Key takeaways
- Under CASS 15, a firm that receives customer funds into an account other than a designated safeguarding account must perform an internal deposit reconciliation.
- It checks that every such receipt is identified and moved into safeguarding by the end of the business day after receipt.
- It is separate from, and in addition to, the internal and external safeguarding reconciliations.
- Card settlements, collection accounts and payments received in error are the most common triggers.
When it applies
The ideal for a UK payment or e-money firm is to receive customer money directly into a designated safeguarding account. In practice, many cannot. Card acquirers pay settlements into an operating or collection account. Some payment schemes credit a single account that receives both customer and firm money. Customers sometimes pay into the wrong account.
Where customer funds arrive anywhere other than a safeguarding account, CASS 15 requires a further check alongside the main internal and external reconciliations: the internal deposit reconciliation. Its purpose is to make sure none of those receipts are missed and that each reaches safeguarding in time. In the final CASS 15 rules this check is carried out through the D+1 comparison in CASS 15.8.35R; see D+1 segregation timing.
The deadline
Relevant funds that are not received directly into a safeguarding account must be safeguarded by the end of the business day following the day of receipt. The internal deposit reconciliation is the control that proves this happened, receipt by receipt. It should identify every relevant receipt in each non-safeguarding account, the date it arrived, the date it was moved, and any receipt still waiting to move.
If a receipt is found that should have been moved and was not, the firm has a shortfall. It must be corrected the same day, as set out in our guide to safeguarding shortfalls and excesses.
Worked example
An e-money institution receives card settlements into a collection account at its main bank. On Monday, three settlements arrive. The firm sweeps relevant funds to its safeguarding account each afternoon. On Tuesday, the internal deposit reconciliation shows two settlements moved on Monday and one, received at 18:40 after the sweep, moved on Tuesday morning, within the deadline.
A fourth receipt of £2,100.00 on Monday is a customer transfer sent to the collection account by mistake. It was not picked up by the sweep, because the sweep only looks for card settlements. On Tuesday the reconciliation flags it. The firm moves it the same day, within the end of next business day deadline, and widens the sweep rule to catch customer transfers into that account.
| Receipt | Amount (GBP) | Received | Moved to safeguarding | Within deadline |
|---|---|---|---|---|
| Acquirer settlement 1 | 182,400.10 | Mon 09:15 | Mon 15:00 | Yes |
| Acquirer settlement 2 | 96,350.00 | Mon 13:02 | Mon 15:00 | Yes |
| Acquirer settlement 3 | 41,880.55 | Mon 18:40 | Tue 09:30 | Yes |
| Customer transfer received in error | 2,100.00 | Mon 11:20 | Tue 14:05 | Yes |
Controls
Keep a list of every account that can receive relevant funds but is not a safeguarding account. Reconcile each one daily. Classify every receipt as relevant funds, the firm's own money or unidentified. Treat unidentified receipts as relevant funds until proven otherwise. Record the move to safeguarding with time and reference, and review any receipt approaching the deadline.
Firms should also ask whether the flow can be changed so that customer money lands directly in safeguarding. The FCA's earlier consultation on longer-term reforms proposed exactly that, and reducing reliance on collection accounts removes the risk this reconciliation exists to control. See the safeguarding statutory trust.
Safeheld runs the internal deposit reconciliation daily, flags receipts approaching the deadline and records each move to safeguarding. See the safeguarding reconciliation template and Safeheld reconciliation.
Frequently asked questions
What is the internal deposit reconciliation?
The CASS 15 check that relevant funds received outside a safeguarding account are identified and moved into safeguarding in time.
When must funds received outside a safeguarding account be safeguarded?
By the end of the business day following the day of receipt.
Is the internal deposit reconciliation the same as the internal safeguarding reconciliation?
No. It is an additional check focused on receipts into non-safeguarding accounts.
What are common triggers?
Card settlements into collection accounts, mixed accounts and customer payments sent to the wrong account.
References
- FCA, PS25/12: Changes to the safeguarding regime for payments and e-money firms
- FCA Handbook, CASS 15.8 Records, accounts and reconciliations
- The Electronic Money Regulations 2011
- The Payment Services Regulations 2017
About Safeheld
Safeheld reconciles client money every day, resolves every difference and prepares every regulatory return for sign-off, for regulated firms in the United States, the United Kingdom, the European Union, Canada, Australia, Singapore and Hong Kong. To discuss your operations, contact us at safeheld.com/contact.
This article is for general information and does not constitute legal or regulatory advice.