At our latest bi-annual meeting with the FCA in June 2025, we discussed various hot-topic CASS issues that have been raised by clients during their 2025 audits. In this article, Charles Drew summarises the key points that insurance intermediaries should take into account for future audits.
Cancellation of permission letters
Earlier this year, the FCA changed the expected format of reports that could be accepted when firms apply to cancel their client money permissions. The FCA confirmed that firms should obtain a limited assurance report as an ad hoc requirement for this specific purpose, while acknowledging that this not entirely consistent with the SUP rules. This assurance gives comfort that the scope of work set out and performed by auditors is appropriate.
At PKF, we have developed a negative assurance report that the FCA finds acceptable. We discussed this in detail in our recent article on deauthorisation which you can read here.
Designated investments
In a higher interest rate environment, many brokers are using money market funds to optimise returns from the client money they hold in trust. Firms often query whether this means they need to amend their client money permissions or opt into the CASS 7 rules.
The FCA clarified that that the use of money market funds is permitted under CASS 5 and that they are seen as lower risk for insurance intermediaries where any fall in value is assumed by the firm.
Intermediaries should still ensure that they are considering whether any investments are in the interests of their clients and that they are not introducing additional risk based on asset volatility (i.e. whether diversification might be necessary).
Payment service providers
Firms often query how best to assess their use of payment service providers (PSPs) in the operation of their CASS 5 environment. In particular, we are frequently asked how firms should manage PSPs that might introduce a delay in the receipt of client money.
The FCA expects firms to review their relationships with third parties to determine whether they are an Other Agent and how they sit within the existing requirements. They must also document the firm’s rationale for use of third parties in line with CASS 5 and in the context of their business model.
More generally, firms should document their approach to any circumstance where receipt of client money is delayed in line with segregation rules.
Credit writebacks
Consolidator groups are continuing to streamline and rationalise to avoid the unnecessary cost and effort of operating too many regulated firms. This can lead to the identification of legacy balances where a credit writeback might be considered.
The FCA does not expect any credit writebacks to take place and views any instance as a breach of fiduciary duties and trust law. They are aware of the common approach of identifying and adjusting historical accounting errors that create a false liability. However, the FCA wants firms to prioritise the cleaning of IBA ledgers, by identifying and adjusting historical accounting errors that create a false liability, before considering options to clear any residual balances from firms’ ledgers.
The FCA also noted that it understands that issues do inevitably arise and that a pragmatic and common sense approach, with appropriate documentation, should prevail. Ultimately, the regulator does not expect legacy balances that cannot be settled to be held indefinitely.
Transferring client money
When a firm intends to transfer client money between CASS environments, whether from a statutory trust to a non-statutory trust or between firms, the usual approach has been to obtain explicit consent from more than 85% of clients before applying to the FCA to transfer any client money.
The regulator explained that this is not prescriptive and is often nuanced and specific to the individual firm. It might, for example, still reject applications where over 85% client consent has been obtained if the arrangements in place indicated that a transfer wasn’t in the interest of the firm’s clients.
Another area of focus is around whether groups can move funds between client money environments without going through this consent process if each entity has the same owners and directors. In these circumstances, the FCA expects that any process should fall back on the client terms of business as the backbone of governance for any potential transfer. Firms should ensure that the terms of business in place with clients clearly communicate the proposed transfer of client money.
How we can help
Contact Charles Drew, Paul Goldwin or your usual point of contact if you would like to discuss any of the issues raised in more detail.
