What is a Safeguard Audit in the capital markets context?

A Safeguard Audit reviews how capital market firms protect client or investor funds, ensuring that internal policies and operational controls effectively safeguard those funds, that reconciliation practices are accurate, and regulatory safeguarding obligations are met.

Why is reconciliation important in safeguarding audits?

Reconciliation helps ensure that the amounts held in client or investor accounts match what’s recorded internally, detect any discrepancies or misappropriations, identify mistakes, and maintain trust and regulatory compliance.

What do operational control tests involve?

Operational control testing examines whether processes such as segregation of assets, proper access controls, approval workflows, oversight by senior management, and audit trails are working consistently as intended under real conditions.

What happens if gaps are identified in safeguarding policies or practices?

If gaps are identified, auditors will recommend specific remediation actions, assign responsibilities, establish timelines, report findings to management, and follow up to verify changes have been implemented and are effective.

How often should a safeguard audit be conducted?

Safeguard audits should be done periodically, often annually or more frequently if there are significant changes in regulation, business operations, or after any identified incident that might affect safeguarding effectiveness.

Who should be involved in safeguard audit and oversight?

Senior management, compliance officers, risk management teams, internal audit, legal, and finance should be involved, as well as any individuals responsible for custody or handling of client or investor funds.

Safeguard Audit Services | Client Asset Protection

Purpose

The Safeguard Audit aims to comprehensively verify that an organization’s critical assets—including financial resources, sensitive information, and operational capabilities—are effectively protected. This is achieved through thorough evaluation of internal controls, security protocols, and risk management frameworks designed to prevent unauthorized access, fraud, and operational failures.

Scope

Physical Security Measures

Assessing controls over physical access to facilities, equipment, and critical infrastructure, including surveillance, access cards, locks, and environmental safeguards.

Digital Security Controls

Reviewing cybersecurity defenses such as firewalls, encryption, access management, network monitoring, and vulnerability management.

Fraud Prevention Controls

Examining processes and controls designed to deter, detect, and respond to fraudulent activities, including transaction monitoring, whistleblower mechanisms, and fraud risk assessments.

Incident Response Protocols

Evaluating readiness and effectiveness of procedures for identifying, reporting, and mitigating security incidents, including incident response plans, communication channels, and escalation protocols.

Data Protection Practices

Assessing compliance with data privacy laws and standards, data encryption, backup processes, and policies governing data retention and disposal.

Asset Custody and Segregation of Duties:

Verifying that custody of critical assets is clearly defined, responsibilities are appropriately segregated to prevent conflicts of interest, and access rights are regularly reviewed and updated.

Record Keeping and Retention

Benefits

Enhanced Asset Security: Improved protection of financial, informational, and operational assets, significantly reducing exposure to theft, fraud, and breaches.
Fraud Risk Mitigation: Early detection and prevention of fraudulent activities, minimizing financial losses and reputational damage.
Regulatory and Stakeholder Assurance: Demonstrates compliance with relevant laws, regulations, and industry standards, providing confidence to regulators, investors, and other stakeholders.
Operational Resilience: Strengthens the organization’s ability to maintain continuity and recover swiftly from disruptions caused by security incidents or operational failures.
Continuous Improvement: Identification of gaps and recommendations for enhancing internal controls and security measures, fostering an ongoing culture of risk management and protection.

ABM Safeguard Audit Services

Protecting your organization’s assets—both physical and intangible—is vital in today’s risk landscape. Our safeguard audit service includes:

Physical Security Assessment: We evaluate the security of your premises, inventory, and other tangible assets to identify gaps that could lead to theft or damage.
Information Security Review: In partnership with IT experts, we examine your cybersecurity measures, data protection policies, and incident response readiness.
Internal Control Analysis: We audit your control environment to ensure processes are in place to prevent fraud, unauthorized access, or operational errors.
Compliance with Industry Standards: We verify adherence to relevant standards such as ISO 27001 for information security or other industry-specific guidelines.