CASS 15.8 Records, accounts and reconciliations

A safeguarding institution must establish, implement and maintain adequate policies and procedures sufficient to ensure compliance of the safeguarding institution (including in relation to any services provided through an agent or electronic money distributor) with the relevant funds regime.

In complying with the requirement in CASS 15.8.1R, a safeguarding institution should establish and maintain policies and procedures that include (but are not limited to): 

1. (1) the frequency and method of the reconciliations the safeguarding institution is required to carry out under this section;

2. (2) the resolution of reconciliation discrepancies under this section; and 

3. (3) the frequency at which the safeguarding institution is required to review its arrangements in compliance with this chapter.

1. (1) A safeguarding institution must keep such records and accounts as are necessary to enable it, at any time and without delay, to distinguish between relevant funds and other funds.

2. (2) Where an electronic money institution or credit union provides payment services that are unrelated to the issuance of electronic money, the provisions of CASS 15.8 shall be read as if they apply separately to the institution’s unrelated payment services asset pool and to its electronic money asset pool.

An effect of CASS 15.8.3R(1) is that a safeguarding institution that provides services that are not payment services or the issuance of electronic money must ensure it has adequate policies and procedures in place to identify and determine when it is holding relevant funds and when it is holding or in receipt of funds relating to its other activities.

The effect of CASS 15.8.3R(2) includes that: 

1. (1) the safeguarding institution will need to carry out a separate reconciliation of its unrelated payment services asset pool and of its electronic money asset pool; and 

2. (2) an electronic money institution or credit union must ensure it has adequate policies and procedures to distinguish between relevant funds received or held for the provision of payment services unrelated to the issuance of electronic money and relevant funds it receives in exchange for electronic money.

A safeguarding institution must maintain its records and accounts in a way that ensures their accuracy and, in particular, their correspondence to the relevant funds held for clients.

1. (1) The requirements in CASS 15.8.3R and CASS 15.8.6R are for a safeguarding institution to keep internal records and accounts of relevant funds. Therefore, any records falling under those requirements should be maintained by the safeguarding institution and are separate to any records the safeguarding institution may obtain from any third parties, such as those with which it may have deposited relevant funds.

2. (2) A safeguarding institution may use data that is received from third parties for the purpose of creating and maintaining such records where no other method could reasonably be employed (for example, where funds are applied automatically to client balances via application programming interfaces). 

3. (3) A safeguarding institution's records must cover all relevant funds held by an institution, including those not held in relevant funds bank accounts. 

1. (1) A safeguarding institution must maintain records so that it is able to determine the total amount of relevant funds it should be holding for each of its clients promptly and at any time.

2. (2) A safeguarding institution must ensure that its records are sufficient to show and explain its transactions and commitments for its relevant funds.

3. (3) Unless otherwise stated, a safeguarding institution must ensure that any record made under this chapter is retained for a period of 5 years starting from the later of:

4. (a) the date it was created; or 

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

For each internal safeguarding reconciliation and external safeguarding reconciliation the safeguarding institution conducts, it must ensure that it records:

1. (1) the time and date it carried out the relevant process;
2. (2) the actions it took in carrying out the relevant process;
3. (3) the outcome of its calculation of its safeguarding requirement and, where relevant, safeguarding resource; and
4. (4) where relevant, the outcome of its comparison of its D+1 segregation requirement and D+1 segregation resource.  

An internal safeguarding reconciliation requires a safeguarding institution to carry out a reconciliation of its internal records and accounts: 

1. (1) to check whether:

2. (a) its safeguarding resource was equal to its safeguarding requirement, as at the reconciliation point (see CASS 15.8.21R); and

3. (b) the amount of relevant funds and relevant assets it is required to hold in relevant funds bank account and relevant assets accounts is held in such accounts (see CASS 15.8.35R); and 

4. (2) to promptly identify and resolve any discrepancies in accordance with CASS 15.8.50R and CASS 15.8.51R. 

