CASS 7.15 Records, accounts and reconciliations

A firm must keep such records and accounts as are necessary to enable it, at any time and without delay, to distinguish client money held for one client from client money held for any other client, and from its own money.

A firm must maintain its records and accounts in a way that ensures their accuracy, and in particular their correspondence to the client money held for clients and that they may be used as an audit trail2.

1. (1)

   A firm must maintain records so that it is able to promptly determine the total amount of client money it should be holding for each of its clients.

2. (2)

   A firm must ensure that its records are sufficient to show and explain its transactions and commitments for its client money.

3. (3)

   Unless otherwise stated, a firm must ensure that any record made under the this chapter is retained for a period of five years starting from the later of:

   1. (a)

      the date it was created; and

   2. (b)

      (if it has been modified since the date it was created), the date it was most recently modified.

For each internal client money reconciliation and external client money reconciliation the firm conducts, it must ensure that it records:

1. (1)

   the date it carried out the relevant process;

2. (2)

   the actions the firm took in carrying out the relevant process; and

3. (3)

   the outcome of its calculation of its client money requirement and client money resource.

A firm must maintain appropriate records that account for all receipts of client money in the form of cash, cheque or other payable order that are not yet deposited in a client bank account (see CASS 7.13.32 R and CASS 7.13.33 R).

If a firm draws a cheque, or other payable order, to discharge its fiduciary duty to its clients (see CASS 7.11.40 R),1 it must continue to record its obligation to its clients until the cheque, or other payable order, is presented and paid by the bank.

An internal client money reconciliation requires a firm to carry out a reconciliation of its internal records and accounts of the amount of client money that the firm holds for each client with its internal records and accounts of the client money the firm should hold in client bank accounts or has placed in client transaction accounts.

In carrying out an internal client money reconciliation, a firm must use the values contained in its internal records and ledgers (for example, its cash book or other internal accounting records) rather than the values contained in the records it has obtained from banks and other third parties with whom it has placed client money (for example, bank statements).

1. (1)

   Subject to paragraph (4), a3 firm must perform an internal client money reconciliation:

   1. (a)

      each business day; and

   2. (b)

      based on the records of the firm as at the close of business on the previous business day.

2. (2)

   When performing an internal client money reconciliation, a firm must, subject to (3), follow one of the standard methods of internal client money reconciliation in CASS 7.16.

3. (3)

   A firm proposing to follow a non-standard method of internal client money reconciliation must comply with the requirements in CASS 7.15.17 R to CASS 7.15.19 G.

4. (4)

   Following a primary pooling event, and in addition to any obligations of a special administrator under regulation 10H of the IBSA Regulations:3

   1. (a)

      a firm must perform an internal client money reconciliation that relates to the time of the primary pooling event as soon as reasonably practicable after the primary pooling event; and3

   2. (b)

      the firm must perform further internal client money reconciliations as regularly as required under paragraph (5), based on the records of the firm as at the close of business on the business day before the day on which the reconciliation takes place.3

5. (5)

   A firm must determine when and how often to perform an internal client money reconciliation under paragraph (4)(b) so as to ensure that:3

   1. (a)

      the firm remains in compliance with CASS 7.15.2R, CASS 7.15.3R and CASS 7.15.5R(1) and (2) (Record keeping); and3

   2. (b)

      the correct amounts of client money are returned to clients or transferred on behalf of clients under the client money distribution and transfer rules.3

1. (1)

   A firm which has adopted the normal approach to segregating client money (see CASS 7.13.6 R) must use the internal client money reconciliation to check whether its client money resource, as at the close of business on the previous business day, was equal to its client money requirement at the close of business on that previous day.

2. (2)

   A firm that adopts the alternative approach to segregating client money (see CASS 7.13.54 G) must use the internal client money reconciliation to ensure that its client money resource as at the close of business on any day it carries out an internal client money reconciliation is equal to its client money requirement at the close of business on the previous day.

A non-standard method of internal client money reconciliation is a method of internal client money reconciliation which does not meet the requirements in CASS 7.16 (The standard methods of internal client money reconciliation).

