Study guide
6.5 Prudential Standards, CASS and the SMCR
CeMAP Module 1 Financial Services, Regulation and Ethics
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1 Introduction
1.1 About the CeMAP Module 1 (FSRE) Exam 1.2 How to Use This Study Guide
2 UK Financial Services Industry and the Wider Economy
2.1 Purpose and Role of Money and Financial Markets 2.2 Structure of UK and International Financial Markets 2.3 Types of Main Markets and Market Participants 2.4 Asset Classes and Their Characteristics 2.5 The UK Government, EU Influence and International Standards 2.6 Bank of England, Financial Institutions and Financial Crime
3 Serving the Retail Consumer
3.1 Consumer Perceptions and Firm Obligations 3.2 Consumer Financial Needs and How They Are Met 3.3 Product Types and Their Functions
4 Legal Concepts for Financial Advice
4.1 Legal Entities and Powers of Attorney 4.2 Law of Contract and Agency 4.3 Property Ownership, Insolvency and Bankruptcy 4.4 Wills and Intestacy 4.5 Trusts: Structure, Purpose and Types
5 Development of UK Financial Services Regulation
5.1 History of UK Regulation 1986–2021 5.2 The UK Regulatory Framework and Other Regulators 5.3 Additional Oversight: Senior Management, Auditors, Trustees and External Compliance
6 The FCA and PRA and Their Handbook
6.1 FCA and PRA: Statutory and Operational Objectives 6.2 Principles-Based Regulation, Duties and Enforcement Powers 6.3 Purpose and Structure of the FCA Handbook 6.4 High-Level Standards and the Training and Competence (T&C) Regime 6.5 Prudential Standards, CASS and the SMCR 6.6 Conduct of Business (COBS) Rules 6.7 Regulatory Processes, Regulated Activities and Authorisation
7 Advising Clients: Skills and Process
7.1 Communication Skills for Advisers 7.2 Gathering Information and the Fact-Find 7.3 Assessment, Analysis and Identifying Appropriate Solutions 7.4 Recommendations, Conclusions and Insistent Clients
8 Principles for Businesses and Conduct Rules
8.1 Principles for Businesses and Conduct of Business Rules 8.2 Preventing Harm, the Market Conduct Code (MAR) and Conduct Risk 8.3 Corporate Culture, Leadership and Senior Management Responsibilities 8.4 Consumer Rights and Unfair Contract Terms
9 Regulatory Framework Rules and Consumer Protection
9.1 Record Keeping, Reporting and Notification Requirements 9.2 Anti-Money Laundering and Proceeds of Crime 9.3 Data Protection and Data Security 9.4 Complaint Handling and the Financial Ombudsman Service 9.5 FSCS, Treating Customers Fairly and Conduct Risk
10 The Regulatory Advice Framework
10.1 Client Relationships, Adviser Responsibilities and Types of Clients 10.2 Fiduciary Relationships and Types of Service Provision 10.3 Disclosure Requirements and Adviser Charging 10.4 Limitations to Authority, Cancellation Rights and Vulnerable Clients 10.5 Regulated Advice Standards and Due Diligence on Products 10.6 Monitoring and Reviewing Client Circumstances
11 Ethics and Professional Behaviour
11.1 Core Ethical Theories, Principles and Values 11.2 Impact of Ethical Principles and Professional Codes of Conduct 11.3 The Code of Ethics and Resolving Ethical Dilemmas 11.4 Business Ethics, Whistleblowing and Ethical Culture 11.5 Professionalism, CPD and Ethical vs Compliance-Driven Behaviour
6.5 Prudential Standards, CASS and the SMCR
Key Takeaways Explain This Topic AI
FCA prudential rules apply to non-PRA-regulated firms via GENPRU, IFPRU, MIFIDPRU, MIPRU and BIPRU, with MIPRU providing a simplified regime for small mortgage and insurance intermediaries
CASS protects client money and safe custody assets by requiring segregation in designated client bank accounts, regular reconciliation, CMAR submissions and a CASS Resolution Pack
CASS 5 covers client money for small investment firms; CASS 7 is the main client money chapter for most investment firms; CASS 6 covers custody
The SMCR has three components — Senior Managers Regime (FCA-approved), Certification Regime (firm-certified annually), and Conduct Rules (apply to almost all staff)
Each SMF holder must have a Statement of Responsibilities mapped to the firm's Management Responsibilities Map; senior managers can be fined or prohibited personally for failures within their areas
Last updated: July 2026
Prudential standards, the Client Assets Sourcebook (CASS), and the Senior Managers and Certification Regime (SMCR) form the operational core of how authorised firms are kept safe and well-governed. Prudential rules protect firms against failure; CASS protects client money when firms fail; and the SMCR ensures named individuals are accountable for both.
Prudential Standards for FCA-Regulated Firms
The FCA's prudential rules apply to firms that are not PRA-regulated (the PRA sets prudential rules for major banks, building societies and insurers). For FCA-regulated firms, the relevant sourcebooks depend on the firm's type and size.
- Sourcebook Applies To Key Requirements
- GENPRU All FCA-regulated firms General capital and financial resources rules
IFPRU Class 2 and 3 investment firms Capital, liquidity, reporting under UK Investment Firms Prudential Regime (UK-IFR)
MIFIDPRU Larger MiFID investment firms K-factor-based capital requirements (post-Brexit UK-IFPRU)
MIPRU Mortgage and insurance intermediaries (small firms) Simplified capital — typically £5,000 or 2.5% of annual income; PI insurance
- BIPRU Banks (legacy) Mostly replaced by UK CRR / Basel 3.1; small deposit-takers still use parts
- Capital Adequacy
Capital adequacy means holding enough own funds to absorb losses without becoming insolvent. The amount required depends on the firm's activities and risks:
Mortgage and insurance intermediaries (MIPRU) — fixed minimum £5,000 plus a variable element based on expenditure
Investment firms (IFPRU/MIFIDPRU) — risk-sensitive K-factors (e.g. assets under management, daily trading flow, orders handled) computed under UK-IFR
- Deposit-takers — minimum own funds under UK CRR, supervised by the PRA
- Liquidity
Liquidity means holding sufficient liquid assets (cash, high-quality government bonds) to meet obligations as they fall due. The PRA supervises bank liquidity under the UK Liquidity Coverage Ratio; FCA-regulated investment firms under UK-IFPRU have a basic liquidity requirement proportionate to their activities.
