Nostro reconciliation and account statements

Nostro reconciliation is the daily discipline of agreeing the balance of a nostro account between the two banks, and it is one of the most important operational controls in cross border payments. Every day, the correspondent bank sends a statement of the vostro account, usually as a SWIFT MT950 statement message, which lists every debit and credit, the value dates, the balances and the references. The respondent bank compares that statement with its own record of the nostro account, which is built from the payment instructions it sent and the payment advices it received. Every item must match, the amount, the value date, the reference and the running balance. Any item that appears on one side but not the other, or any amount that differs, is a break that must be investigated and resolved. Field 20 is the transaction reference, field 25 is the account identification, field 28C is the statement number and sequence, field 60F is the opening balance with the date and currency, field 61 is the statement line for each transaction with the value date, the debit or credit mark, the amount and the reference, field 62F is the closing balance, and field 64 is the closing available balance. The ISO 20022 equivalent is the camt.053 bank to customer statement, which carries the same information in a richer format with structured remittance information and a unique end to end reference on every entry. A business analyst who designs a reconciliation system must specify which messages are received, how they are parsed, and how the matching rules work. Intraday balance reporting uses a different message. The MT940 balance report can be sent intraday and shows the current balance without the full transaction detail, and its ISO 20022 equivalent is the camt.052 bank to customer account report. The MT942 interim transaction report shows transactions since the last statement, and the MT900 confirmation of debit and MT910 confirmation of credit advise individual postings as they happen. An analyst who needs real time nostro visibility will use MT900 and MT910 for immediate posting advices, MT942 for an intraday update, and MT950 or camt.053 for the daily statement. Each message has a role, and the reconciliation design must say which ones are received and how they are used. Breaks happen for many reasons, and the analyst must know the common ones and how to resolve each. A payment may have been sent by the respondent but not yet processed by the correspondent, so it appears on one side and not the other, and it will match tomorrow. This is a timing break, and it is normal. A charge may have been deducted by the correspondent that the respondent did not expect, so the amounts differ by the charge. This is a charge break, and it needs a query to the correspondent, usually an MT999 or MT199 free format message quoting the statement line reference. A payment may have been returned by the beneficiary bank, so the credit appears on the statement without a matching entry in the respondent's books. This is a return break, and it needs the return to be allocated to the right customer, using the UETR and the original reference carried in the pacs.004 return message. A payment may have been sent twice by mistake, or a payment may have been sent with the wrong reference, so the matching fails. A value date break happens when the respondent expects value on Monday and the correspondent gives value on Tuesday, which is usually a holiday difference. Each type of break has a different resolution, and the reconciliation team must age the breaks, escalate the old ones, and report the unreconciled items to management. The matching engine is what makes reconciliation scalable. It matches on amount, currency, value date and reference, and it auto matches 95 to 98 percent of items without human help. The remaining items fall into exception queues, such as a payment the bank sent but the correspondent has not yet reported, or a charge the correspondent deducted that the bank did not expect. The engine also enforces cut off times across time zones, so a payment sent at 4 in the afternoon London time for a New York nostro must respect the US cut off, not the UK one. A shared cut off calendar, stored in UTC, keeps every team working from the same clock. Unmatched items that cannot be resolved sit in a nostro suspense account, and that is where the risk concentrates. A credit in suspense is money the bank has received but cannot allocate to a customer, and a debit in suspense is money the bank has paid but cannot explain. Both must be aged, escalated and cleared, because an old suspense item can hide a fraud, a duplicate payment, or a misdirected credit. Regulators expect suspense accounts to be reviewed daily and cleared within days, not weeks, and auditors will ask for the ageing report. The analyst must specify the suspense handling, the ageing thresholds, and the escalation rules, because a reconciliation process that leaves items in suspense indefinitely is not a control at all. The nostro balance at the start of Monday is USD 10,000,000. During Monday the bank sends payments totalling USD 6,000,000 and receives credits totalling USD 4,500,000, so its own record says the closing balance is USD 8,500,000. The MT950 arrives on Tuesday morning and shows an opening balance of USD 10,000,000, debits of USD 6,000,000, credits of USD 4,500,000, a correspondent charge of USD 150, and a closing balance of USD 8,499,850. The difference is the USD 150 charge, which the bank did not expect. The reconciliation team raises a charge break, queries the correspondent by MT999, confirms the charge is valid, books it to the nostro charges account, and the balance agrees. That is reconciliation working as it should: a small break found, explained, and cleared the same day.