1. (1)

   Before using a non-standard method of internal client money reconciliation, a firm must:

   1. (a)

      establish and document in writing its reasons for concluding that the method of internal client money reconciliation it proposes to use will:

      1. (i)

         (for the normal approach to segregating client money) check whether the amount of client money recorded in the firm's records as being segregated in client bank accounts meets the firm's obligation to its clients under the client money rules on a daily basis; or

      2. (ii)

         (for the alternative approach to segregating client money) calculate the amount of client money to be segregated in client bank accounts which meets the firm's obligations to its clients under the client money rules on a daily basis;

   2. (b)

      notify the FCA of its intentions to use a non-standard method of internal client money reconciliation; and

   3. (c)

      send a written report to the FCA prepared by an independent auditor of the firm in line with a reasonable assurance engagement and stating the matters set out in (2).

2. (2)

   The written report in (1)(c) must state whether in the auditor's opinion:

   1. (a)

      the method of internal client money reconciliation which the firm will use is suitably designed to enable it to (as applicable):

      1. (i)

         (for the normal approach to segregating client money) check whether the amount of client money recorded in the firm's records as being segregated in client bank accounts meets the firm's obligation to its clients under the client money rules on a daily basis; or

      2. (ii)

         (for the alternative approach to segregating client money) calculate the amount of client money to be segregated in client bank accounts which meets the firm's obligations to its clients under the client money rules on a daily basis; and

   2. (b)

      the firm's systems and controls are suitably designed to enable it to carry out the method of internal client money reconciliation the firm will use.

3. (3)

   A firm using a non-standard method of internal client money reconciliation must not materially change its method of undertaking internal client money reconciliations unless:

   1. (a)

      the firm has established and documented in writing it reasons for concluding that the changed methodology will meet the requirements in (1)(a)(i) and (ii), as applicable;

   2. (b)

      an auditor of the firm has prepared a report that complies with the requirements in (1)(c) and (2) in respect of the firm's proposed changes; and

   3. (c)

      the firm provides a copy of the report prepared by the auditor under (2) to the FCA before implementing the change .

A firm must conduct, on a regular basis, reconciliations between its internal records and accounts and those of any third parties which hold client money.

[Note: article 2(1)(c) of the MiFID Delegated Directive2]

3CASS 7.15.22R to 7.15.26R do not apply to a firm following a primary pooling event.

A firm must perform an external client money reconciliation:

1. (1)

   as regularly as is necessary but without allowing more than one month to pass between each external client money reconciliation; and

2. (2)

   as soon as reasonably practicable after the date to which the external client money reconciliation relates.

When determining the frequency at which it will undertake external client money reconciliations, a firm must have regard to:

1. (1)

   the frequency, number and value of transactions which the firm undertakes in respect of client money; and

2. (2)

   the risks to which the client money is exposed, such as the nature, volume and complexity of the firm's business and where and with whom client money is held.

1. (1)

   A firm must make and retain records sufficient to show and explain any decision it has taken under CASS 7.15.23 R when determining the frequency of its external client money reconciliation. Subject to (2), any such records must be retained indefinitely.

2. (2)

   If any decision under CASS 7.15.23 R is superseded by a subsequent decision under that rule then the record of that earlier decision retained in accordance with (1) need only be retained for a further period of five years from the subsequent decision.

1. (1)

   Subject to (3), a firm must review the frequency it conducts its external client money reconciliations at least annually to ensure that it continues to comply with CASS 7.15.22 R and has given due consideration to the matters in CASS 7.15.23 R.

2. (2)

   For each review a firm undertakes under (1), it must record the date and the actions it took in reviewing the frequency of its external client money reconciliations.

3. (3)

   A firm need not carry out a review under (1) if it is conducting external client money reconciliations each business day.

3Following a primary pooling event, and in addition to any obligations of a special administrator under regulation 10H of the IBSA Regulations:

1. (1)

   a firm must perform an external client money reconciliation that relates to the time of the primary pooling event as soon as reasonably practicable after the primary pooling event, based on the next available statements or other form of confirmation after the primary pooling event from:

   1. (a)

      the banks with which the firm holds a client bank account; and

   2. (b)

      the persons with which the firm holds a client transaction account; and

2. (2)

   the firm must perform further external client money reconciliations on a regular basis:

   1. (a)

      with a suitable frequency to ensure that the correct amounts of client money are returned to clients or transferred on behalf of clients under the client money distribution and transfer rules; and

   2. (b)

      as soon as reasonably practicable after the date to which the external client money reconciliation relates.