Reporting
Firms must submit FIN-A (annual) and FIN-C (semi-annual) returns to the FCA, plus more frequent returns for some categories. The GABRIEL system (now the RegData platform) is the FCA's electronic reporting gateway. Failure to submit is itself a breach and a leading indicator of supervisory concern.
CASS: The Client Assets Sourcebook
The Client Assets Sourcebook (CASS) protects client money and safe custody assets when an authorised firm fails. The rules require firms to segregate client assets from the firm's own assets so that, on insolvency, client assets are returned to clients rather than entering the general pool available to the firm's creditors.
Key CASS Chapters
- Chapter Topic
- CASS 1 Application and CASS firm classification
- CASS 1A CASS Resolution Pack
- CASS 3 Dissemination of client reports
- CASS 5 Client money rules for investment firms (small firms)
- CASS 6 Custody rules (safekeeping of client investments)
- CASS 7 Client money rules (main chapter — most investment firms)
- CASS 7A Client money rules for insurance intermediaries
- CASS 9 Information to clients
- CASS 10 CASS resolution pack
- CASS 11 Debt management client money
- CASS 12 Designated investment firms
- CASS 13 Mandates for investment firms
- How CASS Works
A CASS firm must:
- Identify client money and assets at all times
- Segregate them from the firm's own money in a client bank account with an approved bank
- Reconcile regularly (typically daily for client money; at least every 25 business days for custody assets)
- Record the title to client assets in a way that is identifiable
- Submit CMAR (Client Money and Asset Return) monthly to the FCA
- Maintain a CASS Resolution Pack that allows an insolvency practitioner to wind down the firm in 7 days
- CASS 5 vs CASS 7
The distinction matters for examination purposes. CASS 5 applies to small investment firms that hold client money and operate a non-designated client bank account; CASS 7 applies to most other investment firms that hold client money, including through designated client bank accounts. In practice most investment advisers are CASS 7 firms. Mortgage advisers generally do not hold client money and may not be subject to CASS at all.
The Senior Managers and Certification Regime (SMCR)
The SMCR replaced the Approved Persons Regime for FCA solo-regulated firms from 9 December 2019. Its purpose is to make senior individuals personally accountable for the parts of the business they run, and to ensure that all staff are subject to enforceable Conduct Rules.
Three Components of the SMCR
Component Who Approval
Senior Managers Regime (SMR) Senior Management Function (SMF) holders — e.g. CEO, CFO, SMF16 (Compliance Oversight), SMF17 (Money Laundering Reporting Officer) FCA approval required
Certification Regime Certified staff who could cause significant harm — e.g. material risk takers, client-dealing functions Firm certifies annually
- Conduct Rules (COCON) Almost all staff (except certain ancillary roles) Apply automatically
- Senior Manager Liability
Each SMF must have a Statement of Responsibilities (SoR) describing the areas they are accountable for, mapped to the firm's Management Responsibilities Map . Prescribed Responsibilities ensure that at least one SMF is named as accountable for each key area, including:
- Compliance with the FCA's rules and regulatory obligations
- The firm's Consumer Duty outcomes
- CASS compliance (PR(z))
- Whistleblowing and complaints handling
A senior manager who fails to take reasonable steps to prevent a breach within their area can be fined or prohibited personally, without the firm itself being fined first.
Conduct Rules (COCON)
The Individual Conduct Rules apply to all staff under the SMCR:
- Act with integrity
- Act with due skill, care and diligence
- Be open and co-operative with the FCA, the PRA and other regulators
- Pay due regard to the interests of customers and treat them fairly
- Observe proper standards of market conduct
The Senior Manager Conduct Rules add:
- Take reasonable steps to ensure that the business complies with relevant requirements
- Take reasonable steps to ensure that any delegation of responsibilities is effective
- Take reasonable steps to ensure that the firm is organised so it can be controlled effectively
- Phase 1 Reforms 2026
The FCA and PRA published PS26/6 on 22 April 2026, with Phase 1 SMCR reforms effective from 24 April 2026, further changes from 10 July 2026, and non-financial misconduct alignment from 1 September 2026. Key changes: criminal records check validity extended from 3 to 6 months; the 12-week rule modified so SMF candidates may act while their application is being determined; digital certification permitted; Directory updates within 20 business days for most changes.
Fitness and Propriety
Firms must assess the fitness and propriety of SMFs and certified staff on appointment and at least annually. The test (in FIT and SYSC 5 ) considers honesty, integrity, competence, capability, and financial soundness. Regulatory references must be obtained from previous employers for the previous 6 years before appointment.
- Key Takeaways
- FCA prudential rules are in GENPRU, IFPRU, MIFIDPRU, MIPRU (small firms) and BIPRU (legacy banks)
CASS protects client money and custody assets through segregation, reconciliation, CMAR and a CASS Resolution Pack
CASS 5 covers small investment firms; CASS 7 is the main client money chapter; CASS 6 covers custody
The SMCR has three components: Senior Managers Regime (FCA-approved), Certification Regime (firm-certified), and Conduct Rules