Client money, in United Kingdom financial regulation, is money that an authorized firm receives or holds for, or on behalf of, its customers in connection with regulated business, and that is subject to the client money rules of the Financial Conduct Authority (FCA). The rules sit in the Client Assets sourcebook (CASS) of the FCA Handbook and require such money to be kept separate from the firm's own money, clearly identified, and protected if the firm fails.
The term is used more loosely elsewhere to mean any customer funds a business holds. In the UK it is a defined concept with distinct regimes for different sectors, and it should not be confused with the safeguarding regime that applies to payment and e-money institutions.
Client money regimes under CASS
CASS contains separate client money chapters for different types of business:
- Investment business (CASS 7) — brokers, investment managers and other firms holding money for clients in connection with designated investment business, such as cash awaiting investment or proceeds of sales.
- Insurance distribution (CASS 5) — insurance brokers and intermediaries holding premiums, claims money and refunds, unless they hold money as agent of the insurer under a risk transfer arrangement.
- Debt management (CASS 11) — firms that collect money from consumers and distribute it to creditors.
- Claims management (CASS 13) — firms that receive compensation on behalf of customers pursuing claims.
The detailed rules differ between regimes, but all aim to ensure that customer money is not available to the firm's creditors if the firm becomes insolvent.
How client money is protected
In investment business, client money is held under a statutory trust: the firm holds it as trustee for its clients, so it falls outside the firm's estate on insolvency. Firms must place it promptly in client bank accounts, often pooled accounts holding many clients' money together, at banks that have acknowledged in writing that the money belongs to clients and cannot be used to offset the firm's debts. A segregated account structure of this kind is central to the segregation of funds.
Firms must also perform regular internal and external reconciliations, comparing their records of what each client is owed with the balances actually held in client accounts, and correct any shortfall from their own money. Larger firms must appoint a senior individual responsible for CASS oversight, and an external auditor must report to the FCA on the firm's compliance in an annual client assets report. Firms must notify the FCA promptly of material breaches.
Client money compared with safeguarding
Payment institutions and electronic money institutions do not usually hold client money in the CASS sense. Instead, the Payment Services Regulations 2017 and the Electronic Money Regulations 2011 require them to safeguard relevant funds, either by segregating them in a designated safeguarding account or by covering them with an insurance policy or comparable guarantee. The objectives are similar, but the legal mechanism, the reconciliation requirements and the treatment on insolvency differ, which matters when a firm combines investment and payment activities. A payment institution that also arranges investments, for example, may be subject to both regimes for different money flows.
Lessons from Lehman Brothers
The client money rules were tested by the collapse of Lehman Brothers International (Europe) in 2008, during the 2008 financial crisis, when it emerged that the firm had not segregated significant sums that should have been treated as client money. The resulting litigation, which reached the UK Supreme Court in 2012, clarified how the statutory trust works, including that clients whose money was not segregated could still share in the pool of client money. Subsequent reforms tightened CASS, increased the FCA's supervisory focus on client assets and introduced a special administration regime for failed investment banks.
Practical considerations
Client money rules shape how regulated firms design their bank account structures, ledgers and treasury operations. Funds may not be used for the firm's own purposes, interest arrangements must be disclosed, and unclaimed balances are subject to specific rules. Firms that operate through appointed representatives remain responsible for client money handled in their name. Breaches are a common source of FCA enforcement action and fines. For the FCA's broader role, see the Financial Conduct Authority regulator profile.