FCA Handbook Notice 142: key changes for CASS firms

FCA Handbook Notice 142 changes several Client Assets Sourcebook (CASS) requirements for CASS firms, including third-party due diligence records, custody reconciliations, interest on client money and the interaction between CASS and the Consumer Duty.

Most of the changes took effect on 25 September 2026, so affected firms that have not yet reviewed their policies, processes and controls should now do so.

These amendments are not a fundamental rewrite of the CASS regime. Instead, they provide greater clarity and targeted flexibility in areas that can create operational complexity and recurring breaches.

This article focuses on the changes introduced by Handbook Notice 142. Payment and e-money firms can read separately about the FCA’s strengthened safeguarding regime.

Key FCA CASS changes introduced in Handbook Notice 142

How have third-party due diligence retention rules changed?

Firms will be required to retain third-party due diligence records for five years from the date on which each record was created or last modified.

This replaces the previous requirements, which could result in records being retained for five years after the relationship with the third-party ended. The change should reduce technical breaches involving missing historic documentation for long-standing relationships, although firms must continue to perform and document ongoing due diligence.

What changes apply to external custody reconciliations?

The FCA will permit firms to use Euroclear UK and International’s Investment Fund Service System Record as an external record source for custody reconciliations, subject to the relevant conditions. The updated guidance states that daily reconciliation remains best practice when this record is used.

Limited flexibility is also available in certain circumstances where a firm cannot obtain third-party records at least monthly.

How do CASS and the Consumer Duty interact?

The FCA has clarified how the Consumer Duty applies alongside certain CASS 6 and CASS 7 requirements, including:

• Retaining interest earned on client money
• Obtaining consent for using retail clients’ safe custody assets in securities financing transactions

Meeting a specific notification requirement under CASS does not replace a firm’s wider obligations under the Consumer Duty.

The FCA has also clarified that CASS auditors are not expected to assess Consumer Duty compliance when preparing a client assets report in relation to these provisions. This is intended to avoid expanding the scope of CASS assurance work. Auditors’ existing statutory reporting duties remain unchanged.

How should firms treat interest paid into client bank accounts?

The revised rules recognise that a bank may pay interest belonging to a firm into a client bank account, despite the firm having requested a different arrangement.

The firm must ask the bank to pay the interest into a separate firm account. If the bank does not apply the requested arrangement, the firm must remove its interest promptly and no later than one business day after receipt. The FCA has clarified that the firm only needs to make this request once for each client bank account.

Firms will also be able to elect to treat interest received before it is contractually due and payable to clients as unallocated client money. Once the firm can allocate the interest, it must do so in accordance with the client agreement. Any amount allocated to the firm must be removed by the next business day.

What should CASS firms review?

Affected firms should now confirm that they have:

• Identified which amendments apply to their activities
• Updated relevant CASS policies and procedures
• Reviewed third-party due diligence record-retention arrangements
• Assessed whether the changes affect their custody reconciliation processes
• Updated controls over interest received into client bank accounts
• Documented any exemption or election used under the revised rules
• Briefed their CASS oversight teams

Firms that have changed, or begun to change, their approach to record retention, custody reconciliations or the treatment of interest should consider discussing those changes with their CASS auditor and confirming that the supporting documentation is clear.

What does Handbook Notice 142 mean for CASS audits?

The amendments are intended to reduce recurring technical breaches and provide greater clarity. However, they do not introduce a concept of materiality into CASS audits. For more information about the different assurance opinions, reporting obligations and deadlines, read our guide to CASS audit requirements.

Breaches of the applicable rules will continue to require reporting in the FCA report, regardless of their monetary value.

As part of their audit planning, CASS auditors will need to understand how firms have implemented the revised requirements. Engagement with the CASS auditor can help identify areas where processes, controls or documentation require further development following implementation.

How Saffery can support CASS firms

Most of the CASS amendments took effect from 25 September 2026. Affected firms should now confirm which changes apply to their activities and retain clear evidence of any updates to their policies, processes and controls.

If your implementation review identifies gaps in your policies, controls, documentation or audit evidence, early discussion with your CASS auditor can help clarify the implications for the next reporting cycle. Saffery’s specialist financial services team works with FCA-regulated firms on statutory audits, CASS audits and the wider financial reporting implications of regulatory change.

To discuss how Handbook Notice 142 affects your firm, including the implications for your controls, documentation and your CASS and statutory audit arrangements, please get in touch with James Elway or Tom Alun-Jones.