A safeguarding reconciliation is the daily check by which a payment institution or e-money institution proves that the customer money it must protect is correctly recorded and actually held in protected form. Safeguarding means keeping customer money separate from the firm's own money so it can be returned if the firm becomes insolvent. Since 7 May 2026, CASS 15 of the FCA Handbook has set detailed rules for how that check is done.
CASS 15 requires two separate processes. The internal reconciliation tests the firm's own records and calculations. The external reconciliation compares those records with what the banks, custodians and other third parties that hold the money say they hold. They serve different purposes and one cannot stand in for the other. Together they reveal shortfalls, excesses, record-keeping errors and gaps between what the firm believes it holds and what is really there. The detailed rules are in CASS 15.8 of the FCA Handbook.
| Point | Internal reconciliation | External reconciliation |
|---|---|---|
| Question it answers | Does the safeguarding resource match the safeguarding requirement? | Do the firm's records agree with what banks and custodians hold? |
| Data used | The firm's own ledgers, payment records and accounts | Bank statements, custodian statements and confirmations |
| Minimum frequency | At least once each reconciliation day (CASS 15.8.19R) | As often as necessary and at least once each reconciliation day (CASS 15.8.42R) |
| What is compared | Requirement and resource; D+1 segregation requirement and resource | Balances currency by currency; asset quantities investment by investment |
| On a difference | Find the reason; pay in a shortfall by the end of the day; withdraw an excess (CASS 15.8.50R) | Investigate and resolve without undue delay (CASS 15.8.56R) |
The central point is independence. A firm cannot prove its arrangements are right by looking at its safeguarding bank balance alone. It must first work out, from its own records, how much it should be holding, and then check that figure against independent third-party data.
The internal reconciliation tests whether the firm's own records show the correct amount of customer money protected. The firm calculates its safeguarding requirement, meaning the relevant funds it should be safeguarding, and compares it with its safeguarding resource, the amount its records show as held in safeguarding accounts or relevant assets. Relevant funds are the sums received in exchange for e-money and the sums received from or for customers, or from other payment providers, to carry out payment transactions.
CASS 15.8.15R requires the calculation to use the firm's internal records, not the figures in bank statements. Using the bank balance both to calculate the requirement and to confirm what is held removes the independence of the check and can hide record-keeping errors. The firm needs records showing what each customer is owed and how those individual balances add up to the total requirement.
As part of the internal reconciliation, the firm compares its D+1 segregation requirement with its D+1 segregation resource. The requirement is the amount of relevant funds that should be held in safeguarding accounts, or as relevant assets, at that point; D+1 refers to the legal deadline of the end of the business day after receipt for placing funds in a safeguarding account. The resource is the amount actually held there. CASS 15.8.13R allows a firm to skip part of this test where all relevant funds were already in a safeguarding account or invested in relevant assets before the last internal reconciliation.
A firm whose relevant funds are covered by an insurance policy or guarantee that is unlimited in amount does not need to perform an internal reconciliation, but must calculate its safeguarding requirement daily (CASS 15.8.11R). Insurance policies and guarantees are not subject to the external reconciliation.
Where the standard internal method does not suit the business, a firm can use a non-standard method under CASS 15.8.36R to 15.8.38R. Before using it, the firm must document its reasons in writing and obtain a written report from an independent auditor, under a reasonable assurance engagement, confirming the method meets its obligations. A material change to the method needs fresh reasons and a new report.
The external reconciliation compares the firm's internal records with information obtained from the institutions that hold relevant funds or assets. Under CASS 15.8.39R this covers every bank holding a relevant funds account, anyone holding any other account containing relevant funds, and every custodian or third party holding or managing relevant assets.
Differences can come from timing, incorrect booking, missing transactions, bank charges, bank errors or weaknesses in internal records. CASS 15.8.42R requires the external reconciliation as soon as reasonably practicable after the date it relates to. The third-party data should, as far as possible, relate to the same point in time as the internal reconciliation; where that is not possible, the firm's policy must explain how the reconciliation still achieves its purpose.
This matters most for firms working across time zones or with banks whose statements update at different times. Timing differences must be understood, documented and treated the same way every day, not left as a standing explanation for differences that are never resolved.
Both reconciliations must be performed as often as necessary and at least once each reconciliation day. A reconciliation day is any day other than a Saturday, a Sunday, a UK bank holiday or a day on which a relevant foreign market is closed. The FCA chose reconciliation days over business days in PS25/12 because firms working across several currencies cannot always get third-party data when an overseas market is shut.
