If your firm holds client financial instruments or funds, safeguarding is not a formality: it is a complete system of segregation, records, monitored sub-custodians and reconciliations, capped by the external auditor’s report. We help you build it and test it with evidence.
Do you hold client assets in custody? We’ll review your system
Tell us how your custody is set up (in-house, sub-custodians, omnibus accounts) and we’ll send you back an actionable gap analysis.
From the account structure to the auditor’s report: six services so that your clients’ assets are protected and you can prove it.
We define and document how your firm safeguards client instruments and funds: account structure, sub-custody chain, internal records and policies. It is the part of the application the CNMV dissects whenever client money is involved.
Reconciliations, discrepancy alerts, control over the use of assets and reporting to governing bodies: we build safeguarding into your risk control framework so that failures are caught internally, not during an inspection.
The investment firm with the full range of services, custody included: its safeguarding system is among the most demanding in the market.
When a securities broker holds client assets, safeguarding becomes a central part of its application and its day-to-day operations.
The investor’s safety net: coverage of up to €100,000 per investor in the cases provided by law.
Depositing assets with third parties does not delegate your responsibility: documented initial due diligence and periodic review.
Custody breaks down in different ways depending on the model. These are the scenarios we review most often at investment firms, banks and platforms.
“We hold assets in custody directly and use sub-custodians in three jurisdictions. Our challenge is proving that we monitor the whole chain: due diligence on every link, periodic review and reconciliations that match from end to end.”
“We don’t hold custody ourselves: the securities are with a custodian bank. We thought that took the burden off us, until we understood that selecting and periodically reviewing the sub-custodian is our obligation, with paperwork to prove it.”
“All client activity runs through omnibus accounts at a foreign custodian. It works and it’s efficient, but we had to strengthen our internal records and reconciliations: if my records don’t say what belongs to each client, nobody does.”
“As an EAF we hold no client funds or securities: we advise, full stop. Our discipline is never to touch the money—not even a one-off transfer as a favor—because crossing that line would take us outside our license.”
Almost every incident involving client assets can be traced to a failure in one of these three pillars. The supervisor knows this and looks precisely there.
Asset segregation: client instruments and funds must be kept separate from the firm’s own, so that the firm’s insolvency does not drag them down with it. Segregation is proven with an account structure and records, not with statements of intent.
Omnibus accounts under control: pooling client positions in global accounts is an accepted and common practice, but it shifts all the weight onto your internal records: if your client-level breakdown fails or does not reconcile, the omnibus account becomes an opaque box full of other people’s money.
Monitored third parties: depositing with sub-custodians requires due skill, care and diligence when selecting them—financial soundness, applicable legal regime, protection in their jurisdiction—and documented periodic review. Your responsibility to your client cannot be outsourced.
| Obligation | What is expected | Typical evidence |
|---|---|---|
| Segregate client assets | Effective separation between the firm’s own assets and client assets, identifiable at all times and resilient to the firm’s insolvency | Documented account structure, client-level internal records and clear designation of client accounts as distinct from proprietary accounts |
| Monitor the sub-custody chain | Diligent selection of each third party and periodic review of its financial soundness, legal regime and service quality | Due diligence files, sub-custody agreements, a review schedule and minutes with conclusions and measures |
| Reconcile at an appropriate frequency | Regular matching of internal records against positions held at custodians, with investigation and resolution of differences | Archived reconciliations, a log of discrepancies with their analysis, resolution deadlines and escalation of incidents |
We review your entire system—segregation, omnibus accounts, sub-custodians, reconciliations, consents to use assets—against what the CNMV expects to see, give you the gap map and close the gaps with you: policies, contracts, controls and support for the external auditor’s report.
It is the set of obligations that protects the financial instruments and funds that a firm (an investment firm, or a bank in its securities business) holds on behalf of its clients: keeping them separate from its own assets, recording them so that each position can be attributed to its owner, monitoring the third parties with which they are deposited and not using them for its own benefit without consent.
Its ultimate goal is simple: if the firm fails, client assets are identified, separate and recoverable.
