| 1. | The FCA defines an internal client money reconciliation as "a reconciliation between a firm's internal records and accounts of the amount of client money held for each client with its internal records and accounts of the client money that the firm should be holding in client bank accounts or have placed in client transaction accounts". |
| 2. | An internal client money reconciliation should: |
| a. | Be one of the steps a firm takes to arrange adequate protection for client assets when the firm is responsible for them; |
| b. | Be one of the steps a firm takes to satisfy its obligations under the CASS rules to ensure the accuracy of the firm's records and accounts; |
| c. | For the normal approach to segregating client money check whether the amount of client money recorded in the firm's records as being segregated in client bank accounts meets the firm's obligations to its clients under the client money rules on a daily basis; and |
| d. | For the alternative approach to segregating client money calculate the amount of client money to be segregated in client bank accounts which meets the firm's obligations to its clients under the client money rules on a daily basis. |
| 3. | A firm is required to perform an internal client money reconciliation: |
| a. | Each business day; |
| b. | Based on the records of the firm as at the close of business on the previous business day. |
| 4. | When performing an internal client money reconciliation a firm must either: |
| a. | Follow one of the standard methods of internal client money reconciliation set out in the CASS rules; or |
| b. | Follow a non-standard method of internal client money reconciliation in accordance with the requirements of the CASS rules. |
| 5. | A firm which has adopted the normal approach to segregating client money is required to use the internal client money reconciliation to check whether its client money resource, as at close of business on the previous business day, was equal to its client money requirement at the close of business on that previous day. |
| 6. | A firm that adopts the alternative approach to segregating client money is required to use the client money reconciliation to ensure that its client money resource at the close of business on any day it carries out an internal client money reconciliation is equal to its client money requirement at the close of business on the previous day. |
| 7. | Before using a non-standard method of internal client money reconciliation a firm must send a written report to the FCA prepared by an independent auditor of the firm in line with a reasonable assurance engagement stating whether in the auditor's opinion: |
| a. | the method of internal client money reconciliation which the firm will use is suitably designed to enable it to (as applicable): |
| i. | (for the normal approach to segregating client money) check whether the amount of client money recorded in the firm's records as being segregated in client bank accounts meets the firm's obligation to its clients under the client money rules on a daily basis; or |
| ii. | (for the alternative approach to segregating client money) calculate the amount of client money to be segregated in client bank accounts which meets the firm's obligations to its clients under the client money rules on a daily basis; and |
| b. | the firm's systems and controls are suitably designed to enable it to carry out the method of internal client money reconciliation the firm will use. |
| 8. | The FCA in PS14/9 state: |
| "The report will be prepared on the basis of a reasonable assurance engagement. We understand this is achievable under the FRC's definition of a reasonable assurance engagement. Nothing in these rules stipulates what steps an auditor must take to be able to provide firms with the report on the basis of a reasonable assurance engagement. We understand it is likely that many firms will need to have designed their processes and to have built test systems before an auditor feels able to provide the report. However, the specific steps an auditor may need to follow, and the matters which a firm may need to address before the auditor issues a reasonable assurance report, are matters for the auditor's professional judgment as governed by the requirements and standards imposed on the auditor by its regulator." |
| 9. | An illustrative example of such a report is set out below. |
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