The minimum is not always enough. A high-volume, multi-market or fast-moving business may need intraday controls, and the method should reflect the nature, scale and complexity of the business rather than the bare wording of the rule. The firm should fix its reconciliation points and calendar in advance, record which foreign markets it treats as relevant and why, and apply them consistently.
Changing cut-off times, data sources or calculation methods without a recorded reason creates unexplained movements and weakens the firm's position at audit. Any change should be approved, documented and dated.
A reconciliation is only as good as the requirement it tests against. A simple remittance business may have a straightforward calculation. A larger EMI or payment institution may process millions of transactions across several accounts, card programmes, acquiring, refunds, chargebacks, agents, currencies and settlement cycles.
The firm needs a written method stating when funds enter and leave the calculation and how each transaction state is treated. A common issue is that operational systems and the safeguarding method develop separately: a platform marks a payment complete while the method still treats the funds as relevant, or the reverse. Fees, refunds and unsettled transactions cause recurring differences when their treatment is not the same in both places.
The illustrative internal reconciliation below is for the e-money pool of an EMI, in sterling.
| Line | Amount | Note |
|---|---|---|
| Customer e-money balances per ledger | £4,850,000 | Sum of individual customer balances |
| Receipts not yet allocated to a customer | £40,000 | Still relevant funds while allocation is resolved |
| Outgoing payments not yet settled to the payee's provider | £110,000 | Duty ends only when funds reach the payee's provider |
| Safeguarding requirement | £5,000,000 | Total of the lines above |
| Safeguarding resource per the firm's records | £4,985,000 | Balances of safeguarding accounts in the firm's books |
| Difference | £15,000 shortfall | Pay in by the end of the day; find the cause |
In this example the cause might be a fee swept from the safeguarding account before it fell due under the firm's policy. The firm pays in £15,000 the same day, records the cause, corrects the sweep timing in its system and confirms on the following reconciliation days that the difference has not returned. The calculation should be reproducible from the underlying data and reviewable by someone who did not prepare it.
An authorised EMI that offers both e-money and payment services unrelated to e-money must keep the relevant funds for each activity distinct. CASS 15 applies separately to the e-money asset pool and the unrelated payment services asset pool, so each needs its own requirement, resource and reconciliation, and each is reported separately in the monthly return.
Combining the balances can hide a shortfall in one pool behind an excess in the other, and obscures which customers have claims against which pool in an insolvency. Firms with several product lines should review how each transaction type is mapped to a pool, considering the product's legal classification, the customer contract and the purpose for which the money was received.
CASS 15.8.50R requires the firm to find the reason for any difference between resource and requirement. A shortfall must be paid in or invested as soon as possible and in any case by the end of the day on which the reconciliation is performed. An excess is withdrawn. For the D+1 comparison, CASS 15.8.51R applies the same end-of-day deadline and, where relevant funds cannot be used, requires the firm to use its own money, even if that creates a temporary surplus.
Topping up the account does not close the matter. The firm must understand why the shortfall arose. A one-off timing issue calls for a different response from a recurring system error or a flawed calculation, and repeated shortfalls point to a control weakness that daily top-ups do not fix. Recurring shortfalls should be analysed for root cause, documented and escalated to the director or senior manager responsible for safeguarding.
CASS 15.8.60R requires the firm to inform the FCA in writing and without delay if:
The FCA has not defined materiality for these purposes, so the firm should set documented, board-approved thresholds and apply them consistently.
Not every difference is a breach, but every material difference must be understood. Causes include items recorded internally before they appear on the bank statement, foreign exchange timing, unallocated receipts, incorrect ledger entries, bank charges and genuine shortfalls.
For differences found in the external reconciliation, CASS 15.8.56R requires the firm to investigate and take all reasonable steps to resolve them without undue delay. Where a discrepancy cannot be resolved straight away and one record suggests more money should be safeguarded, CASS 15.8.57R requires the firm to treat that record as accurate until the matter is resolved and to pay in its own funds to cover the gap.
CASS 15.8.9R requires the firm to record, for each reconciliation, the time and date it was carried out, the actions taken and the outcome, including the D+1 comparison. Records are kept for five years. The audit trail should show how each discrepancy was investigated and resolved, not only that the process was run. Repeated manual adjustments with little explanation suggest that the control is forcing numbers to agree rather than finding real differences.
