Big Mistake Making Reconciliation Tool of Choice Excel

Guest Contributor: Neil Vernon, Product Development Director, Gresham Computing

Gresham Computing is one of the sponsors of FTF’s 7th Annual Reconciliations & Exception Management Conference.

When I looked through the list of sponsors there was one really noticeable omission.  The vendor that supplies the software that undertakes the majority of reconciliations in every financial firm was not on the list.   Surely some mistake?  Actually no.  The big mistake is that the reconciliation tool of choice in most institutions is Excel.

Gresham’s research suggests that in many of the larger institutions over 80% of reconciliations are performed in Excel or other User Developed Applications (UDA) (http://blog.gresham-computing.com/2012/06/top-10-risk-of-udas-user-developed-applications/).

This 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 the regulator.  The latest report from he 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”. Read the report  here. (Principles for Effective Risk Data Aggregation and Risk Reporting).

After reading the report many commentators including  Andrew Delaney (http://referencedatareview.com/blog/talking-reference-data-andrew-delaney-spreadsheet-wars-reprised) have concluded that the “spreadsheet’s number is up” and FTF News on October 3rd reported that “Operations are under pressure to Dump Excel”.

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 utilizing 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.

At Gresham, we firmly believe that the age of the spreadsheet can come to an end if the appropriate replacement tools are implemented.   Our Clareti Transaction Control  (CTC) product has been built from the ground-up to provide:

  1. Real-time control in the front and middle office with performance to match. (http://www.gresham-computing.com/2012/08/greshams-ctc-reconciles-transactions-orders-of-magnitude-faster-than-competitive-offerings-in-intel-benchmarking-2/)
  2. Reconciliation over data in any format with no need for any complex integration tools.  CTC learns its internal data model from the formats of the data it is reconciling and can model complex data, non-standard data and traditional SWIFT messages through a wizard based onboarding process.
  3. Reconciliation over processes where there is a lack of best practice.  CTC supports and encourages a rapid and agile onboarding methodology suited to the pace of change in the front and middle offices.

Organisations that implement CTC can expect to be able to onboard an inventory of reconciliations in an order of magnitude less time than it takes to implement a traditional Nostro reconciliation.

We will be in New York from the 16th-18th of October and we can meet with you at your offices or at the FTF Reconciliations & Exception Management Conference at Bayards.

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