It is a global account at a custodian in which the positions of several clients are pooled under the firm’s name. It is a common and accepted practice—especially in international custody—but it concentrates three risks:
That is why an omnibus account requires flawless records, robust reconciliations and adequate information to clients about this form of custody.
Yes, and it is the norm: few firms physically hold the entire chain themselves. What you cannot do is wash your hands of it. When choosing a sub-custodian you must act with due skill, care and diligence: assess its financial soundness, its legal regime and supervision, the protection of assets in its jurisdiction and its operational capacity.
After that comes documented periodic review: due diligence is not a snapshot taken at signing, it is a film. The same logic applies as in outsourcing of critical functions, which we cover separately: the third party performs, you remain accountable.
Not without permission: using client financial instruments—for example, for securities financing transactions—requires the client’s prior express consent, which must be provable, and only under the conditions set by the rules.
The standard of evidence is high: specific, documented consent, not a clause lost on page forty of a master agreement. Using client assets without that consent is one of the breaches that hurts most in the eyes of the supervisor, because it strikes at the heart of trust in the system.
The rules require reconciliation at a frequency appropriate to the volume and nature of the business: an institutional business with few movements is not the same as a retail broker with thousands of orders a day. In practice, the more intense the activity, the more frequent the reconciliation.
What the supervisor expects to see in any case: systematic reconciliations between internal records and custodians, investigation of every difference, resolution deadlines and escalation of anything that does not match. An old, unexplained discrepancy is an immediate red flag.
It is a specific report by the external auditor assessing the adequacy of the firm’s arrangements to protect client assets, on the terms set by the applicable rules. It does not replace your controls: it examines them from the outside.
Our advice is to treat it as an ally in your calendar: if you prepare your safeguarding with an eye on what the auditor will have to verify—segregation, records, reconciliations, consents—you reach the review with the work done and without awkward findings to explain to the CNMV afterward.
No. An EAF (financial advisory firm) advises: it holds no client funds or securities, and that is precisely one of the reasons why its structure and regime are lighter than those of a broker-dealer (sociedad de valores) or a securities broker (agencia de valores).
The practical consequence for an EAF is one of discipline: never receive money or securities from the client, not even instrumentally or “for convenience.” If your model needs to handle client assets, you don’t need better procedures: you need a different license.
FOGAIN is the last safety net: it covers investors up to €100,000 per investor in the cases provided by law, typically linked to the firm’s insolvency when the assets cannot be returned.
But do not confuse the layers: well-executed safeguarding is the primary protection—the assets are kept separate and returned—and FOGAIN is the parachute for when everything else has failed. A sound custody system aims never to need the fund’s coverage.
The same method we apply to new firms and in reviews of firms already operating: first understand the flows, then lock down the structure, then prove that it works.
We trace where client instruments and funds are at every moment: accounts, custodians, sub-custodians and jurisdictions. Without this map, any safeguarding policy is just words on paper.
We design the segregation (proprietary accounts versus client accounts, individual or omnibus), negotiate sub-custody agreements with the right protections and document the due diligence on each third party.
We implement reconciliations with their discrepancy workflow, control of consents to use assets and reporting to governing bodies, and we prepare the firm for the external auditor’s report.
If you are setting up the firm, build safeguarding into the application from the start with our investment firm authorization service. If you are already operating, we review it as part of your risk management framework under CNMV supervision.
Nine terms that come up in every safeguarding review. If your operations team and your compliance team don’t use them the same way, that is your first gap.
A system of segregation, record-keeping, third-party monitoring and limits on use that protects client instruments and funds.
Legal and accounting separation between the firm’s own assets and client assets, resilient to the firm’s insolvency.
An account at a custodian that pools the positions of several clients. Permitted, but it requires flawless internal records and reconciliation.
An institution where client assets are deposited. Selecting it requires due diligence; keeping it requires periodic review.
Assessment of the third party’s financial soundness, supervision, legal regime and asset protection before entrusting positions to it.
Regular comparison between internal records and positions at custodians, with investigation of every difference.
Without the client’s express, provable consent, the firm cannot use the client’s instruments for its own benefit.
The external auditor’s report on the adequacy of the firm’s arrangements for protecting client assets.
A guarantee fund that covers up to €100,000 per investor in the cases provided by law, when restitution fails.
