Custody account reconciliation is the control by which an asset manager, broker, fund administrator or custodian checks that the securities and cash recorded in its own books agree with the records of the party that actually holds them. An investment manager compares its portfolio system with statements from the custodian; a custodian compares its client records with each sub-custodian and central securities depository. Positions are usually matched daily, security by security, along with cash balances and transactions.
Differences, known as breaks, arise from unsettled or failed trades, timing differences, missed corporate actions, fees, tax and input errors. Each break is investigated, assigned an owner and aged until resolved. The process is a specialised form of reconciliation and a regulatory requirement: client asset rules in many jurisdictions require firms to reconcile each safekeeping account at set intervals and to make good any shortfall. Event-specific checks are covered under corporate action reconciliation.