Reconciliation Of Client Money

Question 1

Reconciliation of client money

Why should firms carry out in town or reconciliation?

Answer 1

1. Firms must regularly check that the amount of client money recorded in their internal accounts matches the actual money held in client bank accounts.
2. This should be done every business day.

Question 2

Reconciliation of client money

Why should firms carry out external reconciliation?

Answer 2

To compare their internal records (firm’s records) with those of third parties holding client money (like custodians or banks).

Question 3

Reconciliation of client money

The firm can use standard or non-standard methods for internal client money reconciliation.

What do standard and non-standard methods mean?

Answer 3

1. Standard Methods (followed by most firms) -
   They help calculate how much money should be held for each client, based on factors like margined and non-margined transactions.
2. Non-Standard Methods -
   These do not fully meet the regulatory requirements set by client money rules.

Question 4

Reconciliation of client money

What are the two types of standard methods for internal client money reconciliation?

Answer 4

1. Individual Client Balance:
   A. Calculates a firm’s total client money requirement.

B. It calculates how much money the firm should hold for each individual client.

C. It includes positive balances for non-margined transactions, margined transactions, and other specified matters.

2. Net Negative Add-Back:
   A. Only available to CASS 7 asset management firms and CASS loan-based crowdfunding firms, and only if they do not deal with margined transactions.

B. Involves calculating the total client money requirement by considering the negative balances of clients’ positions in specific accounts, and adding them back into the firm’s total calculation.

C. Typically used when a client owes money to the firm

Question 6

Reconciliation of client money

What is the client money requirement?

Answer 6

1. Firms must always know how much client money they should hold for each client.
2. They must be able to determine this amount within two business days.

Note: Firms should maintain records so they can quickly calculate the total amount of client money they should hold for each client (within the 2-day timeframe).

Question 7

Reconciliation of client money

What is the rules when the firm has deposited custody assets with a third-party?

Answer 7

1. If the firm deposits assets with a third party (e.g., a custodian), and money arises from those assets (like a dividend), this money must be treated as client money.
2. The firm must ensure that the third party either deposits this money in the firm’s client bank account or a client transaction account.

Question 9

Reconciliation of client money

What is the rules when the firm has deposited custody assets with a third-party custodian is also a bank?

Answer 9

1. The client money can be held in the firm’s bank account at the third-party custodian itself.
2. If the third-party custodian is NOT a bank, the money should go into a separate account:
   A. Either to a client bank account at the third-party bank.
   B. Or to a client transaction account.