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Eurobase Banking Solutions Press Release

Control FX risk real-time… for safety’s sake, banks and financial institutions must overcome their reluctance to upgrade their dealing room systems, says David Mallinder, Head of Business Development and Sales at Eurobase Banking Solutions, suppliers of leading edge front office and dealing solutions

Despite the warning bells, misdemeanours continue to plague financial markets, although there are clear messages regarding the factors that facilitate each event. What will it take to shake up the system and force banks and financial institutions to automate processes that are still facilitating manual error, exploitation and, at worst, fraud?

Recent reports confirm the predominance of two factors that impact an institution’s ability to contain and prevent over-exposure to risk. These are management policy and system sophistication. Both factors need to be addressed concurrently and the latter is dependent upon recognition at board level of the role dealing room technology can play in preventing substantial losses.

Software solutions available nowadays offer far more functionality to support the effective monitoring of all the risks associated with the trading room than was the case even a few years ago. They are cost effective and easy to implement and integrate, offering a proven ROI. But despite the risks, financial institutions still seem reluctant to upgrade their current systems.

Analysis of recent misdemeanours shows the same areas of weakness seem to come up time and time again. Traders should never be allowed to access the audit rate set and therefore be able to manipulate their position revaluations. Real-time intraday revaluations and profit and loss reporting should be fundamental to any system. "Holdover" trades (completed trades left out of the overnight processing) can cause distortions to profit and loss. A well-engineered dealing system should be able to perform many of the end of day tasks in minutes rather than hours so system downtime is minimal.

An effective system should be able to monitor and check limits prior to deal capture and prevent a deal being input if it creates an excess unless that excess is approved by an authorised person.
A dealing system must allow position size, rate tolerance, stop-loss and VaR limits to be set and monitored in real-time. Breaches of any set limit, as with counterparty limits, should trigger messaged alarms and be logged and reported on.

Often the most critical risk control lapses occur in the back office with respect to confirmation of trades, and the failure to confirm trades immediately, highlighting any bogus trades entered merely to "balance the books". It is now possible to send confirmations real-time to counterparties via email or other systems to eliminate this risk.

Modern systems allow global access, reporting and position consolidation. They automate areas that have previously been supported by manual process, allowing bad practice and fraud to occur. Use of the latest dealing room applications gives control back to management, rendering evasion of stipulated processes virtually impossible.

Eurobase Banking Solutions has specialised exclusively in treasury management and dealer/trading support solutions since 1978 and is a division of the Eurobase International Group, a market leader in specialist financial services software.