CySEC Directive DI87-01 Safeguarding Client Assets: Daily Reconciliations & Trust Letters

Client-asset protection inside every Cyprus Investment Firm is governed by CySEC Directive DI87-01 for the Safeguarding of Client Financial Instruments and Funds (transposing Commission Delegated Directive (EU) 2017/593 pursuant to Section 17(8)–(10) of Law 87(I)/2017). Remember from our ICF Risk-Based Contributions analysis that even minor technical breaches of DI87-01 trigger a Qualified External Auditor Safeguarding Opinion—instantly doubling the CIF's annual ICF bill from 0.50% to 1.00% and inviting an immediate CySEC Enforcement investigation!

Within our CySEC CIF & ICF master guide and the CySEC safeguarding hub, back-office operations and finance controllers at CIFs like CAPEX.com, Colmex Pro, 1Market, and Alfa Capital execute five daily and monthly DI87-01 controls without exception.

Five Mandatory Operational Pillars of CySEC Directive DI87-01#

Two Classic Reconciliation Math Errors Flagged in CySEC Circular C458!#

During thematic safeguarding inspections summarized in CySEC Circular C458, examiners uncovered two widespread spreadsheet bugs that caused CIFs to think they had a EUR 500,000 client-money surplus when they actually had a EUR 400,000 client-money deficit:

1. Illegal Netting of Negative Client Accounts Against Positive Client Accounts: Suppose Client A has +EUR 100,000 equity and Client B's account slipped to -EUR 15,000 before NBP reset ran. Raw SQL SUM(equity) outputs EUR 85,000—WRONG! Client B's -EUR 15,000 is a corporate bad debt absorbed by the CIF, never payable out of Client A's money! Under DI87-01, every individual client's equity MUST be floored at max(0, Equity_i) before summing total client liability (EUR 100,000)!
2. Counting Unsegregated Liquidity-Provider Margin & Stale PSP Reserves as Segregated Cash: Cash posted by a CIF into an institutional Prime-of-Prime or Liquidity Provider margin account to hedge B-book/A-book trades does NOT count as segregated client money if it sits under a Title Transfer Collateral Arrangement (TTCA) securing the CIF's own proprietary trades rather than an explicitly ring-fenced omnibus client trust sub-account! Similarly, rolling 180-day Payment Service Provider (PSP) chargeback rolling reserves cannot be treated as instant liquid client money without corporate buffer replacement!

Prudent Buffer Rule: Avoiding Reverse Commingling!#

Wait—if shortfalls are dangerous, why not just leave EUR 2,000,000 of the CIF's own corporate money permanently inside the segregated client bank account? DI87-01 Paragraph 4(2) prohibits excessive commingling too—because in an insolvency, courts in several jurisdictions risk invalidating the trust status of a bank account where corporate working capital and client trust funds were freely mixed! CIFs may maintain only a strictly calibrated, board-documented "Prudent Safeguarding Buffer" (covering intraday floating P&L wins and weekend PSP settlement lags), sweeping excess earned spread/swap profits out to corporate accounts only after each morning's signed reconciliation proves a post-sweep surplus!

Exact DI87-01 Daily Client-Money Reconciliation Formula#

Hard-code CySEC's exact zero-floored daily client-money equation into your finance back-office engine:

Securities Financing & Omnibus Stock Lending Restrictions (DI87-01 Para. 7)#

For CIFs safeguarding real equities and ETFs under Annex I Section B(1) (CSDR Regulation 909/2014), DI87-01 Paragraph 7 enforces uncompromising restrictions on lending out client shares (Securities Financing Transactions, SFTs): a CIF may NEVER enter into omnibus securities-lending arrangements using retail client shares unless the client gave prior express written signature (not buried in general T&Cs!), clear risk/fee splits are disclosed, and borrower collateral is monitored daily at >= 100% fair value alongside CySEC credit-institution diversification limits.