• A safeguarding institution that uses the insurance or guarantee method to protect relevant funds (whether alone or in combination with the segregation method) and does so using an insurance policy or guarantee that is unlimited in the amount of cover it provides:

• (1) does not need to carry out an internal safeguarding reconciliation; but

• (2) must carry out a daily calculation of its safeguarding requirement and record:

• (a) the date it carried out the calculation;

• (b) the actions the safeguarding institution took in carrying out the calculation; and

• (c) the outcome of its calculation. 

Where an electronic money institution or credit union provides payment services that are unrelated to the issuance of electronic money, the provisions of CASS 15.8 apply to the safeguarding institution's unrelated payment services asset pool and electronic money asset pool separately, in line with CASS 15.8.3R(2).

A safeguarding institution is not required to carry out the reconciliation described in CASS 15.8.10R(1)(b) (the comparison in CASS 15.8.35R) if all of its relevant funds:

• (1) are held in a relevant funds bank account; or

• (2) were, before the last internal safeguarding reconciliation, invested in relevant assets. 

The purpose of CASS 15.8.10R(1)(b) is to check that the right amount of relevant funds has been paid into a relevant funds bank account or invested in relevant assets. If all relevant funds are received into a relevant funds bank account or were invested in relevant assets before the last reconciliation, this step is not required.

In carrying out an internal safeguarding reconciliation, a safeguarding institution must use the values contained in its internal records and ledgers (eg, the payment accounts it operates, 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 which it has placed relevant funds or relevant assets (eg, bank statements). 

In accordance with CASS 15.8.7G(2), CASS 15.8.15R does not prevent a safeguarding institution from using data obtained from third parties to create and maintain its internal records where no other method could reasonably be employed. 

1. An internal safeguarding reconciliation should:

2. (1) be one of the steps a safeguarding institution takes to arrange adequate protection for relevant funds when the safeguarding institution is responsible for them; 

3. (2) be one of the steps a safeguarding institution takes to satisfy its obligations under regulation 27 of the Electronic Money Regulations or regulation 31 of the Payment Services Regulations (as the case may be) and CASS 15.2 (Organisational requirements: relevant funds) to ensure the accuracy of the safeguarding institution's records; and

4. (3) check whether the amount of relevant funds recorded in the safeguarding institution's records as being safeguarded meets the safeguarding institution's obligations to its clients under the relevant funds regime.

CASS 15.8.19R to CASS 15.8.23R do not apply to a safeguarding institution that has entered special administration under the PEMII Regulations.

Subject to CASS 15.8.11R and CASS 15.8.23R, a safeguarding institution must perform an internal safeguarding reconciliation as frequently as necessary and no less than once each reconciliation day.

CASS 15.8.19R requires a minimum of one internal safeguarding reconciliation to be performed each reconciliation day. It does not prevent a safeguarding institution from deciding it is appropriate to perform internal safeguarding reconciliations on business days that are not reconciliation days due to the nature, volume and complexity of its business.

1. (1) A safeguarding institution must select reconciliation point(s) for every day on which it performs internal safeguarding reconciliations.

2. (2) The reconciliation point(s) must be at the same time(s) for every day on which the safeguarding institution carries out internal safeguarding reconciliations.

3. (3) Each internal safeguarding reconciliation must be based on the records of the safeguarding institution as at the corresponding reconciliation point.

1. A safeguarding institution must record, as part of the policies and procedures required by CASS 15.8.1R:

2. (1) the reconciliation point(s) referred to in CASS 15.8.21R; and

3. (2) the frequency with which it performs internal safeguarding reconciliations.

1. (1) Following an insolvency event, the safeguarding institution must:

2. (a) perform an internal safeguarding reconciliation that relates to the time of the insolvency event as soon as reasonably practicable after the insolvency event; and

3. (b) perform further internal safeguarding reconciliations as regularly as required under (2), based on the records of the safeguarding institution as at the close of business on the business day before the day on which the reconciliation takes place.

4. (2) A safeguarding institution must determine when and how often to perform an internal safeguarding reconciliation under (1)(b) so as to ensure that:

5. (a) the safeguarding institution remains in compliance with CASS 15.8.3R to CASS 15.8.9R (Records and accounts); and 

6. (b) the correct amounts of relevant funds are returned to clients.

