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Ill winds

Ill winds

Source: Mike Brennan, CSC

What are the lessons of Katrina and Rita for capital markets asks Mike Brennan, partner CSC Consulting Group.

The images of major US cities being evacuated - with all the associated chaos and confusion - combined with those cities being uninhabitable for days, weeks and possibly months, puts business continuity plans in the spotlight.

While every industry was affected, the capital markets are of particular concern because of the impact to so many citizens and institutions directly through customer/organisation relationships, or indirectly through the role financial services organisations have in supporting the US and global economies.

Business continuity is as much about closing out yesterday’s business as it is about re-opening for business tomorrow.

When financial services organisations are forced to abruptly close and move to another location there are two primary challenges - each with its own drivers and risks: 1) Reopening as quickly as possible, and 2) reconciling business activity that took place prior to the close.

The drivers and risks for re-opening and reconciling are multi-dimensional. For example, re-opening will depend on how well an organisation’s business continuity plan was crafted; the industry’s ability to be open; and the ability of industry participants to re-open. The primary risk regarding re-opening is not being able to participate (ie service customers, manage cash flow, conduct new business etc.) when the industry is open.

For reconciling prior activity the drivers are 1) the daily operating environment of an organisation, and 2) the daily operating environment of clients and industry participants.

It is possible that the inability to reconcile prior activity can prevent an organisation from re-opening or limit the type of activity an organisation can do once back in business.

The time is now for financial services organisations to transform themselves into a T+0 operating environment.

If an organisation operates in a T+0 environment processing and reconciling all activity by the end of the day – the risk will be limited to the impact of how well clients and other industry participants operate.

If at the end of the day an organisation has un-reconciled activity, or worse - activity not sent to the appropriate industry utility for matching and subsequent settlement – the risk expands to managing internal inefficiencies, as well as those of clients and other industry participants.

Therefore, it is critical for industry participants to operate in a T+0 environment. Industry participants cannot wait for a regulatory mandate on settlement date change to drive internal change. Processing business activity on time and correctly and reconciling it the same day is the most effective manner to manage daily operating risk.

Financial services organizations participating in the capital markets should:
  • Focus on what you control
  • Transform your business processes, and your technology supporting them, to operate in a T+0 environment
  • Transform your reconciliation culture from next day to T+0

While there is nothing an organisation can do about unexpected catastrophic events, there is much that can be done to limit the risk that such events create. The key is to address it beforehand.

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