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CISI Global Securities Operations study materials
CISI Global Securities Operations study resources

CISI Global Securities Operations: Reconciliation, Controls and Operational Risk Management

CISI Global Securities Operations · Work through your exam, one topic at a time.

All guide sections

Reconciliation, Controls and Operational Risk Management

What this domain tests

This domain tests the mechanics of reconciliation, the design of preventive and detective controls, and operational risk frameworks including the three lines of defence, RCSA and incident management.

Reconciliation

  • Types: cash, stock/position, inter-system, inter-company and client money reconciliations.
  • The process: match two independent records, identify breaks, age them, investigate root cause, correct, escalate above tolerance, and evidence sign-off.
  • Common causes of breaks: unprocessed corporate actions, incorrect static data, unbooked fees, timing differences, failed trades and FX revaluation.

Controls

  • Preventive controls stop errors (mandatory fields, SSI validation, access rights); detective controls find them (reconciliations, exception reports).
  • Maker-checker and segregation of duties ensure no single person initiates and releases a payment or trade amendment.
  • KRIs and KPIs (break ageing, fail rates, error counts) give management early warning.

Operational risk

  • Basel defines operational risk as loss from inadequate or failed internal processes, people and systems or from external events; it includes legal risk but excludes strategic and reputational risk.
  • The three lines of defence: business units own the risk; risk and compliance oversee; internal audit provides independent assurance.
  • RCSA workshops identify risks and rate the effectiveness of controls. Loss events and near misses are logged, root-caused and fed back into control design. Business continuity and disaster recovery plans sit within the same framework.

Worked example

Custodian records show 101,000 shares; the investment manager's book shows 100,000. Reasoning: the break of 1,000 shares is investigated by comparing transaction history around the record date. A 2-for-1 stock split was applied at the custodian but not in the manager's system. The fix is a book adjustment of 1,000 shares, correction of the static data or event mapping that caused the omission, and an entry in the error log with root cause - not simply an adjusting entry, which would leave the cause in place.

Traps that cost marks

  • Forgetting that correcting a break without root-cause analysis fails the control objective.
  • Classifying reputational risk as operational risk under Basel.
  • Describing internal audit as a first-line function.