Guest Contributor: Dayle Scher, TowerGroup
When talking about reconciliations (which we all do, I know!), it seems as though there isn’t much new out there. Sure, there are nice dashboards and workflow tools, but have we really changed all that much? Don’t get me wrong – I don’t miss the days of ticking and tying positions and transactions on reams of paper strewn across my desk. I REALLY don’t miss those days. But have we really done anything new in recons lately? Sure, the technology is much better, and the ability to use ISO messages over the SWIFT network have certainly helped ease the data collection headache. There are even software as a service offerings that make new technology available to more users in a more flexible, cost efficient way. But we still struggle with being able to perform one reconciliation that encompasses all of our asset classes, in one process. In a recent TowerGroup survey assessing operational risk across the investment management industry, respondents overwhelmingly cited increased product complexity as the number one source of operational problems. Product complexity stands in the way of implementing consistent processes and applications across asset types. For example, many firms use different technology (and staff) for reconciling derivative positions than they use for traditional security types. And there currently isn’t a way of getting all of an account’s holdings, including cash and equivalents, on the same electronic message in order to do a full portfolio reconciliation. To this end, in 2004, several Investment Managers and Custodians collaborated on a business proposal for a new message to support reporting and reconciliation of the complete portfolio valuation of an account. Before this time, multiple messages (as no one single message contained all necessary data elements) had to be utilized to perform Total Portfolio Value reconciliations. Under the auspices of ISITC, The International Securities Association for Institutional Trade Communication, a business case was submitted to the International Organization for Standardization (ISO), and SWIFT began to gather the requirements and write the statement message (acting in its capacity as a member of ISITC). The initiative gained momentum internationally and gained another sponsor in JASDEC, who added their requirements.
Well, five years later – not that long in operations years – and SWIFT has completed the specification of the Total Portfolio Valuation (TPV) statement message. JASDEC expects to actually start using it in 2014, after a lengthy test period, but if asset managers and custodians in the US can agree it can be ready for usage sooner. It has been a struggle to get moving here, but given the magnitude of the change and the amount of work involved, that’s not really a big surprise. It also remains to be seen how reconciliation software vendors can adapt their technology to incorporate all of the trial balance and general ledger data needed for the full reconciliation. Certainly they await demand from their customers, which is fair enough. But now is the time to spread the word about TPV, to make sure that financial institutions, not just the investment management community, are aware of the new developments in this area, and that they start to express their interest to their service and technology providers. We can improve the process!