Timing differences are unavoidable, and they are where weak practice most easily becomes normal. Examples include internal recording before bank or scheme settlement, cross-border transactions that span banking days, and card acquiring settlement delays that do not match internal cut-offs.
| Item type | Expected to clear | Action if not cleared |
|---|---|---|
| Domestic payment in transit | Next reconciliation day | Investigate as an unexplained break |
| Cross-border or FX settlement | Within the settlement cycle for the currency | Trace with the correspondent bank; escalate |
| Card scheme settlement | Within the scheme's settlement cycle | Reconcile to scheme reports; escalate |
| Unallocated receipt | Within the firm's allocation limit | Keep safeguarded; escalate for allocation or return |
The clearing periods above are examples; each firm should set its own from its actual flows. Genuine timing items should be predictable, evidenced and logged with an expected clearing date. Items that pass that date must be investigated rather than labelled timing indefinitely. Management information should separate normal timing items from unexplained breaks, so unresolved issues do not build up beneath a stable headline figure.
CASS 15 does not require automation. A smaller firm can legitimately reconcile in spreadsheets, provided the process is accurate, controlled, reviewable and leaves a reliable audit trail. Manual processes do carry more exposure to human error, inconsistent treatment and weak evidence, and that exposure grows with volume, product complexity, currencies and banking relationships. A process that works for a few thousand transactions a month may not hold at much larger scale.
Dependence on one person is a resilience weakness if only one employee understands the workbook or the daily adjustments. Automation reduces genuine exposure, but an automated process built on the wrong logic produces wrong answers faster, so the method must be right before it is automated. IT controls over access, changes and record integrity are within the scope of the safeguarding audit either way.
Safeheld, the firm's own safeguarding platform, runs the internal and external reconciliations and the D+1 comparison for each asset pool, manages breaks through to approval and keeps a record that cannot be altered afterwards. More detail is on the Safeheld page.
Daily reconciliations are the foundation of the wider safeguarding framework. The same data should feed the monthly safeguarding return, management information, the annual audit and the resolution pack.
Senior management should see the quality of reconciliations, not just completion: material shortfalls, recurring breaks, aged differences, manual adjustments, system issues and overdue remediation.
The most significant weaknesses usually sit inside processes that appear to work. A firm can reconcile to its bank balance perfectly every day while its underlying requirement is wrong.
The test is whether the method can consistently and independently show that the right amount of customer money is safeguarded.
The firm's safeguarding and CASS 15 practice reviews reconciliation methods, tests them against the rules and redesigns them where needed. For the wider rules introduced on 7 May 2026, see our CASS 15 explainer.
The FCA strengthened the regime after finding that payment and e-money firms which became insolvent between 2018 and 2023 had an average shortfall of 65% in the money owed to customers. Daily reconciliations are the early-warning mechanism: they flag insufficient safeguarding, inaccurate records and third-party balances that do not match expectations before they become a loss.
Monthly reporting and the annual audit make reconciliation weaknesses visible in a way they were not before May 2026. For boards, persistent breaks, unexplained adjustments and frequent shortfalls are signs of deeper issues in systems, product design, data quality or governance, and deserve the same attention as a financial loss.
Internal and external reconciliations must each be performed as often as necessary and at least once each reconciliation day. High-volume or complex firms may need more frequent controls.
The internal reconciliation uses the firm's own records to test whether its safeguarding resource matches its requirement. The external reconciliation compares those records with statements from the banks, custodians and third parties holding the money or assets.
Any day other than a Saturday, a Sunday, a UK bank holiday or a day on which a relevant foreign market is closed.
The firm must find the reason and pay in the shortfall as soon as possible and in any case by the end of the day the reconciliation is performed, using its own funds if relevant funds are not available. It should also fix the cause, especially if shortfalls recur.
Yes. CASS 15 does not require automation, but a spreadsheet process must be accurate, controlled, independently reviewable and able to produce a reliable audit trail.
No. CASS 15 excludes insurance policies and guarantees from the external reconciliation, and a firm with unlimited cover need not perform an internal reconciliation but must calculate its safeguarding requirement daily.
Test the full method rather than the written procedure: trace the requirement to customer records, test inputs and timing items, and confirm shortfalls are paid in by the end of the day. An independent review before the first audit period ends leaves time to correct gaps.
Buckingham Capital Consulting has obtained FCA authorisations for payment and e-money firms including Oval, Global Send and HFS since 2013, and designs the safeguarding reconciliation methods CASS 15 requires. Its safeguarding work covers requirement calculations, internal and external reconciliation design, break handling, REP027 alignment and audit readiness.
Speak to an expert: WhatsApp +44 7563 115980, Telegram @buckinghamcapital or info@buckinghamcapitalconsulting.co.uk.
This article is general information, reviewed against the regulator’s published requirements on the date shown. It is not legal advice; the regulator’s current publications take precedence.