In short
CASS 6 is the FCA's set of custody rules for investment firms that hold or control clients' investments, such as shares, bonds and fund units. Firms must keep client-by-client and total records, check them against each other at least monthly, reconcile them with custodians at least monthly, count physical certificates at least every six months, and cover any shortfall from their own assets or money until it is resolved.
Key takeaways
- CASS 6 applies to firms that hold financial instruments for clients in the course of MiFID business and to firms that safeguard and administer investments, under CASS 6.1.1R.
- An internal custody record check must be performed as regularly as necessary, with no more than one month between checks, using one method only (CASS 6.6.11R and 6.6.13R).
- External custody reconciliations must be no more than one month apart (CASS 6.6.37R), and physical asset reconciliations no more than six months apart (CASS 6.6.22R).
- Discrepancies must be investigated promptly and resolved without undue delay; until a shortfall is resolved the firm must cover it with its own assets, its own money or both (CASS 6.6.49R and 6.6.54R).
- A firm may use a client's assets, for example to lend them, only with the client's express prior consent on specified terms, evidenced in writing (CASS 6.4.1R).
- The FCA must be told in writing without delay if records are materially inaccurate, or the firm cannot or materially fails to perform its checks or cover a shortfall (CASS 6.6.57R).
What CASS 6 covers and who it applies to
CASS 6 is the chapter of the FCA's Client Assets Sourcebook that governs custody: how a firm protects investments, such as shares, bonds and fund units, that it holds or controls on behalf of clients. These are called safe custody assets. The aim is that if the firm fails, each client's assets can be identified and returned without delay. Under CASS 6.1.1R the chapter applies to a firm when it holds financial instruments belonging to a client in the course of its MiFID business, when it safeguards and administers investments in other business, and when it acts as trustee or depositary of certain investment funds.
Client money, the cash side of the same business, is governed by CASS 7. Payment and e-money firms follow CASS 15 instead. For an overview of the whole sourcebook, see what CASS is. A firm need not apply CASS 6 to a delivery versus payment transaction, where assets and cash are exchanged at settlement, if the client has agreed in writing and the asset is due to the client within one business day of the client paying; if settlement has not happened by close of business on the third business day, the exemption ends (CASS 6.1.12R).
Title transfer collateral arrangements
A title transfer collateral arrangement, or TTCA, is an agreement under which a client transfers full ownership of an asset to the firm to secure the client's obligations, for example as margin for trading. Because the firm owns the asset, CASS 6.1.6R(4) says the custody rules do not apply to it, but only where the TTCA is not with a retail client.
CASS 6.1.6R(3)(a) prohibits TTCAs over assets belonging to retail clients. For other clients, CASS 6.1.6BR requires each TTCA to be the subject of a written agreement on a durable medium, and CASS 6.1.6DR requires the firm to properly consider and document whether the TTCA is appropriate. A client whose assets are held under a TTCA loses the protection of CASS 6 for those assets, so firms need to be sure the arrangement is justified.
Holding assets with custodians and other third parties
Most firms deposit client assets with a custodian, a nominee company or a settlement system rather than holding them directly. CASS 6.3.1R requires the firm to exercise all due skill, care and diligence in selecting, appointing and periodically reviewing each third party, taking into account its expertise, market reputation and legal requirements, and CASS 6.3.2AR requires a record of the grounds for each appointment and of every review.
The firm must have a written agreement with each third party setting out the binding terms of the arrangement (CASS 6.3.4AR), and the assets must be identifiable separately from the firm's and the third party's own assets, for example through differently titled accounts (CASS 6.3.4A-1R). CASS 6.3.6AR restricts the firm from granting a custodian a security interest, lien or right of set-off over client assets except for debts relating to those clients or the services provided to them, or in other limited conditions the rule sets out.
