Reconciliations are an essential part of back office processing throughout financial services and markets. Experience with our customers leads to the conclusion that Internal Utilities are already well established with a Centre of Excellence as best practice. I am convinced Shared Service Centres are inevitable in the drive for lowest unit cost per trade in the industry.
Reconciliations groups in a number of banks have proved that a process, deployed as an Internal Utility, can be regionalized, globalized and applied horizontally across multiple lines of business. The Internal Utility model works, proven over many years by customers using SmartStream solutions and can be applied to other parts of the back office operation. In every case where there is a Centre of Excellence for reconciliations there is improved consistency, increased depth of experience, reduced duplication and time to market. The operational improvements translate directly to efficiencies and lower costs.
The benefits of financial reconciliations stem from the independent business controls they implement, efficiencies through automation and exceptions based processing. The value to institutions and regulators is proven every day: capital is deployed properly, transaction settle on time; and positions, portfolios or balance sheets are subject to proofs. These benefits are delivered as a lower operating cost per trade, lower operational risk and lower costs to adapt and change over time. They are amplified when departmental or single business reconciliations solutions are centralised to regional and global operations that serve may lines of businesses across a company.
The process of managing and optimising operations brings the notion of an Operating Model. An Operating Model formalises the organisation and flow of work, the processing steps and escalation procedures into a common pattern. A natural consequence is a reduction in duplication of effort. The drive for efficiency naturally consolidates groups into regional processing centres running a regional Operating Model that provide consistent services.
Leading banks have opted to use Internal Utilities to bring regions together across all lines of business into a global Operating Model. A focus on reducing the cost per trade has driven them to centralise, effectively increasing volumes processed by a fixed cost organisation. Large organisations capitalise on this cost and smaller ones can only achieve improvements by joining a software as a service for the technology or a Shared Service Centre with multiple tenants. These Shared Service Centres are external utilities with multiple companies (tenants) using the same infrastructure and market leading software solutions. Shared Service Centres will lower costs by driving towards shared costs and improve controls through shared procedures for processing.
I see this as a journey along a path to a shared destination – the lowest cost per trade through pooled volumes processed with shared costs in an industrialised, Common Operating Model. It seems only a matter of time before a full service back office operation is launched as a Shared Service Centre for post trade processing.
Indeed those customers and vendors with vision and drive are moving the industry toward this shared destination.
Hear more from SmartStream at FTF’s ReCon London conference on 09 May 2013. They will be discussing how to provide a reconciliations utility to service different lines of business.