COBS 14.2.12 Reconciliation
(a) An Authorised Person conducting Investment Business must maintain a system to ensure that accurate reconciliations of the Client Accounts are carried out as regularly as necessary but at least every calendar month.
(b) The reconciliation must include:
(i) a full list of individual Segregated Client credit ledger balances, as recorded by the Authorised Person;
(ii) a full list of individual Segregated Client debit ledger balances, as recorded by the Authorised Person;
(iii) a full list of unpresented cheques and outstanding lodgements;
(iv) a full list of Client Account cash book balances; and
(v) formal statements from Third-Party Agents showing account balances as at the date of reconciliation.
(c) An Authorised Person must:
(i) reconcile the individual credit ledger balances, Client Account cash book balances, and the Third-Party Agent Client Account balances;
(ii) check that the balance in the Client Accounts as at the close of business on the previous Business Day was at least equal to the aggregate balance of individual credit ledger balances as at the close of business on the previous day; and
(iii) ensure that all shortfalls, excess balances and unresolved differences, other than differences arising solely as a result of timing differences between the accounting systems of the Third-Party Agent and the Authorised Person, are investigated and, where applicable, corrective action is taken as soon as possible.
(d) An Authorised Person must perform the reconciliations in (c) within ten Business Days of the date to which the reconciliation relates.
(e) When performing the reconciliations, an Authorised Person must:
(i) include in the credit ledger balances:
(A) unallocated Client Money;
(B) dividends received and interest earned and allocated;
(C) sale proceeds which have been received by the Authorised Person and the Client has delivered the Investments or the Authorised Person holds or controls the Investment; and
(D) Money paid by the Client in respect of a purchase where the Authorised Person has not remitted the Money to the counterparty or delivered the Investment to the Client; and
(ii) deduct from the credit ledger balances:
(A) Money owed by the Client in respect of unpaid purchases by or for the Client if delivery of those Investments has been made to the Client; and
(B) Money remitted to the Client in respect of sales transactions by or for the Client if the Client has not delivered the Investments.
(f) When performing reconciliations, an Authorised Person must maintain a clear separation of duties to ensure that an employee with responsibility for operating Client Accounts, or an employee that has the authority to make payments, does not perform the reconciliations under (a) to (d).
(g) Reconciliation performed in accordance with (a) to (d) must be reviewed by a member of the Authorised Person who has adequate seniority.
(h) The individual referred to in (g) must provide a written statement confirming the reconciliation has been undertaken in accordance with the requirements of this section.
(i) The Authorised Person must notify the Regulator where there has been a material discrepancy with the reconciliation which has not been rectified.
(j) A material discrepancy includes discrepancies which have the cumulative effect of being material, such as longstanding discrepancies.