Updates from Idea Group



Reconcile and thrive



Here’s a bit of history for you. Way back in the ‘noughties’, a Parrott and a Bird – that’s me - set up Aviary, a pension accounting software business, which was initially focused on regulatory SORP reporting. But it didn’t take us long to realise that our raw data was coming from a wide range of 3rd party systems and consequently, automated reconciliation was the order of the day.

In all of this, our focus was entirely on getting the accounts accurate.

Now that was a long time ago. But sadly, and unbelievably, automation and reconciliations are still on the agenda. Why? Mostly because volumes have increased, and legacy systems are struggling to keep up.

Look at it this way. For the medical profession, digital thermometers are useful. But while inserting a digital thermometer will tell you the patient’s temperature, it will not cure the patient. Thus, replacing the legacy system often requires the equivalent of open heart surgery.

Trading, settlement and cash or treasury have historically been separate systems. A living book of record is required to ensure that a penny that comes in or goes out is tracked and reconciled against the purchased asset.

But even now, spreadsheets prevail - and that trend isn’t changing, even as digital and real-time payments adoption continues to see high growth among consumers and businesses. Open banking is driving an even faster pace, with the digital payments environment likely to continue expanding volumes as more people demand it.

As volumes grow, it becomes even easier to miss, mistype or deliberately manipulate data in the reconciliation process, especially when many accounts are still reconciled with spreadsheets and highlighters.

It is still common to see separate departments reconciling their own accounts, making it more difficult for the finance and accounting teams to verify the data and close the books at each period. The higher the volume, the more those problems intensify and roll into the next separate problem and period. The result? An almighty mess.

Fixing the problem before it starts is the obvious thing to do. Daily reconciliation of the book generates accurate data. And accurate data is a single, accurate version of the truth – a single position. Second, as a core front-to-back processing engine, there is already natural integration with all aspects of the investment process on an event-driven basis. Third, the database provides the basis for the multiple, configurable, yet completely consistent views required by different professionals across the business, delivered through standard APIs.

There is much work to be done on the business’ specific requirements of course, particularly in the Master Trust world. But one thing is obvious. Failing to address the problem means that investment decisions can be made only on information that is incomplete, inaccurate or both. That means unexpected, uncontrolled outcomes.

And that, quite simply, is not what regulators, investors or any other stakeholders expect.

TAGS: automated reconciliation, book of record