• (1) The reference point for the internal safeguarding reconciliation under CASS 15.8.23R(1)(a) should be the precise point in time at which the insolvency event occurred.

• (2) When a safeguarding institution decides whether it is necessary at any particular point in time to perform an internal safeguarding reconciliation under CASS 15.8.23R(1)(b), it should have particular regard to the need to maintain its books and accounts in order to ensure that its asset pools are correctly composed and maintained.

• (3) Depending on the circumstances of the safeguarding institution and the scale, frequency and nature of activity after an insolvency event that affects relevant funds, a safeguarding institution may conclude that it is necessary to perform internal safeguarding reconciliations each business day for a period of time after the insolvency event.

• In carrying out its internal safeguarding reconciliation a safeguarding institution may:

• (1) follow the standard method of internal safeguarding reconciliation set out in CASS 15.8.26R to CASS 15.8.35R; or

• (2) if it complies with the requirements in CASS 15.8.37R and CASS 15.8.38R follow a non-standard method of internal safeguarding reconciliation.

1. The safeguarding resource is the sum of: 

2. (1) the aggregate balance of funds held in the safeguarding institution's relevant funds bank accounts (less any funds that are not relevant funds held in an account of the type described in regulation 21(4A) of the Electronic Money Regulations or regulation 23(9) of the Payment Services Regulations (Bank of England settlement accounts)) (‘item A’); 

3. (2) the aggregate balance of relevant funds that have been segregated but not placed in a relevant funds bank account or invested in relevant assets (‘item B’);

4. (3) the aggregate value of relevant assets held in the safeguarding institution's relevant assets accounts based on the safeguarding institution's records as at the close of business on the previous business day (‘item C’); and

5. (4) the aggregate value of relevant funds that the safeguarding institution has protected using the insurance or guarantee method (‘item D’).

Item B should include all relevant funds that have been segregated but are not held in a relevant funds bank account – for example, funds held as cash, funds held by agents and funds held in a segregated account that is not a relevant funds bank account. 

In determining item C, a safeguarding institution must ensure that any valuation of the relevant assets is performed impartially and with all due skill, care and diligence.

The safeguarding requirement is the total amount a safeguarding institution is required to safeguard.

1. The safeguarding requirement is the sum of:

2. (1) individual safeguarding balances calculated in accordance with CASS 15.8.31R, ignoring any negative balances; and

3. (2) any amounts received but unallocated to an individual client under CASS 15.2.5R (Allocation of relevant funds receipts).

A safeguarding institution must calculate a client's individual safeguarding balance in a way which captures the total amount of all funds the safeguarding institution should be safeguarding for that client.

• A safeguarding institution may calculate either:

• (1) one individual safeguarding balance for each client, based on the totality of all the payment services or electronic money products provided to that client; or 

• (2) multiple individual safeguarding balances for each client, based on the individual payment services or electronic money products provided to that client.

1. When calculating an individual safeguarding balance for each client, a safeguarding institution must:

2. (1) include:

3. (a) all relevant funds received by the safeguarding institution for the client; and

4. (b) any amounts credited to the client's account by the safeguarding institution (for example, interest due and payable to a client on a payment account); and

5. (2) deduct:

6. (a) any payments executed for the client (provided the funds have been paid to the payee or the payee'spayment service provider); 

7. (b) any electronic money that has been redeemed; and

8. (c) any sums due and payable by the client to the safeguarding institution (eg, any fees and charges which are due and, under the framework contract, may be deducted from the funds held by the safeguarding institution).

For the purpose of CASS 15.8.33R(2)(c), a safeguarding institution must not take into account any payment or sums due and payable by the client to the extent those payments or sums create a negative balance on an account operated by the safeguarding institution for the client.

• In accordance with CASS 15.8.10R(1)(b), and subject to CASS 15.8.13R, a safeguarding institution must: 

(1) compare its: 

(a) D+1 segregation requirement; and

(b) D+1 segregation resource; and

(2) promptly identify and resolve any discrepancies in accordance with CASS 15.8.51R.

