes that daily reconciliation would represent best practice.
Firms considering reliance on third-party reconciliation data should ensure they can demonstrate appropriate governance and oversight.
Does Consumer Duty now form part of a CASS audit?
Not directly. The FCA has clarified that firms must consider Consumer Duty requirements in certain areas of CASS, including retained interest and the use of retail clients’ safe custody assets. However, the FCA has also confirmed that CASS auditors are not expected to assess Consumer Duty compliance as part of the client assets audit. This should help avoid unnecessary expansion of audit scope while maintaining accountability for Consumer Duty outcomes through other regulatory channels.
Can a firm keep interest earned on retail client money?
Only in specific circumstances. The updated rules make clear that firms may retain interest on retail client money only where clients have been appropriately notified and the arrangement is consistent with Consumer Duty requirements.
Firms should review client agreements, disclosures, and notification processes to ensure they can evidence both transparency and fair customer outcomes.
What happens if firm-owned interest is paid into a client money account?
The FCA now permits this in certain situations where the payment is outside the firm’s control. For example, a bank may pay interest directly into a client account under existing account terms. However, firms must ask the bank to redirect such payments to a firm account and, where that does not happen, remove the firm-owned amount from the client account no later than the next business day. Robust monitoring controls will be important.
Does ordinary settlement activity breach the prohibition on using client assets?
No. One common area of uncertainty has been whether normal settlement processes could be interpreted as an impermissible use of retail clients’ safe custody assets. The FCA has clarified that ordinary settlement activity within recognised commercial settlement systems, including the use of omnibus accounts and temporary intraday movements, does not breach the rules.
Firms must still maintain appropriate safeguards to minimise the risk of loss or diminution of client assets.
What should firms do now to prepare for the CASS rule changes?
Firms should carry out a targeted review of policies, controls, client communications, reconciliation procedures, governance arrangements, and record retention frameworks. Particular attention should be paid to the staggered implementation dates, operational processes around interest payments, and any situations where reconciliation exemptions may be relied upon.
Early engagement with compliance advisers, auditors, and specialist regulatory teams can help ensure changes are implemented efficiently and with appropriate documentation. BKL can support firms in assessing the practical impact of the new requirements and strengthening their client asset governance framework.
