The number on your CRM dashboard and the number on the bank statement will not match today. They almost never match on the first pass. A card deposit settled overnight in a different currency, a withdrawal left the PSP but has not hit the beneficiary bank, and a chargeback reversed a deposit that a client already traded against. That gap is the whole reason regulators require a client money reconciliation, and require it every business day rather than at month end.
Firms holding retail client funds under an investment-services regime are generally required to reconcile internal records against external ones daily, and to correct any difference by the close of the next business day. The exact wording differs by regulator. The mechanism does not.
Internal versus external, and why both exist
The internal reconciliation compares two sets of your own records: the sum of individual client ledger balances against the total client money balance your books say you are holding. It catches booking errors. A withdrawal posted to the wrong client, a bonus credited as cash, a manual adjustment that debited one side only.
The external reconciliation compares your records against the third party's records: bank statements, PSP settlement files, custodian reports. It catches the world outside your system. Fees deducted at source, an FX conversion applied at a different rate than you booked, a payout batch that the processor rejected and quietly returned.
Firms that only do the external check discover their own accounting mistakes months later, usually when an auditor finds them. Firms that only do the internal check have a perfectly consistent ledger that describes money nobody is holding.
What actually causes the breaks
In a retail trading business the recurring causes are predictable, and worth listing because a reconciliation process that does not anticipate them will produce a long queue of unexplained items:
- Card deposits credited to the client the moment the authorisation succeeds, while the acquirer settles days later net of fees. Until settlement the firm is funding that balance itself.
- Chargebacks and refunds reversing a deposit after the client has traded, which is why chargeback ratios are a client money problem and not only a payments problem.
- Crypto deposits valued at one rate on receipt and converted at another, leaving a currency difference that has to be attributed to someone.
- Unrealised profit and loss on open positions, which changes the client money requirement continuously rather than only when a trade closes.
- Balances held at a PSP or e-money institution rather than a bank, where the money is inside another firm's safeguarding arrangement rather than in your own segregated account.
That last one is the item most new firms get wrong. Money sitting in a payment provider's float is not in your client money account. Whether it counts toward the requirement depends on how the regulator treats the arrangement, and that is a question for your own counsel rather than for a blog.
Shortfall, excess, and who pays
If the reconciliation shows less money in the segregated accounts than clients are owed, the firm funds the difference from its own resources, immediately. That is the point of the whole exercise. It is also why capital planning and reconciliation are the same conversation: a firm with a thin balance sheet cannot absorb a settlement delay, and a firm that cannot absorb a settlement delay will breach. Read the mechanics of the buffer alongside capital requirements for brokers.
An excess is not a gift either. Money in the client account that belongs to the firm, such as accrued commission not yet swept, has to be identified and removed on a defined cycle. Leaving house money in the client pool sounds conservative and is a breach in most regimes, because it makes the pool impossible to attribute in an insolvency.
Reconciliation rules, timing and shortfall treatment vary by jurisdiction and by the permissions a firm holds. Nothing here is legal advice. Get your specific obligations confirmed by a lawyer or compliance consultant admitted in the jurisdiction that licenses you.
The record is the product
An auditor does not want to hear that you reconcile daily. They want the daily file: the two totals, the difference, every reconciling item with a reason code and a date, the sign off, and the evidence that any shortfall was funded. A reconciliation with no audit trail is treated as a reconciliation that did not happen, which is the same standard applied to compliance audit trails generally.
This is where the software choice bites. If deposits, ledger entries, PSP settlements and withdrawals live in four unconnected systems, someone rebuilds the picture in a spreadsheet every morning, and the spreadsheet is the control. A broker CRM that holds the client ledger and the payment records in one place turns the daily reconciliation into a report rather than a reconstruction, which matters more the moment a regulator asks for eighteen months of history.
How this reads to a bank
Correspondent banks and payment providers ask about client money handling during onboarding, and they ask because the answer predicts their own risk. A firm that can describe its segregation structure, name the account signatories, show the daily reconciliation output and explain how shortfalls get funded is a different underwriting file from a firm that says client funds are kept separate and stops there. The same evidence pack that satisfies a regulator tends to be the pack that gets a bank account for a trading firm opened, and the mechanisms behind refusals are covered in correspondent banking de-risking.
None of this scales down. A firm with two hundred clients still reconciles daily. The difference is only that the file is shorter.
"Every client money breach I have seen started as a reconciling item somebody left open for a week because they were busy. The rule is not that you never get a break. The rule is that no break survives to the next day without a name against it."
— Alex Onta, Executive Director, SINGUARD
Key Takeaways
- Reconcile internal client ledgers against external bank and PSP records every business day, not monthly.
- Card settlement lag, chargebacks, crypto conversion and PSP float cause most breaks in a retail trading firm.
- A shortfall is funded from the firm's own money the same day, so reconciliation and capital planning are one conversation.
- The daily file with reasons, sign off and funding evidence is what auditors, regulators and banks actually ask to see.
Frequently Asked Questions
How often does client money have to be reconciled?
Under most investment-firm regimes the internal and external reconciliations are performed every business day, with any difference investigated and corrected promptly. Frequency and deadlines are set by the regulator that licenses you, so confirm the exact requirement for your permissions with your own advisers.
Does money held at a payment provider count as segregated client money?
It depends on how the arrangement is structured and how your regulator treats funds in a third party's float. Money sitting with a PSP is inside that provider's own safeguarding or client money arrangement, not in your segregated bank account, and firms should not assume the two are interchangeable.
What happens if the reconciliation shows a shortfall?
The firm pays the difference into the client money account from its own resources, normally by the close of the next business day, and records the event. Repeated shortfalls are treated as a control failure rather than a rounding issue, and they are one of the first things an audit looks for.
About the Author
Alex Onta is an Executive Director at SINGUARD. He built eTrader, the terminal, the mobile apps, eTrader Broker, Copytrading, Business and Community, along with the worldwide clustered-server infrastructure it all runs on, with his brother Roman Onta helping on the design, and he leads that division today. Together with Roman he builds the Prop Firm CRM, the Broker CRM, Scalegram and CopySignals, and the two of them carry worldwide compliance, payment processing and international business structuring side by side. He lives and works in Dubai for most of the year. Meet the executive duo leading Singuard's five divisions.