Reconciliation in Banks and Financial Institutions
A detailed knowledge of reconciliation processes in banks and financial institutions (FIs) is a core competency at ReconArt, yet it never ceases to amaze us how every client’s focus is on a different process with a distinct set of challenges. We are fortunate to have worked with a wide range of great institutions: from small environments with a handful of users focused on a particularly painful reconciliation, to medium and large players with hundreds of users working across the Total Reconciliation Lifecycle in a centralized reconciliation function. This experience has taught us over the years that every new technology implementation is an opportunity to rise to the occasion of truly understanding each client’s needs and the rich business logic that governs their workflow – and to learn from it.
Some of ReconArt’s most powerful functionality conceptually evolved from this exact sensitivity and the ability of the ReconArt product to grow and adapt to the vast – and evolving – reconciliation needs of the Banking and Financial Industry sectors. Here are some things we have learned along the way about the factors which often make account reconciliation in this space a challenge:
- Lack of Governance. Reconciliation is often a ‘lone beast’ of sorts, not fully owned by a particular department. Instead, the process is spread across departments and one-off individuals, with fragments in Accounting, Finance, Operations, IT, Risk, Compliance, and a variety of analysts. Without a clear mandate of what is done, when, and by whom, nobody truly owns the reconciliation process. As a result reconciliations do not follow specific principles and often lack accountability.
- Incomplete processes. Although there is usually huge amount of time and effort put into collecting and comparing pieces of information, a true reconciliation is rarely performed across the board. The business priority is typically to ensure the fulfillment of the customer-facing product – as opposed to actually performing a thorough financial control reconciliation across the entirety of systems and operations. Instead of ensuring financial integrity, those sporadic and fractional data comparisons are often confused for reconciliations and provide only more limited control over financial activities.
- Layers of Complexity. One characteristic of the Banking and FI space is the typically longer transactional workflow. This often involves multiple systems and subsystems. Lack of clear process principles and low visibility into the transactional workflow means that transactions are rarely followed end to end. Core systems, GL/accounting systems, treasury systems, data warehouses, loan origination systems, ATM/teller cash systems, trading/investment systems. All of these (and more), each with their different data formats and limitations, expose the business to risk of errors, omissions, and fraud.
- High Transactional Volume. The banking and financial industry is notorious for having high transactional volumes. This further complicates the institutions’ ability to take control of their transaction reconciliation process through traditionally available and widely used instruments such as spreadsheets and ad-hoc and in-house developed tools. The tendency to add headcount to crunch numbers in spreadsheets, and to engage technology resources for each additional product line, gives the soothing illusion of control. However, in the long-run as volumes increase, systems suffocate and processes become even more convoluted.
- Regulatory Compliance. With all of the above at play, it is not a surprise that sometimes even large and established institutions slip and a scandal or even a financial crisis erupts. Regulators then react (some would argue overreact) by creating industry-wide regulations to tighten controls that could have been there in the first place. It is, therefore, no surprise that evolving regulations that govern this industry often catch institutions ill-prepared to comply. New regulations often inspire in-depth process reviews and stir ambitions for improvement, but by the time a new process is legitimately in place, a new regulatory challenge is already knocking on the door. Many institutions simply can’t keep up and never achieve the peace of mind of being fully and consistently compliant.
We have learned that the true industry leaders take the proactive approach by deploying best practices and tools as they become available rather than being reactive to legislations and regulations. Where the former leads organizations ahead of the curve and provides competitive advantages, the latter is a never-ending vicious circle of which many fall pray in today’s volatile marketplace.
Geri Davies is ReconArt’s Vice President of Client Success based in the company’s Alexandria, VA head office. By working closely with ReconArt’s sales and delivery groups, she ensures the intricate cross-team collaboration that contributes to ReconArt’s place as a leading provider of reconciliation and period close software for FIs and other organizations. Geri can be contacted at firstname.lastname@example.org.