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Blog - Published 12th November 2018

CASS 5 – Client Money Reconciliations for Mortgage and General Insurance Firms

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One of the most time intensive requirements of being authorised by the FCA is completing Client Money Calculations. These are essential to ensure that were anything to go wrong, clients’ money is always protected. Not to put too light a point on it, but the effective completion of this ensures continued consumer confidence in the UK’s financial system.

CASS 5.5.62 explains that the calculations are required to check that your obligations to your clients (the client money requirement) are sufficiently covered by the amount shown in the accounting records as client money (the client money resource). In addition these amounts should then be reconciled to the amount held in the client money bank account.


So what is the Client Money Requirement?

This is what is held on behalf of clients. There are two methods to calculate this available: Client Balance and Accruals.

Client Balance method (CASS 5.5.66) is calculated for each individual client as:

  • Amount paid by a client to the firm; plus
  • Amount due to the client (e.g. claims and refunds monies); plus
  • Interest or investment returns due to the client; less
  • Amounts paid/payable to an insurer for a client’s policy; less
  • Amounts paid/payable to the client (e.g. claims and refunds monies).

The Client money requirement is the sum of all individual client balances.

Accruals method (CASS 5.5.68) is the sum of the following:

  • Insurance creditors shown in the firms accounting records as due to Insurers and Clients; and
  • Any unearned commission accrued for.

And the Client Money Resource?

10 things about cash basis accountingEssentially this is the money that your accounting records show is held on behalf of clients at any given time. Where the accruals method has been chosen for the client money requirement (above) the client money resource will also include amounts due from clients, which would show in the accounts as insurance debtors. (CASS 5.5.65)

There are also additional considerations where the client funds are held in a Non-Statutory Trust (NST), see our explanation of NST’s here. The client money resource is then calculated as follows:

  • Amount per accounting records; plus
  • Insurance debtors (including pre-funded items as credit is possible under an NST); plus
  • Credit provided by an approved bank (see CASS 5.5.65(b) for detail).

 

Can you tell me the process for completing this?

  • At least every 25 business days (essentially a calendar month);
  • Determine your client money resource at the close of the previous working day;
  • Determine your client money requirement on the same day;
  • Rectify any excesses or shortfalls on the same day the calculations were carried out;
  • Ensure any amounts attributable to appointed representatives are accounted for;
  • Reconcile the client money resource to the client bank account(s) balance per the bank statement(s) within 10 days; and
  • Correct for any discrepancy between these ‘as soon as possible’.

Is there anything else I should consider?

Mike Ayres_320x238Completed client money reconciliations should be signed and dated by your CASS Compliance Officer and should be retained, along with any supporting documentation, for at least 7 years – though these can be in electronic format. Your CASS auditor will need to review these.

If you aren’t able to, or do not perform the calculation the FCA must be informed immediately.

Please note that the above does not include all intricacies and options involved in the client money reconciliations but instead aims to set out what is required in the majority of cases. Please ensure your individual circumstances are considered when preparing your client money reconciliations.

Menzies LLP provides, amongst other services, CASS Assurance and Statutory Audit services to clients across London and the South East, if you have any questions or would like to speak to us about how we could help you, please contact Mike Ayres by email, mayres@menzies.co.uk, or by phone, +44 (0) 1252 894911.

Please note that the above information is a summary of selected chapters of the FCA Handbook and should not be solely relied upon when making decisions. Please always ensure the appropriate professional advice is obtained to ensure compliance. The FCA Handbook contains the detailed rules and can be accessed here.  This information is correct as at 26 October 2018.

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Mike Ayres - ACA

Senior Manager

Mike Ayres is a Senior Manager at Menzies in Farnborough specialising in advisory services, audit and compliance for SME and medium sized businesses.