A non-standard method of internal safeguarding reconciliation is a method of internal safeguarding reconciliation which does not meet the requirements of the standard method of internal safeguarding reconciliation.

1. (1) Before using a non-standard method of internal safeguarding reconciliation, a safeguarding institution must:

2. (a) establish and document in writing its reasons for concluding that the method of internal safeguarding reconciliation it proposes to use will check whether:

3. (i)  the amount of relevant funds recorded in the safeguarding institution's records as being safeguarded meets the safeguarding institution's obligation to its clients under the relevant funds regime; and

4. (ii) the amount of relevant funds recorded in the safeguarding institution's records as being held in a relevant funds bank account or invested in relevant assets and held in a relevant assets account meets the safeguarding institution's obligation to its clients under the relevant funds regime; and 

5. (b) obtain a written report prepared by an independent auditor of the safeguarding institution in line with a reasonable assurance engagement and stating the matters set out in (2).

6. (2) The written report in (1)(b) must state whether, in the auditor’s opinion:

7. (a) the method of internal safeguarding reconciliation which the safeguarding institution will use is suitably designed to enable it to check whether:

8. (i)  the amount of relevant funds recorded in the safeguarding institution's records as being safeguarded meets the safeguarding institution's obligation to its clients under the relevant funds regime; and

9. (ii) the amount of relevant funds recorded in the safeguarding institution's records as being held in a relevant funds bank account or invested in relevant assets and held in a relevant assets account meets the safeguarding institution's obligation to its clients under the relevant funds regime; and 

10. (b) the safeguarding institution's systems and controls are suitably designed to enable it to carry out the method of internal safeguarding reconciliation the safeguarding institution will use.

11. (3) A safeguarding institution using a non-standard method of internal safeguarding reconciliation must not materially change its method of undertaking internal safeguarding reconciliations unless:

12. (a) the safeguarding institution has established and documented in writing its reasons for concluding that the changed methodology will meet the requirements in (1)(a); and

13. (b) an auditor of the safeguarding institution has prepared a report that complies with the requirements in (1)(b) and (2) in respect of the safeguarding institution's proposed changes.

1. A safeguarding institution must take reasonable steps to ensure that the auditor it appoints to prepare the report in CASS 15.8.37R(1)(b) has the required skills, resources and experience to perform their functions under the regulatory system and:

2. (1) is eligible for appointment as an auditor under Chapters 1, 2 and 6 of Part 42 of the Companies Act 2006;

3. (2) if appointed under an obligation in another enactment, is eligible for appointment as an auditor under that enactment; or

4. (3) in the case of an overseasrelevant institution, is eligible for appointment as an auditor under any applicable equivalent laws of that country or territory.

1. A safeguarding institution must conduct reconciliations between its internal records and accounts and those of: 

2. (1) the banks with which the safeguarding institution holds a relevant funds bank account; 

3. (2) the persons with which the safeguarding institution holds any other account in which relevant funds are held; and

4. (3) the authorised custodians with which the safeguarding institution holds a relevant assets account, and any third party that manages relevant assets on behalf of the safeguarding institution.

1. (1) The purpose of an external safeguarding reconciliation is to ensure the accuracy of a safeguarding institution's internal records and accounts against those of any third parties that hold relevant funds or hold or manage relevant assets.

2. (2) The records used for external safeguarding reconciliations should, so far as possible, relate to the same point in time as the reconciliation point(s) used for internal safeguarding reconciliations (see CASS 15.8.21R).

3. (3) If the records and accounts used for external safeguarding reconciliations cannot be aligned with the reconciliation point(s) referred to in (2), the policies and procedures referred to in CASS 15.8.1R should set out how the safeguarding institution will ensure its external safeguarding reconciliations achieve the purpose in (1).

CASS 15.8.42R does not apply to a safeguarding institution following an insolvency event.

