Navigating Consumer Duty’s impact on CASS compliance: key insights from TISA’s survey
Lisa Laybourn, Policy Director, TISA
The introduction of Consumer Duty (CD) regulations has sparked a range of challenges and opportunities for firms working within the Client Assets Sourcebook (CASS) framework. TISA’s recent CASS Compliance Survey, conducted in partnership with fscom, reveals the evolving dynamics and concerns firms are grappling with as they strive to meet CD requirements while maintaining strong CASS compliance.
How Consumer Duty is shaping CASS
CASS is central to ensuring consumer protection by imposing rules that safeguard clients’ money in the event of firm insolvency or misconduct. While CASS has long provided a framework for safeguarding clients’ money and assets, the Consumer Duty reinforces these protections by raising the bar on firms’ conduct and their duty of care toward consumers. However, the survey indicates that CD hasn’t fully permeated into the CASS function for all firms. While 59% of firms reported a moderate impact on their CASS compliance processes, 6 out of 10 firms acknowledged feeling the impact, but at varying levels. This suggests that while CASS functions already operate under stringent regulations to protect client money, there is still room for further integration of Consumer Duty principles.
At the more extreme end, 3% of firms reported a significant impact on their CASS processes. This highlights how CD is adding layers of scrutiny, especially around acting in the best interests of their clients, with a focus on good consumer outcomes. Respondents expressed a clear need for more guidance, with 77% calling for further clarification from the FCA on how Consumer Duty intersects with CASS compliance.
Interest retention and fee disclosure: an ongoing debate
One of the most critical areas of concern raised in the survey is how firms manage interest earned on client money deposits. The survey revealed that 43% of firms pass on only partial interest to clients, while 22% do not pass on any interest at all. While firms often justify interest retention as necessary for offsetting operational costs or enhancing service delivery, critics argue that clients are entitled to benefit from the interest generated on their own funds. Under CASS rules, interest retention must be clearly disclosed to clients, but the question remains whether this practice aligns with the Consumer Duty’s requirement to deliver “good outcomes” for consumers.
Surprisingly, 44% of firms that retain interest have not yet disclosed this as a fee under the new regulations. This lack of disclosure raises concerns about the transparency of these practices, with almost a quarter (24%) of firms expressing concern over the FCA’s stance on “double dipping” – retaining interest while also charging fees. Some firms acknowledged that significant changes to current practices may be necessary to ensure compliance, although these changes could impact their commercial appeal.
A call for greater clarity
Firms are required to undergo annual external audits to ensure compliance with CASS. While this external review provides a critical safeguard against client asset mismanagement, the costs involved in these audits can be significant, including auditor fees, additional internal resource allocation, and potentially upgrading systems to rectify any compliance weaknesses. In many cases, the cost of the CASS audit is factored into overall operational expenses, which are then reflected in the fees charged to clients.
A key theme emerging from the survey is the inconsistency in how CASS rules are interpreted by audit firms, in a number of areas such as use of Payment Service Providers (PSPs).
In particular, firms highlighted the challenges posed by inconsistent audit interpretations, with different audit firms applying varying approaches to CASS compliance. This variability in audit approaches can lead to confusion and added costs for firms trying to meet regulatory expectations. It is particularly problematic as firms face mounting pressure to not only ensure that their compliance with CASS is technically sound, but also reflects the spirit of the Consumer Duty’s focus on fairness and transparency, , creating a regulatory landscape that is increasingly difficult to navigate.
Looking ahead
The findings from TISA’s survey highlight the need to dig deeper into how Consumer Duty interacts with CASS compliance. To truly understand the impact and shape best practices, more focused research and open conversations within the industry are key. As such, TISA will continue working closely with its members and the FCA to address these challenges and drive the conversation forward.
Read more about TISA’s CASS Compliance survey here: TISA CASS Compliance Survey Results – TISA
Does this resonate with your firm’s experience? We would love to hear your thoughts on how Consumer Duty is impacting your CASS compliance processes.