Chapter 8: Record-keeping 

  1. The Central Bank places a high degree of importance on investment firms maintaining accurate records and accounts so that client assets can be returned to clients swiftly, particularly in the event of an insolvency.

    Evaluation of internal records and systems

  2. Investment firms should evaluate the robustness of the internal records and accounts used for the purpose of its client funds and client financial instrument calculations (e.g. the investment firm’s bank/custodian ledger and client ledger) and the systems on which those records are maintained.
  3. The purpose of this evaluation is to detect weaknesses in an investment firm’s systems and controls and any record keeping discrepancies.
  4. As part of this evaluation, an investment firm should:
    • Establish a process that evaluates:
      • The completeness and accuracy of the investment firm’s internal records and accounts of client assets held; and
      • Whether the investment firm’s systems and controls correctly identify and resolve all discrepancies (which may give rise to shortfalls and excesses) in the internal records and accounts of client assets held;
    • Run the evaluation process at least on a monthly basis; and
    • Promptly investigate and, without undue delay, resolve the causes of any discrepancies that the evaluation process reveals.
  5. The evaluation process should serve as a control to determine whether sufficient information is being completely and accurately recorded by the investment firm to enable it to:
    • Readily determine the total client assets that the investment firm holds on behalf of its clients;
    • Comply with the requirement in Regulation 58(1) of the Client Asset Requirements (CAR) to ensure the client funds resource is equal to the client funds requirement; and
    • Comply with the requirement in Regulation 58(2) of the CAR to ensure the client financial instrument resource is equal to the client financial instrument requirement.
  6. The following is a non-exhaustive list of examples of the types and causes of discrepancies that an investment firm may wish to verify that its firm’s systems and controls can correctly identify and resolve:
    • Items in the investment firm’s records and accounts that might be erroneously overstating or understating the client financial instruments held by an investment firm (e.g. ‘test’ entries and ‘balancing’ entries);
    • Negative balances;
    • Processing errors;
    • Journal entry errors (e.g. unauthorised system entries); and
    • IT errors (e.g. software issues that could lead to inaccurate records).
  7. Investment firms should document the evaluation process in their Client Asset Management Plan (CAMP).
  8. While this process should assist all investment firms, regardless of system capabilities, in ensuring that its client asset records are accurate, it may be of particular importance for those investment firms who do not separately maintain two sets of records (e.g. client ledger and custodian ledger) for the purpose of recording client financial instruments, as this process will assist in mitigating the risk of holding incorrect balances of client assets on behalf of their clients (e.g. due to discrepancies in client asset accounts and records).

Issued: 4 July 2023

Last revision: 4 July 2023