Using client assets
A firm may not use a client's safe custody assets for its own account or anyone else's, for example by lending them in a securities financing transaction, unless the client has given express prior consent to their use on specified terms, and the use stays within those terms (CASS 6.4.1R). The consent must be clearly evidenced in writing and signed by the client, or given by an equivalent method. Where assets are held together in an omnibus account, either every client in the account must have consented or the firm must have controls ensuring only consenting clients' assets are used.
For retail clients CASS 6.4.1BAR adds that the arrangements must be compatible with the Consumer Duty, and outside securities financing transactions the firm must not otherwise use retail clients' assets. CASS 6.4.2AR requires arrangements for the borrower to provide appropriate collateral that is monitored and maintained, and CASS 6.4.3R requires records showing which client instructed each use and how many assets were used from each consenting client.
The records a firm must keep
A firm must keep records that distinguish each client's assets from other clients' and from its own (CASS 6.6.2R), that are accurate and usable as an audit trail (CASS 6.6.3R), and that include a client-specific safe custody asset record showing what is held for each client (CASS 6.6.4R). Most firms also keep an aggregate safe custody asset record, showing the total of each asset held across all clients, because the internal reconciliation method compares the two.
For each check or reconciliation it carries out, the firm must record the date, the actions taken and any discrepancies found (CASS 6.6.8R). Custody records must be kept for five years (CASS 6.6.7R). These records are the starting point for every check in the next section and for sections 6 and 7 of the CMAR that CASS medium and large firms file each month.
The three checks and how often they are required
CASS 6.6 sets out three separate processes. The internal custody record check uses only the firm's own records to confirm they match its obligations to clients. It can be done by direct comparison of the aggregate and client-specific records, called the internal custody reconciliation method, or by testing the system that maintains them, called the internal system evaluation method, but not a combination of the two (CASS 6.6.13R). The external custody reconciliation compares the firm's records with those of each custodian or other third party, and covers each asset; reconciling transactions alone is not enough (CASS 6.6.42G).
The physical asset reconciliation applies where the firm holds physical certificates. It counts them and compares the count with the records, either all at once (the total count method) or in stages (the rolling stock method), and a firm using rolling stock must document its reasons (CASS 6.6.25R and 6.6.30R). CASS 6.6.46R requires the firm to review the frequency of its checks at least annually, unless it already performs them each business day. Wherever possible, checks should be done by someone independent of the records being checked (CASS 6.6.47G).
| Check | Compares | Maximum interval | Rule |
|---|---|---|---|
| Internal custody record check | Firm's own records with its obligations to clients | One month | CASS 6.6.11R |
| External custody reconciliation | Firm's records with each custodian or third party | One month | CASS 6.6.37R |
| Physical asset reconciliation | Physical certificates counted with firm records | Six months | CASS 6.6.22R |
| Frequency review | Whether each frequency is still appropriate | One year, unless checks are done each business day | CASS 6.6.46R |
Discrepancies and shortfalls
When a check or reconciliation finds a discrepancy, CASS 6.6.49R requires the firm to investigate the reason promptly and resolve it without undue delay. CASS 6.6.48G is clear that a discrepancy is not resolved until it has been fully investigated and corrected. Items in suspense or error accounts, and items a third party no longer records, are within scope.
Where a discrepancy reveals a shortfall, meaning the firm holds fewer assets than it owes clients, CASS 6.6.54R requires the firm, until it is resolved, to appropriate enough of its own assets to cover the value of the shortfall, or to set aside its own money as client money under CASS 7, or a combination of the two. The value can be based on the previous day's closing mark to market valuation (CASS 6.6.56G). Where another person, such as a custodian, is responsible, the firm must take all reasonable steps to resolve the situation without undue delay and consider telling the affected clients.
Worked example: an external custody reconciliation
A wealth platform holds a global equity fund for its clients through a fund administrator. On Thursday 1 October 2026 it reconciles its records as at 30 September. Its records show clients are owed 1,248,400 units, after a client sale of 1,600 units on 30 September that the platform recorded on the trade date. The administrator's register shows 1,249,750 units in the platform's nominee account.
