The Safeguarding Shift Part 3: CASS Resolution Packs

The Financial Conduct Authority’s (“FCAs”) Consultation Paper (“CP”) on changes to the safeguarding regime introduces a significant new requirement, aimed at streamlining the resolution process in the event of insolvency: the Firm's CASS Resolution Pack (“CASS RP”).

The requirements are fully contained within the interim rules, meaning Safeguarding firm’s will need a fully compliant Resolution Pack before the end of 2025.

The CASS RP should act as a roadmap for insolvency practitioners, providing clear and readily accessible information about the firm's safeguarding practices. Whilst familiar to Banks and Investment firms with CASS, this concept will be new to Payments firms – and will require Boards to understand its purpose and dedicate sufficient resource on a timely basis to ensuring it is effectively produced and accurately maintained. Annual board reporting will be required on compliance with the strict resolution pack rules.

One of the FCA’s favoured supervisory tools has been to perform surprise visits to firms, asking them to share their CASS RPs and deliver all the requisite documents within the timeframes set out in the rules: either immediately or within 48 hours. Payment firms should be prepared to receive these visits as well! Poor performance in these tests will often lead to further measures.

A Roadmap for Swift and Efficient Resolution

The CASS RP is designed to address a critical challenge that often arises during firm insolvencies: the lack of readily available and organised information about safeguarding arrangements. This lack of clarity can lead to significant delays in identifying and returning client funds. As such, the FCA sees it as a fundamentally important document.

By mandating a standardised and comprehensive resolution pack, the FCA aims to:

Expedite the identification and return of client funds by providing insolvency practitioners with immediate access to crucial information, such as client identities, account details, and segregation arrangements.

Reduce insolvency costs by minimising the time and resources required by insolvency practitioners to unravel complex safeguarding arrangements.

Enhance transparency and accountability of a firm’s safeguarding practices. Knowing that this information must be readily available incentivises firms to maintain accurate records and robust safeguarding arrangements.

Key Challenges

Investment firms are already subject to CASS RP requirements as set out in CASS 10. Our experience of supporting these firms has identified key challenges that safeguarding firms should also prepare themselves for:

• Complete and accurate documentation: the mandatory documents required to form the CASS RP are extensive and detailed. Implementing a CASS RP in the first instance is a substantial exercise that will need adequate time and attention. One of the more onerous parts of this is ensuring that all the required documents are actually in place and clearly documented, are compliant with CASS 15 and are readily accessible.
• Ongoing maintenance: any changes in the relevant information or documents must be reflected in the CASS RP within 5 business days. Allocating sufficient resource with adequate understanding of the CASS RP requirements to continually monitor the pack’s contents is an essential part of ensuring its ongoing accuracy. This will also support the Firm’s required annual reporting to the firm’s governing body on compliance with resolution packs.
• Timely retrieval: firms must put in place adequate arrangements to ensure that all documents forming the CASS RP can be retrieved as soon as practicable and in any event within 48 hours. Firms are required to maintain component documents and should not use the retrieval period to start producing them. Several component documents are also required to be retrievable immediately. These timeframes can have practical challenges and as such firms may wish to consider performing mock retrieval tests to identify how best to achieve this requirement in practice and prepare for FCA retrieval requests.

Key Contents of the CASS Resolution Pack

The CP proposes that these requirements will form a new chapter: CASS 10A. The key elements that must be included in the CASS RP are:

• Master Document: a master document containing sufficient information to enable retrieval of each document forming the institution’s CASS RP.
• Senior Management and Key Personnel: details of and contact information for key individuals who are necessary for the performance of operational functions related to safeguarding, enabling insolvency practitioners to quickly establish communication and obtain necessary information.
• Banking/Custodian/Insurance Partners: details of all banking and custodian partners where relevant funds and assets are held and managed, and/or providers of insurance and comparable guarantees (where applicable) including copies of agreements (and side letters), acknowledgment letters (confirming safeguarding arrangements), and third-party due diligence records.
• Agents: details of each agent or electronic money distributor of the safeguarding institution as applicable.
• Group entities / Third Parties: details of any other group entity or third party involved in operational functions relating to safeguarding.
• Client Terms and Categorisation: client contracts related to safeguarding, along with a breakdown of client categorisation (e.g., retail, corporate) to facilitate accurate identification and segregation of funds.
• Policies and Procedures: detailed documentation of the firm's policies and procedures setting out the firm’s arrangements to ensure compliance with the safeguarding provisions of CASS 15.
• Records and Accounts: sufficient records and accounts that enable the firm to at any time and without delay distinguish between relevant funds and other funds, and individual client level records of relevant funds held sufficient to show and explain transactions and commitments for the firm’s relevant funds.
• Reconciliations: records of the firm’s most recent internal and external safeguarding reconciliations.

Notification Requirements

A safeguarding firm will be required to notify the FCA immediately in writing if it has not complied with, or is unable to comply with the requirement to maintain and be able to retrieve its CASS resolution pack in accordance with the CASS 10A requirements.

Implementation Timeframes and Audit Requirements

The CASS RP requirements under the CASS 10A chapter will come into force as part of the interim rules, six months after publication of the first policy statement. Firms should therefore begin preparation now to enable sufficient time for formulation and review of key contents, mock retrieval tests and governing body approvals.

Consistent with the current scope of CASS 6 and 7 audits, we do not expect the Safeguarding Resolution pack to form part of the new Safeguarding external audit requirements. Whilst acknowledging that external audit does not form part of the three lines of defence model, this may mean boards place greater reliance on assurance gained from the second and third lines or other external parties.

How Can We Help?

Our specialist Client Assets and Safeguarding team at Deloitte has extensive experience in this area and are here to support you as you navigate these upcoming changes.

We can help you:

• Write and implement your CASS resolution pack
• Review compliance of key documents forming the pack
• Perform mock retrieval tests
• Provide SME input and co-source into second and third line CASS RP monitoring/audits
• Provide training on CASS resolution pack requirements
   

Please contact us to discuss your requirements.