CASS 6.5 Records, accounts and reconciliations

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 the financial instruments held for each client with the financial instruments 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, 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)

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

4. (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 financial instrument are counted and reconciled as at the same date; and

   2. (b)

      all financial instruments are counted and reconciled during a period of six months.

Where a firm deposits financial instruments 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 financial instruments 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.

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 financial instruments 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 (see SYSC 5.1.6 R).

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 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 rules in this chapter.

Firms that use an alternative reconciliation method 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 6.5.5 R).