A safeguarding institution must perform an external safeguarding reconciliation:

(1) as frequently as necessary and no less than once each reconciliation day; and 

(2) as soon as reasonably practicable after the date to which the external safeguarding reconciliation relates.

CASS 15.8.44R to CASS 15.8.46R do not apply to a safeguarding institution that has entered special administration under the PEMII Regulations.

Following an insolvency event, a safeguarding institution must perform an external safeguarding reconciliation that relates to the time of the insolvency event as soon as reasonably practicable after the insolvency event, based on the next available statements or other forms of confirmation after the insolvency event from: 

1. (1) the banks with which the safeguarding institution holds a relevant funds bank account;

2. (2) the persons with which the safeguarding institution holds any other account in which relevant funds are held; and

3. (3) the authorised custodians with which the safeguarding institution holds a relevant assets account, and any third party that manages relevant assets on behalf of the safeguarding institution.

The reference point for the external safeguarding reconciliation under CASS 15.8.44R should be the precise point in time at which the insolvency event occurred. 

When determining the frequency with which it will undertake further external safeguarding reconciliations after an insolvency event, a safeguarding institution must have regard to:

1. (1) the frequency, number and value of transactions which the safeguarding institution undertakes in respect of relevant funds;

2. (2) the risks to which the relevant funds are exposed, such as the nature, volume and complexity of the safeguarding institution's activities and where and with whom the relevant funds are held or invested; and

3. (3) the need to be able to verify that:

4.      (a) relevant funds within an asset pool have not been incorrectly distributed, transferred or dissipated; and 

5.      (b) the proceeds of any payments and transactions that settle after the insolvency event and which involve relevant funds have been received correctly.

1. An external safeguarding reconciliation requires a safeguarding institution to: 

2. (1) compare:

3.      (a) the balance, currency by currency, as recorded by the safeguarding institution, with the balance on that account as set out in the most recent statement or other form of confirmation issued by the person with which those accounts are held, for: 

4.           (i) each relevant funds bank account; and

5.           (ii) any other account in which relevant funds are held; and

6.       (b) the quantity of relevant assets, investment by investment, as recorded by the safeguarding institution for each account held with an authorised custodian, with the quantity set out in the most recent statement or other form of confirmation issued by the authorised custodian; and 

7. (2) promptly identify and resolve any discrepancies between those balances in accordance with CASS 15.8.56R and CASS 15.8.57R.

The reconciliation described in CASS 15.8.47R(1)(b) requires a safeguarding institution to reconcile the quantity of relevant assets, rather than the value of those assets. The relevant assets should be compared by asset type. For example, the safeguarding institution should compare its records of the number of units in a particular UCITS against the number of units as set out in the statements provided by the custodian of the units or issuer (as the case may be).

Insurance policies and guarantees are not subject to the external safeguarding reconciliation. However, safeguarding institutions using the insurance or guarantee method are reminded of their obligations in CASS 15.5 and the need to ensure that any insurance policy or guarantee provides appropriate cover at all times. 

When a discrepancy arises between a safeguarding institution'ssafeguarding resource and its safeguarding requirement, the safeguarding institution must determine the reason for the discrepancy and, subject to CASS 15.8.52R, ensure that:

1. (1) any shortfall is paid into a relevant funds bank account or invested in relevant assets as soon as possible and, in any case, by the end of the day on which the reconciliation is performed; or

2. (2) any excess is withdrawn from an account holding relevant funds or relevant assets.

1. (1) If a safeguarding institution'sD+1 segregation resource is lower than its D+1 segregation requirement, the safeguarding institution must:

2.      (a) determine the reason for the discrepancy; and

3.      (b) subject to CASS 15.8.52R, ensure that sufficient relevant funds are paid into a relevant funds bank account or invested in relevant assets to address the difference as soon as possible and, in any case, by the end of the day on which the reconciliation is performed.

4. (2) If it is not possible to use relevant funds to comply with (1), the safeguarding institution must use its own funds to do so, even if this leads to a discrepancy between its safeguarding requirement and safeguarding resource.

