Safeguarding reconciliations tell regulators everything they need to know about how mature a firm’s governance really is. It’s well documented that time and again, the firms that collapse are the ones that treated this control as a formality rather than a discipline, and the post-mortems always make that painfully clear.

What was once seen as a procedural control is now a defining test of operational integrity.
The FCA has made this clear: reconciliation is no longer a back-office routine. With the Senior Management regime in place, it’s a designated board-level responsibility that means that customers can trust their funds will remain identifiable, protected and recoverable, if needed.

At the centre of that protection sits a critical but often underestimated process: safeguarding reconciliation. Its purpose is straightforward - to ensure that what a firm believes it holds for its customers precisely matches what is actually held in its designated safeguarding accounts. But the simplicity of that objective often belies the operational complexity involved, and the growing scrutiny it now attracts.

In this article, we explore:

- What safeguarding reconciliations are and why the FCA requires them.

- The key UK regulatory rules and expectations, including upcoming changes to the CASS sourcebook and how this moves toward a stronger safeguarding regime for payment service and e-money firms.

- The practical challenges firms face in implementing reconciliation solutions.

- How digital reconciliation platforms, like Grath, can help firms scale processes, evidence compliance, and strengthen control.

What are safeguarding reconciliations, and why do they exist

 Safeguarding reconciliations are formal checks that ensure customer funds are fully protected and segregated from the firm’s own money. In practical terms, they compare:

- The amount of money the firm should be safeguarding, based on its internal records of customer balances, with

- The amount it believes it should be holding at third parties as recorded in its internal accounting view or “cashbook”  

- The amount actually held in its external safeguarding accounts or through approved protection mechanisms.

- If the two figures differ, the firm must identify the shortfall or discrepancy, document it, and correct it immediately.

Notwithstanding treatment differences between relevant and non-relevant funds, the FCA’s objective is to make sure firms can at any time demonstrate that all safeguarded funds are available, accurately recorded, and securely ring-fenced from firm monies.

Why safeguarding reconciliations matter

 At its essence, the safeguarding reconciliation process demonstrates trust. It confirms that client monies recorded internally are matched by funds held externally, protected and ring-fenced. Done well, it achieves three things:

1. Early detection of discrepancies or shortfalls:  Surfacing errors arising from system failures, timing differences, or process gaps before they become material.

2. Transparency and accountability: giving auditors, regulators, and customers confidence and clear evidence that funds are properly managed.

3. Resilience in failure scenarios: enabling insolvency practitioners to return client money accurately and efficiently.

Without accurate and timely reconciliation, even well-designed safeguarding arrangements can be undermined, exposing firms to both financial and regulatory risk.

Requirements for Payment and e-money institutions

 The PSRs and EMRs require that relevant funds be:

- Deposited in a separate safeguarding account with an authorised credit institution, or

- Covered by an appropriate insurance policy or comparable guarantee

Payment firms must perform regular reconciliations between their internal records and external safeguarding accounts to ensure that every customer’s money is properly protected.

Investment firms covered by CASS 7 face similar obligations. They must carry out internal and external reconciliations of client money records each business day, correct any discrepancies, and document the process for audit and supervision.

The FCA’s evolving expectations

The FCA’s recent policy developments marked a shift from principle to prescription. PS25/12, while aimed primarily at payment service providers, reflects a broader regulatory trend toward stricter control, transparency, and accountability. It introduces daily reconciliation requirements, enhanced record-keeping, and explicit governance responsibilities. Firms are now expected to:

- Reconcile at least once per business day, and more often where balances or transactions fluctuate rapidly.

- Investigate and resolve discrepancies immediately.

- Maintain complete reconciliation logs and evidence of remediation.

- Assignment of clear responsibility for reconciliation oversight and escalation

- Resolution pack requirements, mandating that reconciliation data can be easily accessible in the event of insolvency

Importantly, these requirements are not limited to large institutions alone. Smaller firms are expected to apply proportionality but must still achieve the regulatory outcome of full and accurate safeguarding of client funds.

The FCA has also indicated a longer-term intention to move toward a statutory trust model, similar to that applied under CASS, to further protect customer funds in insolvency scenarios.

Technology as a governance enabler: How firms can meet these expectations with the Grath Reconciliations platform.

To meet these evolving expectations, many firms are turning to digital reconciliation platforms like Grath to help them move from reactive, spreadsheet-driven reconciliation to proactive, evidence-based control. With Grath, we can help you bring your reconciliations into focus through

- A Centralised control environment

Grath provides a single digital framework for reconciliation policies, procedures, and workflows. It links controls directly to FCA obligations under PSRs, EMRs, or CASS, ensuring complete visibility of regulatory coverage.

- Automated data integration

By connecting to ledgers, transaction systems, and bank feeds, Grath automates the comparison between internal and external balances. Discrepancies are identified promptly and efficiently.

- Automated investigation and escalation workflows

When differences occur, Grath automatically assigns ownership, sets investigation deadlines, and records remediation actions. This eliminates the risk of unresolved discrepancies.

- Complete audit trails

Every action within the reconciliation process is timestamped and recorded. Audit and compliance teams can generate evidence packs instantly, rather than reconstructing them manually.

- Clear reporting and oversight

Grath’s dashboards show reconciliation performance, outstanding discrepancies, and trend analysis. Senior management gains continuous oversight, and the board can monitor safeguarding health across the firm.

- Integration with wider compliance frameworks

Reconciliations link naturally to other control areas, such as operational resilience and third-party oversight. Within Grath, these dependencies are mapped, providing a joined-up picture of financial and regulatory control.

The result is a system where reconciliation becomes a continuous process supported by technology, rather than a periodic task dependent on individuals. Ultimately, effective reconciliation enhances both compliance and customer confidence. It demonstrates that firms take their safeguarding obligations seriously and manage client money with precision and integrity.

In conclusion…

Safeguarding reconciliations may once have been viewed as a back-office control, but the introduction of Payment Service and E Money firms into the CASS regime demonstrates how the FCA now regards them as a key indicator of a firm’s governance maturity and operational control.

For firms seeking to meet these standards, digital reconciliation platforms such as Grath provide a practical and scalable solution. They automate reconciliations, embed control ownership, and create an auditable record that stands up to regulatory scrutiny.

If you’re redefining what “good” looks like in your safeguarding framework, get in touch with us. Grath can help you build controls that stand up to scrutiny every day, and under every condition.