Why Investment Managers Should Stop Managing Reconciliation Processes in Silos
In hundreds of discussions with investment managers over the years, we’ve often discovered the existence of multiple reconciliation silos, little collaboration across teams, and limited visibility into the data needed to improve the situation. In order to find the best solution to the problem, first we must understand the full impact and significance of the problem on a firm’s business.
The Dangers of Operational and Reconciliation Silos
Investment management firms typically treat reconciliation and exception management processes as departmental functions that create redundant effort – which then cause increased errors, low staff productivity, and unnecessary operational risks and overhead costs. As complexity and trading volumes increase, firms face even more challenges when they try to scale the business and meet growing investor and front-office demands.
Consider some of the key operations departments and the different types of reconciliations they perform, including:
Operations: Daily reconciliation of multi-currency cash, transactions and positions (unaudited and audited)
Accounting: NAV and P&L reconciliation
Finance: Monthly or quarterly market value reconciliation
Collateral: Daily reconciliation of collateral balances, initial margin, variation margin and maintenance margin
Corporate actions: Reconciliation of corporate actions data including event details, eligible quantity on security positions, and golden record reconciliation
Settlements: Reconciliation of trade-date security transactions, failed trades, pending trades and SSIs
In almost all cases, operations staff perform each of these reconciliation processes using different platforms including Excel, system modules or add-ons, and reconciliation-specific applications. The problem with this approach is the absence of enterprise-level investigation audit trails due to their disparate locations. This creates redundancy and unnecessary steps in the investigations process.
The Solution: A Collaborative Process
In a silo-based reconciliation environment, staff will find themselves duplicating much of the work that had already been performed by their colleagues. To make matters worse, the repetitive investigation work being performed across different teams is often hidden from management, so the inefficiency goes undetected. As transaction volumes increase, inefficiency will rear its ugly head in the form of scalability issues and the need for more staff.
To address this issue, a reconciliation and exception management solution must be comprehensive enough to support all the reconciliation processes found across the middle- and back-office functions while also fostering collaboration across these areas. Rather than viewing multiple reconciliation silos, management and operations staff must be able to access a single point of reference where the benefits of collaboration are obvious throughout the investigations workflow.