Practical guidance series, Theme 1, Part 3 of 6

Part 2 covered reconciliation discipline. This part steps back one level further, to the legal foundation underneath it: whether the account being reconciled is actually the right kind of account, and whether it genuinely has the trust status CASS requires.

What it looks like in practice

The most frequent finding is an acknowledgment letter that was never countersigned by the bank. The firm sent it, the account has been operating for months or years, but there’s no signed confirmation on file that the bank has actually agreed to the trust terms.

Close behind is an outdated letter. A bank changes its name, merges with another entity, or restructures, and the acknowledgment letter still refers to an entity that no longer exists, leaving a gap between what’s on paper and who the firm is actually banking with.

A third pattern is an incorrectly worded letter, missing either the required trust wording or the set-off waiver, the bank’s agreement not to combine the client account with the firm’s own accounts or exercise a right of set-off against it.

The most serious version of this finding is the wrong type of account entirely: client money held in a general business or operational account rather than one properly designated and confirmed as a client account.

Why it tends to happen

Acknowledgment letters are too often treated as a one-off box-tick at account opening, rather than something that needs maintaining for the life of the account.

Banks are frequently slow to countersign, and without an internal process to chase them, the letter simply sits unsigned indefinitely.

Handovers get lost, both at the bank, as relationship managers change, and within the firm, where nobody owns tracking the status of each letter once the account is opened.

And new accounts sometimes get opened outside the CASS-aware process entirely, for example by a finance team opening an account without compliance involvement, so the acknowledgment letter step gets missed from the outset.

Steps firms can take

Keep a single register covering every client bank account, recording the account type, the date the acknowledgment letter was sent, whether it’s been countersigned, and the date of the last review.

Do not move client money into an account until the acknowledgment letter is in place, as required under CASS 7.18.3R.

Set a defined chasing SLA for getting the bank’s countersignature, with escalation if it isn’t returned within that timeframe.

Review each acknowledgment letter at least annually, as required under CASS 7.18.12(2)R, and immediately whenever there’s a bank name or entity change.

Verify the account type and title as part of banking due diligence under CASS 7.13.10R and 7.13.11G, not only when the account is first opened but as part of the firm’s periodic review of each bank it uses.

Part 4 covers what happens once that foundation is in place: the mechanics of moving client money into and out of the account correctly, including the timing of top-ups and the Prudent Segregation trap.