FinanceA reconciliation break is a difference between two records that should agree: a bank's ledger and its correspondent's statement, a fund's positions and the custodian's, two counterparties' views of the same trade. Most breaks are not lost money. They are timing, formats and reference data. The work is telling the kinds apart, explaining the ones that explain themselves, and getting the rest to someone who can fix them before a regulatory deadline.
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What a reconciliation break is
The Basel Committee on Banking Supervision gives the shortest definition in its principles on risk data, known as BCBS 239: "reconciliation means the process of comparing items or outcomes and explaining the differences" (BCBS 239). The explaining is the work. The International Swaps and Derivatives Association (ISDA) defines the two outcomes: "Matching = establishing that two or more trades belong together. Breaking = trades that match but with a difference, or trades that do not have a match" (ISDA).
The common reconciliations are cash, where the ledger is compared with the bank statement (a nostro reconciliation when the account sits with a correspondent bank), position, where holdings are compared with the custodian, trade, where bookings are compared with confirmations, and portfolio reconciliation of over-the-counter derivatives with each counterparty.
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See forward deployed engineeringThe types of breaks
| Type of break | What it looks like | Clears by itself? |
|---|---|---|
| Timing difference | A payment booked today that the statement shows tomorrow | Yes, on the next cycle |
| Missing record | An entry on one side with nothing on the other | No: someone must book it or chase it |
| Amount or quantity difference | The same trade with a different amount, price or number of units | No |
| Static or reference data mismatch | A different identifier, account, settlement instruction or counterparty code | No, but it is often a data fix rather than a money problem |
| Duplicate | The same transaction booked twice | No |
| Corporate action or valuation difference | A dividend, split or price applied on one side only, or at a different value | Sometimes, once both sides have processed the event |
Regulation recognises the first type on its own. The FCA's client money rules require a firm to investigate an external reconciliation discrepancy "unless the discrepancy arises solely as a result of timing differences between the accounting systems of the party providing the statement or confirmation and that of the firm" (CASS 7.15.31R).
What causes reconciliation breaks: mostly data, not money
An ISDA pilot on derivatives portfolio reconciliation broke its findings down as 89 percent data standard and formatting issues, 8 percent actual breaks and 3 percent matured trades, and noted that "almost 90% of the manual effort is caused by lack of data standards" (ISDA, Portfolio Reconciliation in Practice, 2008). It is a 2008 derivatives pilot, not a survey of today's cash reconciliations, but the pattern is familiar to anyone who has worked a break queue.
ISDA lists the sources of real breaks as amendments, business and trade events, novations, booking errors and valuation model mismatches. Around them sit the data causes: different formats from each counterparty or custodian, different booking conventions, feeds that arrive late or partly.
The deadlines regulators attach to breaks
| Regime | How often | When a break becomes a reporting matter |
|---|---|---|
| UK client money, FCA CASS 7.15 | Internal reconciliation each business day | A shortfall is paid in by close of business that day; the FCA is told in writing if discrepancies cannot be resolved |
| EU over-the-counter derivatives, EMIR (Regulation 149/2013) | Daily from 500 contracts, weekly from 51 to 499, quarterly at 50 or fewer | A specific process for disputes not resolved within 5 business days; disputes above EUR 15 million outstanding 15 business days are reported |
| US swaps, CFTC 17 CFR 23.502 | Daily from 500 swaps, weekly above 50, quarterly at 50 or fewer | Material-term discrepancies resolved immediately; valuation disputes above $20 million notified after 3 or 5 business days |
Under the European Market Infrastructure Regulation (EMIR), those frequencies apply to financial counterparties and to non-financial ones above the clearing threshold (Regulation 149/2013, Articles 13 and 15). The US Commodity Futures Trading Commission (CFTC) allows a tolerance on valuations: a difference "of less than 10 percent of the higher valuation need not be deemed a discrepancy" (17 CFR 23.502).
Clearing breaks: classify, explain, escalate
- Classify each break by type.
- Explain what can be explained: match timing differences to the next day's items, and attach the statement line, the confirmation or the corporate action notice as evidence.
- Age what is left: give each open break an owner and count the days outstanding.
- Escalate before the deadline that applies to that reconciliation.
- Record the resolution: the adjustment or write-off, and who approved it.
When a firm cannot resolve its client money discrepancies, the FCA expects to hear about it: a firm "must inform the FCA in writing without delay" if it "will be unable to, or materially fails to, identify and resolve any discrepancies" (CASS 7.15.33R).
Why breaks are also a data governance issue
BCBS 239's third principle asks that risk data be "aggregated on a largely automated basis so as to minimise the probability of errors", and that it be "reconciled with bank's sources, including accounting data where appropriate". Ten years on, the Basel Committee's progress report found that "of the 31 banks assessed, only two banks are fully compliant with all the Principles" (BCBS, November 2023).
Breaks that keep coming back from the same feed are a data quality signal, not just operational noise. Classifying them by cause, not only clearing them, is what lets a team fix the feed instead of working the same break every morning.
Where an AI agent fits
Matching engines already pair records that agree. What stays manual is the residue: reading statements, confirmations and notices to explain each break, and chasing the ones that need someone else. An AI agent can take that part. It explains each break it can, with the evidence attached, and escalates only the ones no rule explains. A person signs off every adjustment and write-off.
Reconciliations and exception handling is one of the six workflows Mirage's agents run for banks, insurers and asset managers: they match records across systems, explain what can be explained, and bring only the real breaks to your team. The same principle, preparing the evidence and leaving the decision to a person, runs through know-your-customer periodic reviews.
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See case studiesFAQ
Differences between two records that should agree, such as a ledger and a bank statement, a fund's positions and the custodian's, or two counterparties' records of the same trade. A break is either a match with a difference or a record with no match at all.
Mostly data rather than money: timing between systems, different formats and booking conventions, reference data mismatches and late feeds. Real breaks come from booking errors, amendments, trade events, corporate actions and valuation differences.
A timing difference is an item that one side has recorded and the other will record on its next cycle, so it clears by itself. The FCA's client money rules treat it separately from other discrepancies. Every other type of break needs someone to act.
Cash breaks are differences between the ledger and the bank statement. Position breaks are differences between a firm's holdings and the custodian's or depository's records.
A difference between how a trade is booked internally and how it appears on the confirmation or in the counterparty's records, such as a different price, quantity, settlement date or counterparty, or a trade missing on one side.
For financial counterparties and non-financial counterparties above the clearing threshold: each business day with 500 or more contracts outstanding with a counterparty, weekly between 51 and 499, and quarterly at 50 or fewer.
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