The sale explains why the administrator should show 1,600 more units than the platform until it settles, so the expected register figure is 1,250,000 units. The register is 250 units short of that, and the cause is not yet known. Until it is resolved, CASS 6.6.54R requires the platform to cover the shortfall. At the previous day's closing price of £2.84 per unit, it sets aside £710.00 of its own money as client money and records the action, while it investigates with the administrator.
| Line | Units |
|---|---|
| Platform records: units owed to clients | 1,248,400 |
| Add: client sale on 30 September not yet settled at the administrator | 1,600 |
| Expected administrator register | 1,250,000 |
| Actual administrator register | 1,249,750 |
| Unexplained shortfall | 250 |
| Cover required at £2.84 per unit (previous day's close) | £710.00 |
When the FCA must be told
CASS 6.6.57R requires a firm to inform the FCA in writing without delay if its internal custody records are materially out of date, inaccurate or invalid; if it will be unable to, or materially fails to, take the shortfall steps in CASS 6.6.54R; or if it will be unable to, or materially fails to, perform its internal custody record checks, physical asset reconciliations or external custody reconciliations. Firms acting as trustee or depositary of investment funds have further items.
CASS medium and large firms also report in section 8 of the CMAR whether any of these events arose in the month, but that does not replace the notification. Our guide to CASS breach reporting explains how and when to notify, and how to keep the breach register the auditor will ask for.
What auditors and supervisors look for
CASS 6.6.39G describes daily external reconciliation as best practice where assets are held electronically with a central securities depository that provides daily holdings information. Firms with large volumes increasingly reconcile everything daily, because a month of unreconciled movements makes differences slower to trace and removes the need for the annual frequency review. Each difference should have a cause, an owner and a resolution date.
The annual CASS audit tests whether each check happened on time and whether each shortfall was covered. Unexplained differences should be escalated to the person responsible for CASS oversight, whose role is set out in our guide to CASS operational oversight.
Safeheld reconciles client money every day for regulated firms, works every difference to its cause and keeps the record auditors ask for, and is extending that work to CASS 6 custody reconciliations. If your firm holds safe custody assets under CASS 6, talk to us about CASS 6.
Frequently asked questions
What is CASS 6?
The FCA's custody rules for firms that hold or control safe custody assets, such as shares, bonds and fund units, on behalf of clients.
How often must an internal custody record check be performed?
As regularly as necessary, with no more than one month passing between checks, under CASS 6.6.11R.
How often must an external custody reconciliation be performed?
As regularly as necessary, with no more than one month between reconciliations, under CASS 6.6.37R. Daily is best practice for assets held electronically with a central securities depository.
How often must physical assets be reconciled?
With no more than six months between physical asset reconciliations, using the total count method or the rolling stock method (CASS 6.6.22R and 6.6.25R).
What must a firm do if a custody reconciliation shows a shortfall?
Until it is resolved, appropriate its own assets, set aside its own money as client money, or both, to cover the value of the shortfall (CASS 6.6.54R).
Do the custody rules apply to title transfer collateral arrangements?
No, provided the arrangement is not with a retail client. Firms may not enter into a TTCA over a retail client's assets (CASS 6.1.6R).
What is the difference between CASS 6 and CASS 7?
CASS 6 covers safe custody assets such as securities. CASS 7 covers client money.
References
- FCA Handbook, CASS 6.1 Application
- FCA Handbook, CASS 6.3 Depositing assets and arranging for assets to be deposited with third parties
- FCA Handbook, CASS 6.4 Use of safe custody assets
- FCA Handbook, CASS 6.6 Records, accounts and reconciliations
About Safeheld
Safeheld reconciles client money every day, resolves every difference and prepares every regulatory return for sign-off, for regulated firms in the United States, the United Kingdom, the European Union, Canada, Australia, Singapore and Hong Kong. To discuss your operations, contact us at safeheld.com/contact.
This article is for general information and does not constitute legal or regulatory advice.