3When determining the frequency with which it will undertake external client money reconciliations under CASS 7.15.26AR(2) after a primary pooling event, a firm must have regard to:

1. (1)

   the frequency, number and value of transactions which the firm undertakes in respect of client money;

2. (2)

   the risks to which the client money is exposed, such as the nature, volume and complexity of the firm’s business and where and with whom client money is held; and

3. (3)

   the need to be able to verify that:

   1. (a)

      client money within each notional pool formed under CASS 7A.2.4R(1) and (1A) (Pooling and distribution or transfer), and client money that is required under CASS 7A.2.4R(3) (Pooling and distribution or transfer) and CASS 7A.2.7-AR (Client money received after a primary pooling event) to be treated as outside of any notional pool, has not been incorrectly distributed, transferred or dissipated; and

   2. (b)

      the proceeds of any payments and transactions that settle after the primary pooling event and which involve client money, including interest payments and other amounts included in the client money resource, have been received correctly.

An external client money reconciliation requires a firm to:

1. (1)

   compare:

   1. (a)

      the balance, currency by currency, on each client bank account recorded by the firm, as set out in the most recent statement or other form of confirmation issued by the bank with which those accounts are held; and

   2. (b)

      the balance, currency by currency, on each client transaction account as recorded by the firm, as set out in the most recent statement or other form of confirmation issued by the person with whom the account is held; and

2. (2)

   promptly identify and resolve any discrepancies between those balances under CASS 7.15.31 R and CASS 7.15.32 R.

A firm must ensure it includes the following items within its external client money reconciliation:

1. (1)

   any client's approved collateral a firm holds which secures an individual negative client equity balance (see CASS 7.16.32 R); and

2. (2)

   any of its own approved collateral a firm holds which is used to meet the total margin transaction requirement in CASS 7.16.33 R.

When a discrepancy arises between a firm's client money resource and its client money requirement identified by a firm's internal client money reconciliations, the firm must determine the reason for the discrepancy and, subject to CASS 7.15.29AR,3 ensure that:

1. (1)

   any shortfall is paid into a client bank account by the close of business on the day that the reconciliation is performed; or

2. (2)

   any excess is withdrawn from a client bank account within the same time period.

3A firm that has failed is not required to make a payment or withdrawal under CASS 7.15.29R(1) or CASS 7.15.29R(2) respectively in so far as the legal procedure for the firm’s failure restricts the firm from doing so.

If any discrepancy is identified by an external client money reconciliation, the firm must investigate the reason for the discrepancy and take all reasonable steps to resolve1 it without undue delay, unless the discrepancy arises solely as a result of timing differences between the accounting systems of the party providing the statement or confirmation and that of the firm.

While a firm is unable to immediately resolve a discrepancy identified by an external client money reconciliation, and one record or set of records examined by the firm during its external client money reconciliation indicates that there is a need to have a greater amount of client money or, if appropriate, approved collateral than is the case, the firm must assume, until the matter is finally resolved, that that record or set of records is accurate and, subject to CASS 7.15.32AR,3 pay its own money into a relevant account.

3A firm that has failed is not required to pay its own money into a relevant account under CASS 7.15.32R in so far as the legal procedure for the firm’s failure restricts the firm from doing so.

A firm must inform the FCA in writing without delay if:

1. (1)

   its internal records and accounts of client money are materially out of date, inaccurate or invalid so that the firm is no longer able to comply with the requirements in CASS 7.15.2 R, CASS 7.15.3 R or CASS 7.15.5 R (1);

2. (2)

   it will be unable to, or materially fails to, pay any shortfall into a client bank account or withdraw any excess from a client bank account so that the firm is unable to comply with CASS 7.15.29 R after having carried out an internal client money reconciliation;

3. (3)

   it will be unable to, or materially fails to, identify and resolve any discrepancies under CASS 7.15.31 R to CASS 7.15.32 R after having carried out an external client money reconciliation;

4. (4)

   it will be unable to, or materially fails to, conduct an internal client money reconciliation in compliance with CASS 7.15.12 R and CASS 7.15.15 R;

5. (5)

   it will be unable to, or materially fails to, conduct an external client money reconciliation in compliance with CASS 7.15.20 R to CASS 7.15.28 R; and

6. (6)

   it becomes aware that, at any time in the preceding 12 months, the amount of client money segregated in its client bank accounts materially differed from the total aggregate amount of client money the firm was required to segregate in client bank accounts under the client money segregation requirements.