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Financial firms focus on reconciliation
Two-thirds of top-tier financial institutions, including many with significant operations in Africa, have established reconciliation centers of excellence (CoE) following a recent wave of consolidation of the reconciliation function within these institutions, according to a study by SunGard and Aite Group.
Compliance requirements, including those prevalent in the country of South Africa, continue to place pressure on firms. Forty percent of respondents said compliance and regulatory reporting were the largest factors driving reconciliation, as institutions race to work through a significant backlog of reconciliation requirements.
The speed at which this book of work can be addressed varies, but the average time taken to deliver new production reconciliations is around 64 days. Respondents reported that this is inhibiting their ability to successfully reduce the book of work.
Despite great strides in consolidation, there remain one third of financial institutions with more than three in-house built reconciliation tools, and almost the same with more than three vendor supplied tools. Eighty one percent of respondents stated that they are employing a tactical approach to all or part of their reconciliations.
“While we’ve seen increased adoption of the CoE model among major financial institutions, including in South Africa, there is definitely room for growth and improvement. When we consider that, in Africa and the Middle East, nearly 40% of respondents to our survey took more than 30 days to onboard a new reconciliation and almost a quarter took over 60 days, it is clear that we have more work to do to encourage firms to streamline the process,” said Richard Chapman, head of strategy for SunGard’s reconciliation business. “It’s no longer just about cost cutting; we believe that financial institutions with true CoEs for reconciliation are at a real strategic advantage. We are seeing increased awareness of the importance of a single reconciliation platform with 87% of African and Middle Eastern respondents planning further consolidation in the next 12 to 24 months.
Regulation, and in particular Basel III and MiFID, are forcing middle- and back-office processes to adapt to an intraday environment. The majority of respondents (68%) stated real-time reconciliation support was important.
Virginie O’Shea, senior analyst from Aite, notes that: “Regulatory reporting is expanding asset coverage, and increasing the frequency of reconciliation. However, internal and system-to-system reconciliation now represents the next frontier for centers of excellence.”
Additional takeaways from the global study included the following:
* Focus on reducing onboarding periods. Onboarding, the period of time taken to bring a reconciliation into production, has traditionally been viewed as a configuration/build overhead. In reality, 60% of onboarding time is consumed by requirement analysis and user acceptance testing.
* Cost saving is a key measure of success. Twelve percent of firms with established CoEs reported more than 40% in cost savings. A majority of respondents experienced at least 20% in savings.
* There is plenty more to be done. Seventy eight percent of firms have conducted a strategic reconciliation review or are planning one, and 64% are planning further consolidation in the coming year.
* Many firms are due for an upgrade. More than half (54%) of firms reported their reconciliation technology platform was at least five years old, with approximately a quarter of respondents operating platforms more than nine years old.