APB issues Bulletin for auditors providing assurance to the FSA in relation to client assets held by regulated firms

News types: Publications

Published: 13 October 2011

APB PN 154

The Auditing Practices Board (APB) of the FRC today publishes Bulletin 2011/2 “Providing assurance on Client Assets to the Financial Services Authority”.

Arising from the financial crisis, the FSA identified a number of failings of regulated firms that held client assets and also raised questions about the quality of Client Asset reports submitted to them by auditors.

This led to the FSA increasing its resource devoted to the area by creating a specialist unit focused on firms’ compliance with the FSA’s CASS Rules. Those rules require regulated firms to hold client money and custody assets (collectively ‘client assets’) separately from their own in order to minimise the risk of loss to clients in the event of the firm’s insolvency. The FSA also revised its SUP Rules which set out the duties of auditors to report to the FSA with respect to regulated firms’ compliance with the CASS Rules.

The Bulletin issued today provides guidance on the responsibilities of auditors under these revised Rules, which are required to be followed for periods ending 30 September 2011 onwards.

An auditor is required to provide a report to the FSA (known as a 'Client Assets Report') on whether the regulated firm:

  • Has maintained systems adequate to comply with the FSA's client money and custody rules; and

  • Has, as a matter of fact, complied with those rules.


The Bulletin emphasises that:

  • Determination of whether assets are properly to be treated as client assets is a complex issue requiring a thorough understanding of a regulated firm's business model and its internal processes and controls;

  • Auditors are required to approach the evaluation of the regulated firm's compliance with the FSA rules from the perspective of the position if the regulated firm becomes insolvent;

  • Auditors should focus on whether controls are designed and operated to ensure compliance with the CASS Rules (ie are preventive), rather than focusing on whether controls will subsequently detect any non-compliance; and

  • The CASS auditor’s report to the FSA must report any and all breaches (irrespective of materiality) of the rules that the auditor becomes aware of. This contributes to the FSA's risk assessment of the regulated firm.


These considerations result in a quite different approach to that usually applied in the course of a financial statement audit.

Fiona King, the FSA’s Technical Head of Department, Client Assets and Wholesale Conduct commented:

“Arising from experience gained in the financial crisis, important improvements to the FSA’s CASS Regime have recently come into effect. The FSA welcomes the publication of this Bulletin by the APB, which we expect CASS auditors to have regard to in discharging their responsibilities, with respect to client assets, to the FSA. We would, however, remind auditors, as is noted in the Bulletin, that their engagement teams must have a thorough grasp of relevant FSA Rules in order to undertake client asset engagements. CASS audits should be seen as a distinct specialism and audit firms should resist any temptation to regard the CASS audit as an adjunct to a financial statement audit that can be undertaken by inexperienced staff”.


Richard Fleck the Chairman of APB further commented:

“Difficulties exposed by the financial crisis emphasise the need for CASS auditors to have a thorough understanding of their clients’ legal structures and their business rationale. To achieve such an understanding staff undertaking CASS audits should be adequately trained in the CASS Rules, in understanding firm’s business models, and in the evaluation of the design and operating effectiveness of internal controls over client assets”.


The Bulletin may be downloaded from the Publications (Bulletins) section of this website. Printed copies at a cost of £20.00 are available from: FRC Publications, 145 London Road, Kingston upon Thames, Surrey KT2 6SR. Telephone 020 8247 1264. E-mail: [email protected]. Website: www.frcpublications.com.


Notes to Editors

  1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.

  2. The APB is committed to leading the development of auditing practice in the United Kingdom and the Republic of Ireland so as to:

    • establish high standards of auditing;

    • meet the developing needs of users of financial information; and

    • ensure public confidence in auditing.

  3. This Bulletin contains all of APB’s extant guidance relating to the provision of assurance to the FSA on client assets and is the material (referred to in SUP 3.10.5B G) to which the FSA expects auditors to have regard when undertaking client asset audits in accordance with its rules.

  4. Statutory auditors of regulated firms that have not appointed a CASS auditor should be alert for circumstances at the firm indicating that a CASS auditor should have been appointed. If such circumstances arise the statutory auditor should notify both the firm and the FSA of its concerns.

  5. This Bulletin updates revises and supersedes the content of the APB’s Practice Note (PN) 21 “The audit of investment businesses in the United Kingdom (Revised)” that relates to client assets. Consequently paragraphs 180 to 263, Appendix 1.1 and Appendix 2 of PN 21 are superseded by the Bulletin. All other guidance in PN 21 (i.e. that which does not relate to client assets) remains in effect.

  6. Document created under a former FRC operating body.

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