Client Money, Reconciliation and Internal Controls
This domain tests how a brokerage safeguards client funds and detects control failures. It links segregation, daily reconciliation, dual authorisation and audit trails to JSE and conduct requirements.
Core rules and concepts
- Client money must be segregated from firm money and held in designated trust or client accounts; it must not be used to fund firm expenses or another client’s obligations.
- Reconcile client bank accounts to the client ledger and to CSDP or custody positions regularly, typically daily, and investigate breaks promptly.
- Use dual control for payments, transfers and master-data changes; restrict system access by role.
- Maintain an audit trail for instructions, approvals, overrides and reconciliations.
- Report material control failures and suspected misappropriation through governance and regulatory channels.
Worked example
A client deposits R1,000,000. The desk executes purchases of R950,000 and charges R10,000 in fees, leaving R40,000. The client bank account shows R1,000,000 received but the ledger shows R40,000 available. The correct reasoning is that the bank-to-ledger reconciliation must explain the R950,000 settlement movement and the R10,000 fee with supporting entries. If R50,000 is unexplained, it is a break, not a timing difference to ignore. The firm should freeze the unexplained amount, escalate,and correct the ledger only with evidence.
Traps that cost marks
- Treating a client deposit as firm working capital.
- Netting one client’s surplus against another client’s shortfall without authority.
- Calling every difference a timing difference.
- Allowing one person to create, approve and release a payment.
Exam focus
Segregation, reconciliation breaks and dual-control scenarios are central.