In short
CASS 5 governs client money held by insurance intermediaries. The intermediary must determine whether money is held under risk transfer or as client money, hold client money in a statutory or non-statutory trust account, perform a client money calculation and reconciliation regularly, and correct any shortfall from its own resources.
Risk transfer determines whether CASS 5 applies at all
The first question for any premium or claim payment an intermediary handles is whose money it is. Where the terms of business agreement with the insurer transfers risk, money received from a client is treated as received by the insurer at the point the intermediary receives it, and it is not client money.
Where risk transfer does not apply, or applies only to part of the flow, the money is client money and the full CASS 5 regime engages.
This determination is agreement specific and frequently partial. Risk transfer may apply to premium but not to claims, or to one insurer but not another on the same placement, or may be subject to conditions the intermediary must satisfy operationally.
The consequence is that an intermediary handling business across many insurers is running two money types through the same bank accounts and the same operational processes, and the classification of every receipt determines its treatment.
Statutory and non-statutory trust accounts
Client money under CASS 5 is held in trust. A statutory trust is the default and does not permit credit to be extended to clients from the trust. A non-statutory trust permits limited credit and carries additional requirements, including a higher standard of systems and controls and specific written confirmations.
Firms operating a non-statutory trust must be able to demonstrate that they meet those additional requirements continuously, not that they met them when the arrangement was established.
Bank acknowledgement is required in both cases, confirming the trust status of the account and the absence of any right of set-off against the intermediary's own obligations.
As with other client money regimes, the acknowledgement estate drifts as accounts are opened and entities restructure, and a register mapping each account to its acknowledgement and trust status turns this from a periodic document hunt into a monitored control.
The client money calculation and its failure modes
The client money calculation compares what the intermediary should be holding in trust with what it actually holds. The complexity sits in the first figure.
It must account for premiums received but not yet paid to insurers, claims received from insurers but not yet paid to clients, commission that has been earned and is therefore no longer client money, unearned commission that remains client money, and amounts subject to risk transfer that fall outside the calculation entirely.
Commission timing is the most common source of error. Withdrawing commission before it is properly earned removes money from the trust that should still be there, and the error is systematic rather than isolated because it follows a rule.
Safeheld reconciles the calculated requirement, the trust account balance and the underlying policy transaction population as independent references, so a systematic commission or risk transfer classification error is detectable rather than self-consistent.
Reconciliation across insurers, MGAs and multiple bank accounts
An intermediary of any size handles bordereaux from MGAs, statements from insurers, premium finance flows, and its own broking system records, each with a different format and cadence.
Bordereau quality is frequently poor, and a reconciliation process that cannot tolerate imperfect input will either fail or be bypassed. Format-agnostic ingestion with automated schema mapping handles inputs as they arrive rather than requiring counterparties to conform.
Late or missing bordereaux should be treated as exceptions rather than as absences, because a reconciliation that quietly excludes a delegated authority is a reconciliation of the wrong population.
Autonomous investigation then clears the explainable residual, retaining the reasoning against each item so that resolved differences are evidenced rather than assumed.
Shortfalls, corrections and prompt remediation
Where the calculation identifies a shortfall in the trust account, the intermediary must pay in from its own resources. Where it identifies an excess, the excess must be withdrawn so that own money is not held in trust.
The record must connect the identification, the decision, the transfer and the confirmation with timestamps and named individuals, because that chain is what an auditor tests and what manual processes routinely fragment.
Escalation is structured through a six-level ladder with defined triggers, recipients, channels and timings, so that a shortfall of material size reaches senior management immediately rather than in the next monthly report.
Speed matters evidentially as well as prudentially. An intermediary that identifies and corrects within hours occupies a very different supervisory position from one that identifies at month end.
Evidence for the client assets audit and supervisory review
Intermediaries holding client money are subject to a client assets audit, and the auditor will test whether the calculation was performed at the required frequency, whether shortfalls were corrected promptly and whether trust documentation is in order.
Producing that evidence retrospectively from a broking system and a set of spreadsheets is the dominant cost of the audit in most firms.
Safeheld generates the calculation, the reconciliation record and the supporting evidence continuously, and seals each run with a SHA-256 Merkle root that can be verified independently.
The audit then tests substance rather than establishing whether the records are reliable, which shortens fieldwork and reduces the volume of findings attributable to evidence quality rather than to control failure.
Frequently asked questions
When does risk transfer remove money from CASS 5?
Where the terms of business agreement with the insurer provides that money received by the intermediary is received by the insurer, that money is the insurer's rather than client money. Risk transfer is frequently partial, applying to premium but not claims, or to some insurers on a placement and not others, so classification must be applied per flow rather than per firm.
What is the difference between a statutory and non-statutory trust?
A statutory trust is the default and does not permit credit to be extended to clients from the trust. A non-statutory trust permits limited credit but carries additional requirements including a higher standard of systems and controls and specific written confirmations, which the firm must be able to demonstrate it meets continuously rather than at inception.
Why is commission timing the most common CASS 5 error?
Because it is systematic rather than isolated. Commission remains client money until properly earned, and a rule that withdraws it too early removes money from the trust on every transaction it touches. The error is stable and plausible, so it will not surface in a comparison between the calculated requirement and the balance, both of which follow the same rule.
How should poor quality bordereaux be handled in reconciliation?
By ingesting them in the format they arrive in and treating late or missing files as exceptions rather than absences. A reconciliation that silently excludes a delegated authority because its bordereau has not arrived is reconciling the wrong population and will report a clean result against incomplete data.
What does a client assets auditor test for an intermediary?
Whether the client money calculation was performed at the required frequency, whether shortfalls were corrected promptly from the firm's own resources, whether excesses were withdrawn, whether trust status and bank acknowledgements are in order, and whether risk transfer classification is applied consistently with the underlying terms of business agreements.