CASS 7.6 Records, accounts and reconciliations

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.

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.

1. (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. (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.

3. (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.

1. (1)

   A firm should perform the required reconciliation of client money balances with external records:

   1. (a)

      as regularly as is necessary; and

   2. (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.

2. (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.

A method of reconciliation of client money balances with external records that the FSA believes is adequate is when a firm compares:

1. (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. (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.

Firms are reminded that the auditor of the firm has to confirm in the report submitted to the FSA 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 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).