17 July 2018
Chris Errington


Chris Errington - None

4Posts 15,315Views 19Comments
Finextra community

Electronic Bank Account Management

A group for discussion of how banks and corporates are moving towards standardisation and more efficient, automated processes for opening, maintaining and closing bank accounts.

FCA rules on client money loom: are you ready to reconcile?

26 March 2014  |  7337 views  |  0

While innovations such as Faster Payments in the UK have accelerated banks’ transaction processing, many client money managers are still lagging. Manual processes are still prolific and this can result in inaccuracies when matching incoming cash receipts to outstanding invoices with virtual accounts.

Regulatory pressure is on the up when it comes to client money, with the FCA’s expected changes to the current CASS 7 client money rules due to come in this year. This makes the timely matching of incoming cash receipt to invoices increasingly important, which has long been difficult for corporates because of the inherent poor quality of data contained in the incoming bank receipt message.  A few things can lead to this inferior data quality:

  • The end customer does not or is unable to include accurate or sufficient information to identify what they are paying, or who is paying it, in their payment message;
  • Customer information is stripped out either in part or all together when it passes through the banking system; and / or
  • The account holder chooses to only make use of the truncated information provided on the bank statement rather than the full electronic data provided by the customer

The common theme here is a problem with the payment message, which either doesn’t include the data needed for proper matching or it is stripped out by the bank infrastructure.  To get around these problems, the bank may provide a crude, but sometimes effective, ‘bucketing system’ that introduces a new receipt identifier that is controlled by the bank – a virtual bank account number tagging the receipt with a known Unique IBAN linked identity (UIBAN).

But this initial bucketing approach is only part of the solution.  When allocating cash, firms still need to:

  • Rapidly match then allocate the bucketed cash to invoices;
  • Deal with exceptions arising from the payer using the wrong UIBAN;
  • Deal with bulk payments, credit notes, debit notes, currency differences, sales tax rounding, short pays and long pays;
  • Keep an audit log of the process;
  • Provide management reporting on the process

This is especially true in the B2B situation where UIBAN driven buckets will now often be holding a complex pool of cash receipts for each end customer. It’s good that the cash receipts are split out by customer, but they still need to be unpicked line by line to match with invoices so errors can be corrected.  This needs to be done in real-time, not batch.

“Bank side” virtual accounts are a useful practical technique to assist the bank’s client in allocating cash.  But they are not the whole story and a lot more control is required to get anything like straight through matching or full automation.  By using an innovative matching and reconciliation tool, corporates managing client money can unlock the true value from existing processes so they can automate and remain in control – and of course be ready to meet the new rules for client money. 


Comments: (0)

Comment on this story (membership required)

Latest posts from Chris

Spreadsheet gridlock: getting from A to B with STP

13 February 2015  |  1596 views  |  0 comments | recomends Recommends 0 TagsPost-trade & opsTransaction banking

Robots are automating receivables - Danger, Will Robinson!

01 July 2014  |  3700 views  |  0 comments | recomends Recommends 0 TagsRisk & regulationGroupInnovation in Financial Services

Exploiting the value of extended remittance information

13 May 2014  |  2683 views  |  1 comments | recomends Recommends 0 TagsPaymentsInnovationGroupInnovation in Financial Services

FCA rules on client money loom: are you ready to reconcile?

26 March 2014  |  7337 views  |  0 comments | recomends Recommends 0 TagsInnovationGroupElectronic Bank Account Management

Chris's profile

job title Semi-retired
location London
member since 2011
Summary profile See full profile »

Chris's expertise

Member since 2011
4 posts19 comments
What Chris reads
Chris's blog archive
2015 (1)2014 (3)

Who's commenting on Chris's posts