Key takeaways
- A break is any difference a reconciliation finds between two records that should agree.
- Break management is the process of classifying, owning, investigating, resolving and evidencing every break.
- Breaks should be ranked by risk, not by amount: a small break affecting customer money can matter more than a large timing difference.
- Auditors and regulators test the oldest breaks first, because they show whether the process works.
What a break is
A reconciliation compares two or more records that should agree: a ledger and a bank statement, a processor report and a settlement, customer balances and safeguarded funds. Anything that does not match is a break, also called an exception or a difference. Matching clears the routine items. Break management is what happens to everything else.
Breaks are normal. Every payment business has them every day, because systems, banks and partners record events at different times and in different ways. The risk is not that breaks occur but that they are left unexplained, unowned or unresolved.
For payment and financial firms, breaks are where the risk sits. Most failures of customer-money protection start as unresolved breaks that were left to age. Our guide to the Synapse collapse shows how small, unexplained differences can accumulate into a large shortfall.
Classifying breaks
Every break should be classified as soon as it appears. Classification decides who owns it, how urgent it is and how it will be resolved.
| Class | Example | Typical owner | Urgency |
|---|---|---|---|
| Customer-money shortfall | Safeguarded funds below requirement | Treasury and compliance | Same day |
| Status mismatch | Payment shown as complete but failed at processor | Payment operations | Same day |
| Missing item | Transaction in one record but not the other | Payment operations | Within one day |
| Amount difference | Fees or currency conversion | Finance | Within days |
| Timing difference | Recorded on different days | Payment operations | Clears next cycle |
The break lifecycle
A well-run process takes every break through the same steps. It is detected by the reconciliation, classified and assigned to an owner, investigated to find the cause, resolved by correcting the record, moving money or confirming a timing difference, approved by someone other than the investigator where money moves or customer funds are affected, and closed with a record of what was done and why.
Recurring breaks deserve their own attention. If the same cause appears week after week, such as a processor fee not recorded or a cut-off mismatch with one bank, fix the cause rather than resolving each break by hand. A falling number of recurring breaks is one of the clearest signs that the process is improving.
Every break should carry its age from the day it was first detected. Breaks that pass set ages should escalate automatically: to a team lead, then to the head of finance or compliance, then to the senior manager responsible for customer money. A break that rolls forward unnoticed for weeks is a control failure, whatever its amount.
What auditors and regulators test
Auditors and examiners usually start with the oldest open breaks and a sample of closed ones. For open breaks, they ask why they are still open and who knows about them. For closed breaks, they check that the cause was identified, the resolution was appropriate, the approval was independent and the record is complete. Under the UK's CASS 15, shortfalls must also be corrected by close of business on the day found, so the time of correction is tested too.
Safeheld classifies, routes and ages every break, records investigation and approval against it, and escalates breaks that pass set limits. See reconciliation KPIs, the break log template and Safeheld reconciliation.
Frequently asked questions
What is a reconciliation break?
Any difference a reconciliation finds between two records that should agree.
How should breaks be prioritised?
By risk, especially any effect on customer money, rather than by amount alone.
What should be recorded for each break?
Its class, owner, age, cause, resolution, approval and the date it was closed.
What do auditors test in break management?
The oldest open breaks and a sample of closed breaks, checking cause, resolution, approval and timeliness.
References
- FCA Handbook, CASS 15.8 Records, accounts and reconciliations
- FCA, PS25/12: Changes to the safeguarding regime for payments and e-money firms
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.