Shortfall Funding

PS14/9 has clarified the requirement to fund for shortfalls that are the firm's responsibility as soon as they are identified until they are resolved.  Previously firms only looked at identification at reconciliation time and then only if they remained outstanding for 90 days to allow time for investigation.  However, the new rules clarify the requirement to fund and state that shortfalls should be funded, as soon as they are identified, even outside of the reconciliation process.

There appears to be varying interpretations with some firms building breaks and funding them intra-day at one extreme whilst others are allowing at least 5 days to pass to allow for clarity around the type of break and whether it can be removed as simply a timing or settlement break.  However, it appears that general acceptance is that breaks must be funded as soon as they are identified, which generally means on a daily basis.

Typically this new funding requirement can more than treble the amount of firm money having to be transferred into client money to cover these shortfalls.  Inevitably this must lead firms to consider the merits of automation and the ability to create daily reconciliations that could automatically resolve breaks each day and greatly reduce the number of shortfalls occurring.



Published: May 2015
By: Anthony Smith

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