CASS 6 and CASS 7 Software: Custody and Client Money Control

Two regimes, two failure modes

CASS 6 governs safe custody assets. CASS 7 governs client money. Firms frequently hold both, and the temptation is to treat them as one control environment. They are not, and the failure modes are different.

Custody failures are usually positional. The firm believes it holds a quantity of a security for a client and the custodian's record disagrees, typically because of unprocessed corporate actions, settlement timing, or stock lending. The consequence is a shortfall in the specific asset, which cannot be remedied with cash and must be bought in.

Client money failures are usually valuational and temporal. The client money resource, being the cash actually held in client bank accounts, does not equal the client money requirement, being the sum the firm should be holding for clients as computed under the applicable method. The consequence is a same-day funding obligation.

Software that reconciles cash competently and treats custody as a secondary reconciliation of quantities will pass a client money test and fail a custody one.

CASS 6: internal record checks and external reconciliations

The internal custody record check compares the firm's record of safe custody assets held for each client against the firm's own record of the total held with each custodian. It tests internal coherence.

The external custody reconciliation compares the firm's records against statements obtained from each third party holding those assets. It tests external agreement, and its quality is limited entirely by the quality and timeliness of custodian statements.

Both must be performed as regularly as necessary, and for most firms that means at least monthly for external reconciliation and considerably more frequently for internal checks. Discrepancies must be investigated and resolved promptly, and where a shortfall in a safe custody asset is identified the firm must appropriate a sufficient quantity of its own assets or make good the shortfall.

The practical difficulty is asset-level granularity. A reconciliation that agrees at portfolio value while disagreeing at ISIN level is not a reconciliation. Any engine used for CASS 6 has to match position by position, account by account, custodian by custodian.

CASS 7: requirement, resource, and the same-day obligation

The internal client money reconciliation compares the client money resource to the client money requirement, computed under either the normal approach or the alternative approach as applicable to the firm.

This calculation is where most CASS 7 systems are tested. The requirement is not simply the sum of client ledger balances. It has to reflect unresolved items, margined transactions where relevant, amounts due to and from clients, and the firm's own money properly held in client accounts as a buffer.

Where the resource is less than the requirement, the firm must pay in the difference by the close of business on the day the reconciliation is performed. Where it exceeds the requirement, the excess must be withdrawn. Both movements are evidential events, not bookkeeping adjustments.

The external reconciliation compares the firm's internal records of client bank balances against statements from each institution holding client money, and is subject to the same timeliness constraint as custody: it is only as current as the statement feed permits.

The CASS audit and the reproducibility standard

The client assets audit is performed against a defined standard and produces an opinion, with any breaches reported. Auditors work by sampling dates and tracing the full control cycle for each: the reconciliation, the calculation inputs, the discrepancies raised, the resolution, and the review.

The recurring finding across the sector is not that reconciliations were not performed. It is that the firm cannot reproduce them. Inputs have been overwritten, a supporting extract has been regenerated, and the version tested is not the version relied upon at the time.

Sealing each run at the point of execution removes the argument. The inputs, the calculation, the outcome, and the reviewer are fixed by a hash committed at the time, and any subsequent change is detectable.

How Safeheld handles CASS 6 and CASS 7

Safeheld reconciles custody at position level across every custodian and client money at requirement-versus-resource level under the firm's applicable method, and it runs both continuously rather than at a monthly or daily cut.

Breaks are investigated autonomously. For custody, the engine tests the common causes, being corporate action timing, unsettled trades, and lending positions, before escalating. For client money, it tests the composition of the requirement against the movement history. The reasoning is retained against the break.

Every run is sealed with a SHA-256 Merkle root and is independently verifiable, so the CASS audit sample is answered from a fixed record rather than a regenerated one.

Frequently asked questions

What is the difference between CASS 6 and CASS 7?

CASS 6 governs safe custody assets, meaning client securities and other assets held by or for the firm. CASS 7 governs client money, meaning cash held for clients. Firms holding both must operate both control frameworks separately.

How often must a CASS 7 internal client money reconciliation be performed?

Each business day, comparing the client money resource against the client money requirement, with any deficit funded and any excess withdrawn by the close of business on the day the reconciliation is carried out.

What causes most CASS audit findings?

In practice, reproducibility. Reconciliations are performed but the firm cannot demonstrate that the record produced for the auditor is the record relied upon at the time. Sealed, date-addressable runs remove this category of finding.