CASS – Statutory vs Non-Statutory Trust Bank Accounts

What is CASS?

Mike Ayres Senior Manager at Menzies Accountants

Mike Ayres – Senior Manager

A mortgage or general insurance firm authorised to hold money on behalf of clients must apply the rules set out in CASS 5, but they have a choice on the type of account they hold the funds in. The choice may impact on what is required of them… 

In most cases, money held on behalf of clients must be held in a separate bank account. This enables the firm to have legal ownership of the money, with clients retaining beneficial ownership.

Why hold it in trust?

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The firm holds the money on behalf of the clients as a trustee and segregates this from its own bank accounts and money. The fact that it is in trust means that if anything were to happen to the firm, for example it was liquidated, the client funds are separate and are repaid to them prior to any of the firm’s debts being settled. 

Section 5.5 of the CASS rules  breaks down how the client funds must be managed to ensure that there are sufficient funds in the statutory trust at all times. I have also written a separate article on the reconciliation process. 

So what is a ‘Statutory’ Trust?

The key point is that the CASS rules do not permit a firm to use statutory trust balances to provide credit to its clients. For example, a Firm cannot use funds in this account to pay a premium over to an insurer prior to the funds being received from a client.

Other key points of a ‘Statutory’ Trust

  • The account status as a trust arises automatically under FCA rules. 
  • The capital resource requirement is the higher of £10,000 or 5% of annual income. 
  • CASS assurance report is only needed where client assets held exceed £30,000. 

And a ‘non-statutory’ trust?

The main difference is that funds held under a non-statutory trust (NST) may be used to make advances of credit, pay premium refunds and/or claims payments prior to the funds being received from the client/insurer. To operate an NST a firm must comply with the following conditions: 

  • Have adequate systems in place to monitor the credit provided 
  • Obtain confirmation from an auditor that these systems are sufficient 
  • Have a manager responsible for compliance with the rules 
  • Maintain a capital resource requirement of no less than £50,000 
  • Ensure the terms of business explain that funds will be kept in an NST 
  • Obtain the clients informed consent to do so 

For an NST to have the appropriate status as a trust, the firm must execute a formal trust deed declaring that the client money is held under the CASS rules. In addition, where advances of credit are to be made; the trust deed must state this. 

A CASS assurance report is always required. 

Understanding client money rules under CASS

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The CASS client money rules are a complex and detailed area for good reason. The protection of your client’s money is imperative. At Menzies, we understand the rules and how they can impact on your company, we want to get to know you and your business so that we can provide relevant and tailored advice and help your business grow without encountering any unwelcome regulatory issues. 

You can read more about CASS rules for business applications here.

If you have any questions or would like to speak to us about how we could help you, please contact Mike Ayres by email or by phone 01252 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 21 November 2019.

Posted in Blog, Financial Services