How to prepare client money reconciliations with an AI agent

Client money reconciliations compare what you owe clients with what you hold for them. The agent computes both sides from the client ledger and bank statements, lists every difference, and drafts the transfer to fix a shortfall or release an excess. A named person accountable for client money approves both and decides whether anything must be reported.

What is a client money reconciliation, and who is accountable?

Firms that hold money belonging to clients, such as investment firms, payment and e-money firms, insurance intermediaries and some professional services firms, usually must keep it separate from their own money, in designated accounts, and prove regularly that the separation holds. The proof is the reconciliation.

It has two parts. An internal reconciliation compares the client money requirement (what the firm's records say it owes each client, totalled) with the client money resource (what the firm's records say it holds in client accounts). An external reconciliation compares the firm's records of those accounts with the banks' statements. Rules on frequency, method and timing vary by market and by regime, so follow your own regulator's rules for the detail.

The firm names a person accountable for client money oversight. Where your regime holds named individuals accountable, as the UK's Senior Managers and Certification Regime does, make sure client money oversight is allocated to one. That person, or someone they delegate to, approves each reconciliation and any funding movement. The general bounds for finance agents are in AI agents for finance.

What does the agent prepare?

1. Agent, depth 1: computes the requirement. Client by client from the client ledger, never netting a negative balance on one client against a positive balance on another.
2. Agent, depth 1: computes the resource. Balances on designated client accounts from bank statements received from the banks.
3. Agent, depth 1: external reconciliation. Each client bank account's statement against the firm's record, item by item, with unmatched items listed.
4. Agent, depth 2: explains differences. Uncleared receipts, payments in transit, bank errors, misposted items, and amounts the agent cannot explain.
5. Agent, depth 2: drafts the funding movement. A top-up from firm money for a shortfall, or a withdrawal of excess, with the calculation. Held for approval.
6. Agent, depth 2: drafts the breach note. Where a shortfall was not corrected in the time your rules allow, or where a record was wrong, it prepares the facts for the accountable person.
7. Person, accountable for client money: approves the reconciliation and the movement.
8. Person, finance: executes the transfer. Under the normal payment authorisation.

For example, an illustrative investment firm's client ledger shows 3,000,000 owed to clients, including one client overdrawn by 20,000 after a failed settlement. The designated accounts hold 2,990,000 according to the banks. The requirement is 3,020,000 because the overdrawn client is not netted, so the shortfall is 30,000, not 10,000. The agent drafts a top-up of 30,000 from firm money and a note on the failed settlement.

What does the named person approve?

They approve that the requirement is complete and correctly calculated, that the resource is real, that every difference is explained, and that the funding movement is right. They also decide whether any event is reportable to the regulator. The agent prepares facts; it does not judge whether a breach occurred in the legal sense.

Bank data is signed. Statements come from the bank, not from the firm's own cash book. Evidence: source class on the resource figure.

No netting. Evidence: a list of negative client balances, shown separately.

Movement held. Evidence: the held verdict with the approver's identity and the payment reference.

Timing. The reconciliation is done by the time your rules require. Evidence: timestamps of preparation and approval.

Method document. Evidence: the method version on every reconciliation.

Where does it usually go wrong?

Using the firm's books for the resource. If the resource comes from your cash book rather than the bank, the external reconciliation is circular. The agent must read statements.

Netting client balances. One client's overdrawn balance does not reduce what you owe others. If it is netted, a shortfall hides.

Uncleared items counted. A client cheque deposited but not cleared may not count as client money held, depending on your rules. Treat uncleared items as the method says, consistently.

Firm money left in client accounts. An excess not withdrawn mixes firm and client money. The agent should flag excess as much as shortfall.

Accounts not designated correctly. A new client account opened without the bank's acknowledgement of its status. The agent should check every account in the resource against a list of properly designated accounts.

Shared logic with other reconciliations. Matching techniques are similar to bank reconciliations and intercompany reconciliations, but client money has a requirement side those lack. Do not reuse a general balance sheet reconciliation profile for it.

What should you measure?

• Shortfalls found, value and time to correct.
• Unexplained differences at approval. Should be zero.
• Reconciliations completed late.
• Excess balances left in client accounts.
• Breach notes drafted and the decisions taken.