Revolutionizing your post-trade and banking reconciliation process

Accurate and efficient reconciliation processes have always been front and centre for operations teams. As technology evolves and regulatory pressures increase, firms are constantly seeking innovative ways to improve internally, streamline operations, and mitigate risks. 

In this post, we will share our inside advice and tips for any operations team looking to shake up and optimize their current process. Let us dive in:  

Front-office product innovation requires back-office agility 

Organizations naturally seek to differentiate themselves in the market by creating new products and adding innovative features to existing products. When these new products are introduced and traded, governance needs to be agile to keep pace. There is always a risk that Recon teams reach for quick-fix spreadsheet solutions to get controls in place quickly enough to avoid delaying new product launches. If appropriate tooling is not in place before it is needed, then tactical solutions can proliferate. The key factor to avoid Excel hell is the presence of tooling that is both powerful enough to handle complex products and quick enough to onboard new controls to remove the temptation of quick and dirty solutions. We regularly speak with customers who selected products which did OK in simple proof-of-concept scenarios, but that fail when presented with more complex real-world problems. Always evaluate vendors with your hardest problems, not your simplest ones. 

 Address core problems beyond surface-level solutions 

When faced with reconciliation challenges, it is tempting to address them at face value. However, true progress comes from digging deeper and identifying the core issues. 

Our customers often come to us with requests for superficial, simple new features. We always seek to have a more detailed discussion with the customer to understand their real business challenge, rather than reaching for the quickest solution. For example, customers might request the ability to export data from the user interface in a specific format. Taking the time to ask 'why', makes it clear that what the customer actually needs is the ability to integrate results from reconciliation into external systems.  Adding new options for automated extracts allows the customer to directly push that data into the systems which need it, without needing a user to drive the process. This increases automation and allows the users to focus on the tasks which need their expertise, rather than shuffling data between systems. 

This approach of asking 'why', rather than just doing the easy thing, also applies to our customer success teams. Customers often have a clear definition of what they believe is required – often to replicate an existing process or mimic a legacy tool. While the simple answer is nearly always a 'Yes' when faced with the question of “Can the system do this?,” the better response is to understand the 'Why'. We often find that controls and processes have been added to over time, such that the core purpose of the control has been lost. Complications get added to work around the limitations of legacy systems or spreadsheets, and the default position is to keep all those unnecessary steps even when they are no longer required.  

The real value added by our consultants is not just in configuring software but in challenging assumptions and offering insights into best practices from dozens of similar customers. The biggest reductions in costs and risk come not from implementing controls in the same way on a new tool, but from re-imagining what is required to get the highest levels of automation and visibility. 

Master N-Way reconciliation through superior matching 

One of the most significant advancements in reconciliation technology is the concept of N-way matching. Unlike traditional one-to-one matching, N-way matching allows for the comparison of data across multiple systems simultaneously. This approach offers several benefits:

• Enhanced Problem Identification: By matching across multiple systems, institutions can identify issues that might be missed in simpler reconciliation processes.
• Reduced Complexity: Consolidating multiple reconciliations into a single process simplifies overall operations. 
• Real-Time Fraud Detection: N-way matching enables near-real-time identification of discrepancies, crucial for preventing fraud and minimizing financial losses. 

 The power of advanced reconciliation systems is best illustrated by a real-world example. A major global bank implemented a comprehensive N-way matching system following a rogue trading incident that cost them £1.3 billion. The new system allows for checking trades across dozens of systems within 30 minutes, enabling rapid escalation and resolution of any discrepancies. 

This case underscores the potential return on investment for robust reconciliation systems. While the upfront costs may seem significant, they pale in comparison to the potential losses from fraud or operational errors. 

The future of reconciliation will involve integration and innovation 

The reconciliation software market is moving towards integrated platforms that combine the strengths of various specialized systems. For instance, merging traditional reconciliation capabilities with investment management-specific features can create powerful, comprehensive solutions. 

Moreover, the integration of data services with reconciliation platforms is opening up new possibilities. By leveraging specialized data management capabilities alongside advanced reconciliation tools, financial institutions can tackle even the most complex data challenges with greater efficiency and accuracy. 

How can individual operations teams embrace change  

As we move forward, the key to success will be maintaining a balance between robust processes and agile innovation, always keeping the end goal in sight: safer, more efficient financial operations that benefit institutions and customers alike. 

By embracing innovative technologies, focusing on core problems, and fostering a culture of continuous improvement, financial institutions can meet today's data challenges head on.