CASS 7.6 Records, accounts and reconciliations
Records and accounts
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.
[Note: article 16(1)(a) of the MiFID implementing Directive]
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.
[Note: article 16(1)(b) of the MiFID implementing Directive]
Client entitlements
Pursuant to CASS 7.6.2 R, SYSC 4.1.1 R and SYSC 6.1.1 R, a firm should take reasonable steps to ensure that is notified promptly of any receipt of client money in the form of a client entitlement.
Record keeping
A firm must ensure that records made under CASS 7.6.1 R and CASS 7.6.2 R are retained for a period of five years after they were made.
A firm should ensure that it makes proper records, sufficient to show and explain the firm's transactions and commitments in respect of its client money.
Internal reconciliations of client money balances
- (1)
SYSC 4.1.1 R requires firms to have robust governance arrangements, such as internal control mechanisms, including sound administrative and accounting procedures and effective control and safeguard arrangements for information processing systems. In addition, SYSC 6.1.1 R requires firms to establish, implement and maintain adequate policies and procedures sufficient to ensure the firm's compliance with its obligations under the regulatory system. Carrying out internal reconciliations of records and accounts of the entitlement of each client for whom the firm holds client money with the records and accounts of the client money the firm holds in client bank accounts and client transaction accounts should be one of the steps a firm takes to satisfy its obligations under CASS 7.6.2 R, SYSC 4.1.1 R and SYSC 6.1.1 R.
- (2)
A firm should perform such internal reconciliations:
- (a)
as often as is necessary; and
- (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.
- (a)
- (3)
The standard method of internal client money reconciliation sets out a method of reconciliation of client money balances that the FSA believes should be one of the steps that a firm takes when carrying out internal reconciliations of client money.
Records
- (1)
A firm must make records, sufficient to show and explain the method of internal reconciliation of client money balances under CASS 7.6.2 R used, and if different from the standard method of internal client money reconciliation, to show and explain that:
- (a)
the method of internal reconciliation of client money balances used affords an equivalent degree of protection to the firm's clients to that afforded by the standard method of internal client money reconciliation; and
- (b)
in the event of a primary pooling event or a secondary pooling event, the method used is adequate to enable the firm to comply with the client money (MiFID business) distribution rules.
- (a)
- (2)
A firm must make these records on the date it starts using a method of internal reconciliation of client money balances and must keep it made for a period of five years after ceasing to use it.
A firm that does not use the standard method of internal client money reconciliation must first send a written confirmation to the FSA from the firm's auditor that the firm has in place systems and controls which are adequate to enable it to use another method effectively.
Reconciliations with external records
A firm must conduct, on a regular basis, reconciliations between its internal accounts and records and those of any third parties by whom client money is held.
[Note: article 16(1)(c) of the MiFID implementing Directive]
Frequency of external reconciliations
- (1)
A firm should perform the required reconciliation of client money balances with external records:
- (a)
as regularly as is necessary; and
- (b)
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 client money is held.
- (a)
- (2)
In determining whether the frequency is adequate, the firm should consider the risks which the business is exposed, such as the nature, volume and complexity of the business, and where and with whom the client money is held.
Method of external reconciliations
A method of reconciliation of client money balances with external records that the FSA believes is adequate is when a firm compares:
- (1)
the balance on each client bank account as recorded by the firm with the balance on that account as set out on the statement or other form of confirmation issued by the bank with which those accounts are held; and
- (2)
the balance, currency by currency, on each client transaction account as recorded by the firm, with the balance on that account as set out in the statement or other form of confirmation issued by the person with whom the account is held;
and identifies any discrepancies between them.
Any approved collateral held in accordance with the client money rules must be included within this reconciliation.
Reconciliation discrepancies
When any discrepancy arises as a result of a firm's internal reconciliations, the firm must identify the reason for the discrepancy and ensure that:
- (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)
any excess is withdrawn within the same time period (but see CASS 7.4.20 G and CASS 7.4.21 R).
When any discrepancy arises as a result of the reconciliation between a firm's internal records and those of third parties that hold client money, the firm must identify the reason for the discrepancy and correct it as soon as possible, 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 resolve a difference arising from a reconciliation between a firm's internal records and those of third parties that hold client money, and one record or a set of records examined by the firm during its reconciliation indicates that there is a need to have a greater amount of client money or approved collateral than is in fact the case, the firm must assume, until the matter is finally resolved, that the record or set of records is accurate and pay its own money into a relevant account.
Notification requirements
A firm must inform the FSA in writing without delay:
- (1)
if it has not complied with, or is unable, in any material respect, to comply with the requirements in CASS 7.6.1 R, CASS 7.6.2 R or CASS 7.6.9 R;
- (2)
if having carried out a reconciliation it has not complied with, or is unable, in any material respect, to comply with CASS 7.6.13 R to CASS 7.6.15 R.
Audit of compliance with the MiFID client money rules
Firms that do not adopt the normal approach are reminded that the firm's auditor must confirm to the FSA in writing that the firm has in place systems and controls which are adequate to enable it to operate the alternative approach effectively (see CASS 7.4.15 R).
Firms that do not use the standard method of internal client money reconciliation are reminded that the firm's auditor must confirm to the FSA in writing that the firm has in place systems and controls which are adequate to enable it to use another method effectively (see CASS 7.6.8 R).