Following an insolvency event, a safeguarding institution is not required to make a payment, investment or withdrawal under CASS 15.8.50R or CASS 15.8.51R insofar as the legal procedure for the insolvency event restricts it from doing so.

CASS 15.8.50R and CASS 15.8.51R set out some of the steps that a safeguarding institution must carry out to ensure that it is segregating the right amount of relevant funds, and that it is holding the right amount of relevant funds in relevant funds bank accounts or as relevant assets. Where discrepancies are identified, safeguarding institutions are required to make payments, investments or withdrawals to remedy those discrepancies. 

CASS 15.8.51R(2) makes provision for a safeguarding institution that has a deficiency in its D+1 segregation resource but is unable to access relevant funds to remedy it. Such lack of access could be, for example, because of a delay in the release of relevant funds by a third party. In such circumstances, the safeguarding institution must top-up the shortfall from its own funds, even where this leads to a surplus in the safeguarding resource. The discrepancy will be resolved by subsequent reconciliations.

Where the discrepancy identified under CASS 15.8.50R or CASS 15.8.51R has arisen as a result of a breach of the requirements in this chapter, the safeguarding institution should ensure it takes sufficient steps to avoid a reoccurrence of that breach. 

If any discrepancy is identified by an external safeguarding reconciliation, the safeguarding institution must investigate the reason for the discrepancy and take all reasonable steps to resolve 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 safeguarding institution. 

If a safeguarding institution is unable to immediately resolve a discrepancy identified by an external safeguarding reconciliation, and one record or set of records examined by the safeguarding institution during its external safeguarding reconciliation indicates that there is a need to have a greater amount of relevant funds or relevant assets than is the case, the safeguarding institution must assume, until the matter is finally resolved, that that record or set of records is accurate and, subject to CASS 15.8.58R, pay its own funds into a relevant funds bank account or invest them in relevant assets. 

Following an insolvency event, a safeguarding institution is not required to pay its own funds into a relevant funds bank account or invest them in relevant assets under CASS 15.8.57R insofar as the legal procedure for the insolvency event restricts it from doing so. 

1. (1) CASS 15.8.52R and CASS 15.8.58R recognise that, following an insolvency event, a safeguarding institution is required to investigate discrepancies, but the extent to which it is able to resolve discrepancies may be limited by insolvency law, for example.

2. (2) CASS 15.8.52R and CASS 15.8.58R would not prevent any transfers being made in accordance with regulations 13 or 14 of the PEMII Regulations.

1. A safeguarding institution must inform the FCA in writing without delay if:

2. (1) its internal records and accounts of relevant funds are materially out of date, inaccurate or invalid so that the safeguarding institution is no longer able to comply with the requirements in CASS 15.8.3R, CASS 15.8.6R or CASS 15.8.8R(1);

3. (2) it will be unable to, or materially fails to, conduct an internal safeguarding reconciliation in compliance with CASS 15.8.10R and CASS 15.8.19R;

4. (3) it will be unable to, or materially fails to, pay any shortfall into a relevant funds bank account or invest it in relevant assets, or withdraw any excess from an account holding relevant funds or relevant assets so that the safeguarding institution is unable to comply with CASS 15.8.50R or CASS 15.8.51R after having carried out an internal safeguarding reconciliation;

5. (4) it will be unable to, or materially fails to, conduct an external safeguarding reconciliation in compliance with CASS 15.8.39R and CASS 15.8.42R; 

6. (5) it will be unable to, or materially fails to, identify and resolve any discrepancies under CASS 15.8.56R and CASS 15.8.57R after having carried out an external safeguarding reconciliation; or

7. (6) it becomes aware that, at any time in the preceding 12 months, the amount of relevant funds safeguarded was materially different from the total aggregate amount of relevant funds the safeguarding institution was required to safeguard under the Electronic Money Regulations or the Payment Services Regulations.

Safeguarding institutions are reminded that the auditor of the safeguarding institution must confirm in the report submitted to the FCA under SUP 3A.9 (Duties of auditors: notification and safeguarding report) whether the safeguarding institution has maintained systems adequate to enable it to comply with the relevant funds regime.