GovernanceAccounting10 ways an accounting hub is key to your CASS 7 operational accounting challenges

10 ways an accounting hub is key to your CASS 7 operational accounting challenges

One of the greatest control challenges in the financial service industry today stems from a lack of a proper operational accounting records.

One of the greatest control challenges in the financial service industry today stems from a lack of a proper operational accounting records. Operational and administration systems designed to execute a trade, calculate a premium or process a loan may do that core job well, but often they fail to create operational accounting records to correctly account for that activity and the positions and exposures that it can generate.

This lack of proper accounting records can lead to an undue burden being placed on a firm’s reconciliation function to deliver risk-monitoring, informal accounting, governance, compliance and control.

Where a company is authorised to hold client money; the accounting challenge is much greater and even if the client has operational accounting records the existing accounting records may be inadequate for delivering full control of client cash.

What then typically happens is that the client money reconciliations are performed and these are used to adjust the accounting record and perform the client money top up calculations. The adjustment process can easily lead to error through incorrect netting of transactions or insufficient audit trail to allow reconciling items to be traced to the correct client money account.

All this can lead to a breach of Client Asset (CASS) regulations and a qualified audit report sent by your auditor to the Financial Conduct Authority (FCA).

Much has been made of the daily, and perhaps even intraday client money reconciliation requirement confirmed in CASS 7 with PS14/9. To achieve this standard is difficult without good quality accounting records to facilitate easy reconciliation and resolution of discrepancies and unreconciled items.

Why an accounting hub?
With an accounting hub, you can create an accurate client money accounting record based on the actual settlement and clearance of the transaction through the client money bank statement. The records created fully and accurately account for all client money activity and analyse the funds in the pooled or omnibus client money bank account into the individual client product balances that make it up.

If your firm has existing operational accounting records the hub’s client money records can be run in parallel to these records. Otherwise the hub’s accounting records deliver operational and client money accounting.

To create the client money record, the accounting hub takes the “golden source” transaction from your core operational or administration systems and holds them in a posting repository. While they are in the repository the hub seeks to match them to their actual settlement or clearance through the bank statement. Once this match occurs, an accounting hub can trigger the accounting posting to the operational general ledger in real-time giving an accounting record based on the actual client money position and perfectly analysing the pooled client money bank accounts

To achieve the real-time client money accounting, a marketing-leading accounting hub will be preconfigured to load all bank statements and supporting data for most clearing banks. This allows you to create a rich bank statement record which facilitates the highest level automatically and semi automatically matching of repository transaction to the actual bank statement cash movement/clearance. This allows us to achieve the highest levels of accounting accuracy.

This accurate client money accounting reduces reconciliations breaks to a minimum as the cashbook in the general ledger will generally then “straight-agree” to the external bank statement amount.
Any unidentified cash receipts and payments out on the bank statement can be posted to the general ledger by the Accounting Hub. The unidentified items are temporarily posted to a general ledger account for unidentified items as required by the regulations. When identified they are reallocated by the Accounting Hub to the correct account. This allows the highest levels of governance and supervision to be obtained as all cash positions are “on-ledger” and can be accounted, reported on, reconciled, aged and analysed automatically.

10 features to look out for:

Best-in-breed systems should be able to offer the full functionality required to meet the operational accounting challenges for Client Asset Protection.

The accounting hub should:

⦁ Automatically perform the client money calculation
⦁ Facilitate prudent segregation
⦁ Be configurable to generate the chart of accounts and all the accounting entities
⦁ Post client money accounting entries on the basis of actual settlement and clearance
⦁ Initiate inter bank account sweeping
⦁ Deliver the information required to complete the client money returns (CMAR)
⦁ Offer full financial management reporting capabilities
⦁ Be delivered through a software as a service (SaaS) model.
⦁ Have system configuration which allows segregation of duties
⦁ Offer interest calculation and payment

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