Attribution of each position to its owner at all times, including positions pooled in omnibus accounts.
Client-level breakdown that can be extracted as of any date, documented systems architecture and sample-based traceability tests.
Justified use of pooled accounts, with information to the client and enhanced record-keeping and reconciliation controls.
Account structure policy, client information clauses and specific reconciliations for each omnibus account.
Effective prohibition by default and, where applicable, prior, specific and provable express consents.
Asset use policy, a repository of signed consents and a control that blocks transactions without permission.
Periodic external verification of asset protection arrangements, with findings managed through to closure.
Reports from previous years, a findings remediation plan and minutes tracking closure.
An identified responsible function, periodic indicators and genuine board awareness of incidents.
Appointment of responsible persons, a custody dashboard, committee minutes and documented escalations.
None of these situations can be fixed the week before the supervisor’s visit. Spot them now and turn them into a work plan.
Asset safeguarding is tied to your choice of license, to the investor guarantee net and to the supervision that will come knocking sooner or later. These pages complete the picture.
The license that holds no custody by design: if your model does not need to hold client funds, this is your lighter route.
Membership, contributions and coverage of up to €100,000 per investor: how the final protection net works.
How an inspection unfolds and how to arrive with your safeguarding already tested, not improvised.
The independent internal review that should find custody failures before the auditor and the supervisor do.
If you are deciding which firm to set up, compare the broker-dealer (sociedad de valores) and the securities broker (agencia de valores)—with custody and their full regime—against firm types that hold no client assets. And for the control system that underpins it all, see investment firm risk management under CNMV supervision and investment firm authorization.
Tell us what type of firm you are and how you currently hold your clients’ assets, and we’ll tell you where your safeguarding gaps are and how to close them.
When an investment firm or a bank provides securities services involving client assets, it takes on a set of obligations that the MiFID II framework places among the most sensitive in the entire system: the safeguarding of client financial instruments and funds. The logic is one of insolvency protection and trust: client assets must be segregated, recorded in the client’s name in the firm’s books, deposited with monitored third parties and free from unauthorized use, so that a crisis at the firm does not turn into a loss for the client. Here we explain each piece and, above all, how to evidence it.
The first obligation is structural: separate client assets from the firm’s own, with an account structure that identifies what belongs to whom and internal records capable of attributing every position to its owner at any time. This requirement becomes critical in omnibus accounts, where the custodian only sees an aggregate balance in the firm’s name: all attribution lives in your books. Omnibus arrangements are permitted and efficient, but the trade-off is flawless records, adequate information to clients and enhanced reconciliations. It is one of the areas we document when preparing the authorization of an investment firm with custody in its program of operations.
Depositing client assets with sub-custodians—often in international chains—does not transfer responsibility: the firm must select them with due skill, care and diligence (financial soundness, supervision, legal regime and protection of assets in their jurisdiction) and subject them to documented periodic review. On top of this come reconciliations between the firm’s own records and positions at custodians, at a frequency appropriate to the business and with a serious process for investigating discrepancies. The broker-dealer (sociedad de valores) with in-house custody and the securities broker (agencia de valores) that deposits with third parties share the same standard here: demonstrable oversight of the entire chain.
Two limits complete the system. First, the firm cannot use client instruments for its own benefit without express consent, given in advance and provable, under the conditions set by the rules: a generic consent hidden in a master agreement does not meet the standard. Second, the system is verified from the outside through the external auditor’s report on asset protection, whose findings should be closed with a plan and a date before an inspection inherits them. And as a final layer, FOGAIN covers up to €100,000 per investor in the cases provided by law: the parachute that well-built safeguarding aims never to need.
This set of obligations does not extend to financial advisory firms: an EAF holds no client funds or securities; it only makes recommendations, and that absence of custody explains its lighter structure. The operating rule for an EAF is one of absolute hygiene: never accept cash or instruments from the client, not even in passing. If your business model needs to handle client assets, the answer is not to stretch the license but to step up—to a securities broker or a broker-dealer—with the safeguarding system designed from the application stage. We build that design into the risk management framework under CNMV supervision of every firm we work with.
Key legislation, linked to the official text:
Legislation and links reviewed in .