A custody balance can match the broker’s aggregate records while individual customers’ allocations are wrong. Reconciliation needs to test the ownership records as well as the total number of assets.
The FCA framework addresses records and reconciliation
FCA Handbook CASS 6.6 sets out records, accounts and reconciliation requirements for firms within its custody scope. Its framework concerns the records supporting safe-custody assets and the comparison of relevant records. The applicable obligations depend on the firm and activity; this article does not treat the UK framework as a universal rule for every broker. FCA Handbook — CASS 6.6: Records, accounts and reconciliations
Two errors can cancel at the aggregate level
Suppose a broker’s external custody statement shows 10,000 shares of an invented security. Its internal client ledger also totals 10,000 shares. At the aggregate level, there is no numerical break.
Now suppose the ledger assigns 600 shares to Client A and 400 to Client B, while the correct allocations are 500 each. One account is overstated by 100 and the other understated by 100. The two errors cancel in the total, but neither customer’s statement is accurate.
This example separates two checks. An external comparison asks whether the broker’s recorded aggregate agrees with the relevant third-party record. An allocation review asks whether the internal total is correctly divided among clients. Passing one does not logically prove the other.
Timing can produce a different kind of difference. A trade, settlement movement or corporate action might appear in one record before another. That explanation needs supporting timestamps and transaction identifiers. Labelling every break “timing” without evidence turns a classification into an excuse.
An unexplained adjustment is not a resolution either. Changing the internal balance to make totals agree could conceal the cause or shift an error to another customer. A review should retain the original difference, investigate it, document the correction and verify the resulting records.
For management reporting, the age and ownership of unresolved breaks can be more useful than a green aggregate total. An old client-level discrepancy deserves attention even when its net effect across the book is zero.
Review the evidence behind a clean result
Identify the external source, internal record, reconciliation time and assets covered. Check that client allocations, identifier mappings and relevant pending movements are included in the control design.
For each break, record the reason, accountable owner and supporting correction. A clean total is useful evidence about quantity. Confidence in custody records also requires evidence about who owns that quantity and whether the underlying movements are complete.