Every day, investment and wealth managers face multiple risks: competitive, market, regulatory, geopolitical, inflationary, credit and so on. They have enough risk on their investing plates without a side of operational risk added to the mix through:
- Antiquated, patched-together processes
- Instrument complexity
- Multiple, disparate data sources
- Heightened trading activity
- Outdated technology
Getting investment reconciliations right is a key component of risk reduction in investment operations because it is otherwise difficult to field some critical questions:
- Does the data in your order management system match what your firm holds with your bank or custodian?
- Do the client reports that you send align with the reports they receive from their administrator?
- Is your cash on hand balance truly accurate at the start of your trading day?
Answering “no” is unacceptable—and can hammer your profit, reputation and future. How can investment managers realize timely reconciliation, break resolution and risk reduction while advancing their operations? We have some suggestions:
Automate data aggregation, integration and correction. Reconciliation involves an enormous amount of data, numerous data points and sundry sources—in-house, custodial, broker-dealer, market data and so on—and data integration requires a huge investment of time and resources to be effective. Having a powerful data integration layer built into the process to automate data gathering, management and integration of custodial data from multiple sources without needing technical or programming effort serves to remove the risk in multi-custody environments. Moreover, automating the processing of data corrections from your counterpart, such as fee or commission corrections, or rectifying rounding errors, helps in mitigating the effects of human error.
Prioritize and distribute work. With tolerances and materiality thresholds built into the process, teams are in a better position to prioritize the most important reconciliation issues during the closing process and focus their activities on critical accounts that inherently have the greatest financial risk. Meanwhile, cloud infrastructure and a distributed workforce all with access to the system enables round-the-clock processing to handle reconciliations when ready, not just when people arrive at the office.
Ensure regulatory compliance. Making a mistake on your regulatory filings can expose your firm to hefty fines and reputational risk. Ensuring alignment with your custodian on transaction bookings such as foreign tax recoverables and other “reportable events” ensures correct filings for you and your clients. Utilizing an advanced reconciliation solution to automatically ensure the correct booking of custodian data for filings is one of the easiest ways to reduce risk.
Stop manual reconciliations. Verifying financial data from disparate sources and manually matching an ever-increasing volume of transactions using spreadsheets is time-consuming and error-prone. When accounting and finance teams rely on inefficient reconciliation processes, they struggle to focus on higher-risk areas and analyze trends—especially at peak times—leading to delays in the month-end closing process. Advanced technology solutions can guide users through the reconciliation process, deploy sophisticated workflows to immediately identify exceptions, and provide intuitive matching and smart cross-referencing.
Use metrics to drive improvement. Metrics such as materiality and severity of breaks, break approvals, overdue reconciliations and advanced KPIs help evaluate custodian performance and mitigate risk by identifying areas to strengthen. Based on these metrics, users gain agility and scalability by adjusting processes as needed, for example by reallocating reconciliations among team members or adjusting due dates, to foster greater accuracy, timeliness and completeness
Systems and vendors exist who can offer the automation, connectivity, workflows, and analytics needed to optimize your reconciliation process and ready tradeable positions at the start of day. After all, time and money spent on reconciliation activities—likely not a core competency of your firm—is time not spent growing your business and preparing for the future.
Given the sheer volume and complexity of the data involved in reconciliations, outsourcing to an experienced service provider can help reduce the potential risk within the process. Many managers now accept that a dedicated third-party provider like SS&C, with our technology and operational excellence, can undertake tasks like reconciliation far more effectively, accurately and quickly.
To learn more about SS&C Reconciliation as a Service, which encompasses our market-leading software, expert team, secure data centers and client-approved service level agreements, review our "Reconciliation as a Service" brochure.