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Big Mistake Making Reconciliation Tool of Choice Excel

A big mistake that financial institutions are still making is using Excel as their reconciliation tool of choice. Research we have carried out suggests that in many of the larger financial institutions over 80% of reconciliations are performed in Excel or other user developed applications (UDAs). 

The lack of rigorous enterprise-wide tools for ensuring that quality, reconciled auditable data is used to manage the banks’ risk has not gone unnoticed by regulators. The latest report from the Basel Committee on Banking Supervision, published in June concludes that “banks’ information technology and data architectures were inadequate to support the broad management of financial risks”.  Firms themselves are recognising that a control structure based on UDAs is no control structure at all.  UDAs break when the person who built them goes on holiday, they break when small changes are made to supplying systems and they break for no reason at all!  Even if they were robust the ability to change the data in a UDA with no audit and minimal security has left firms facing fraud risk in their trading environments. 

After reading the report many commentators have concluded that the “spreadsheet’s number is up”. So if Excel is not fit for purpose what are the banks to use instead? Many banks have tried and failed to re-purpose Nostro reconciliation engines to provide reconciliation across the entire transaction lifecycle. So why can’t Nostro reconciliation engines step up to the challenge: 

  1. Their core design is from an age where data reconciliation only took place on the day after settlement day utilising batch technology. They can’t provide real-time controls or deliver to the performance demands of the front and middle offices.
  2. SWIFT is dominant in the back office and the Nostro engines base their entire design on SWIFT stock and cash message types. Unfortunately, most front and middle office data does not look like SWIFT and can only be reformatted through expensive ETL configuration. As one recent customer told us, “Implementing a Nostro engine in the middle office is a data integration nightmare.”
  3. Settlement is a highly certain ubiquitous process where banks agree on both best practice and standards. Nostro engines rely on this maturity and implementation projects can follow a “Six Sigma” waterfall approach. In contrast, the front office is a focus of innovation, where there is a lack of best practice and a lack of standards. Successful projects in the front and middle offices need to follow an agile approach with rapid onboarding and an ability to respond to change quickly.

The age of the spreadsheet can come to an end if the appropriate replacement tools are implemented. To achieve this firms need a solution which gives them:

  • Real-time control in the front and middle office with performance to match
  • Reconciliation over data in any format with no need for any complex integration tools
  • A rapid and agile onboarding methodology suited to the pace of change in the front and middle offices

Organisations that implement solutions that can address these requirements can expect to be able to onboard an inventory of reconciliations in an order of magnitude less than what it would take to implement a traditional Nostro reconciliation.

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