CASS 6.5 Records, accounts and reconciliations

1. (1)

   Carrying out internal reconciliations of the safe custody assets2 held for each client with the safe custody assets2 held by the firm and third parties is an important step in the discharge of the firm's obligations under CASS 6.5.2 R (Records and accounts) and,4 where relevant,2SYSC 4.1.1 R (General requirements)4 and SYSC 6.1.1 R (Compliance).4

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2. (1A)

   For a firmacting as trustee or depositary of an AIF that is an authorised AIF, carrying out internal reconciliations of the safe custody assets held for each client with the safe custody assets held by the firm and third parties is an important step in the discharge of the firm's obligations under article 89(1)(b) (Safekeeping duties with regard to assets held in custody) of the AIFMD level 2 regulation and, where relevant, SYSC 4.1.1 R (General requirements) and SYSC 6.1.1 R (Compliance).5

3. (2)

   A firm should perform such internal reconciliations:

   1. (a)

      as often as is necessary; and

   2. (b)

      as soon as reasonably practicable after the date to which the reconciliation relates;

   to ensure the accuracy of the firm's records and accounts.

4. (3)

   Reconciliation methods which can be adopted for these purposes include the 'total count method', which requires that all safe custody assets2 be counted and reconciled as at the same date.

   2
5. (4)

   If a firm chooses to use an alternative reconciliation method (for example the 'rolling stock method') it needs to ensure that:

   1. (a)

      all of a particular safe custody asset2 are counted and reconciled as at the same date; and

      2
   2. (b)

      all safe custody assets2 are counted and reconciled during a period of six months.

      2

Where a firm deposits safe custody assets2 belonging to a client with a third party, in complying with the requirements of CASS 6.5.6 R, the firm should seek to ensure that the third party will deliver to the firm a statement as at a date or dates specified by the firm which details the description and amounts of all the safe custody assets2 credited to the account, and that this statement is delivered in adequate time to allow the firm to carry out the periodic reconciliations required in CASS 6.5.6 R.

5If a firmacting as trustee or depositary of an AIF that is an authorised AIF deposits safe custody assets belonging to a client with a third party, under article 89(1)(c) (Safekeeping duties with regard to assets held in custody) of the AIFMD level 2 regulation, the firm should seek to ensure that the third party will deliver to the firm a statement as at a date or dates specified by the firm which details the description and amounts of all the safe custody assets credited to the account, and that this statement is delivered in adequate time to allow the firm to carry out the periodic reconciliations required under article 89(1)(c) (Safekeeping duties with regard to assets held in custody) of the AIFMD level 2 regulation.

A firm should perform the reconciliation required by CASS 6.5.6 R:

1. (1)

   as regularly as is necessary; and

2. (2)

   as soon as reasonably practicable after the date to which the reconciliation relates;

to ensure the accuracy of its internal accounts and records against those of third parties by whom safe custody assets2 are held.

5A firmacting as trustee or depositary of an AIF that is an authorised AIF should perform the reconciliation under article 89(1)(c) (Safekeeping duties with regard to assets held in custody) of the AIFMD level 2 regulation:

1. (1)

   as regularly as is necessary; and

2. (2)

   as soon as reasonably practicable after the date to which the reconciliation relates;

to ensure the accuracy of its internal accounts and records against those of third parties by whom safe custody assets are held.

Whenever possible, a firm should ensure that reconciliations are carried out by a person (for example an employee of the firm) who is independent of the production or maintenance of the records to be reconciled.

Items recorded or held within a suspense or error account fall within the scope of discrepancies.

A firm may, where justified, conclude that another person is responsible for an irreconcilable shortfall despite the existence of a dispute with that other person about the unreconciled item. In those circumstances, the firm is not required to make good the shortfall but is expected to take reasonable steps to resolve the position with the other person.

Firms are reminded that the auditor of the firm has to confirm in the report submitted to the FCA under SUP 3.10 (Duties of auditors: notification and report on client assets) that the firm has maintained systems adequate to enable it to comply with the custody rules.4