A new report challenges firms to rethink manual reconciliation processes and their reliance on legacy systems and outdated technology.
Many firms could be heading for “an operational disaster” caused by rising transactional volumes, soon-to-be-overwhelmed manual reconciliation processes, and a reliance on legacy systems, and outdated technology, according to a new report “The Tipping Point for Asset Management Operations: The rising costs of operational complacency” from provider AutoRek.
The report, based on securities industry surveys, finds that firms “allied with heavily manual environments” have the following data problems:
- Integration and compatibility woes: 39 percent;
- High volumes: 34 percent;
- Data entry errors: 33 percent; and
- Handling data from multiple sources: 27 percent
“The challenges faced by firms will of course increase as their transactional volumes continue to rise. Data management and processing inefficiencies create operational risk, especially as regulatory demands tighten. The reliance on outdated methods for critical functions like reconciliations and compliance reporting makes firms more vulnerable to mistakes, security breaches, and regulatory non-compliance,” according to the report.
“Our survey revealed that regulatory compliance and reporting is a major data challenge for 34 percent of asset management and capital markets firms in the U.S. What’s more, 75 percent of our survey respondents believe that a tighter regulatory environment in the future will create significant challenges for their organizations, and 69 percent agreed that meeting future regulations will add a substantial operational and financial burden,” the report notes.
The recs infrastructure to resolve these issues is not optimal at the moment.
“While the vast majority of firms understand the need to deliver operational efficiency, many organizations still rely on a chaotic combination of older technology, internally built systems, and spreadsheets. More than half of the firms surveyed manage their data reconciliation processes either through spreadsheets or a combination of spreadsheets, in-house systems, and legacy software applications,” according to the report. The research points toward a potential “operational disaster” if the status quo remains and volumes soar.
“Respondents to our survey reported processing daily cash and trading volumes of close to half a million transactions — a staggering number. Added to this, firms are bracing for further significant increases in this volume. Respondents expect a 39 percent increase in daily volumes over the next two years, putting additional strain on existing systems ill-equipped to manage such growth, and departments not staffed to meet such workloads,” according to the report.
While modernizing manual processes is the obvious answer, more than “40 percent of firms told us that manual processes present their biggest workload challenge. In addition, more than a third (36 percent) of our respondents consider the volume of manual processes a major challenge when completing operational processes. This reliance on manual intervention not only increases the likelihood of errors and drives inefficiency, but also results in unnecessary operational expense,” the report finds.
Given that outdated systems face rising data volumes, “the case for automation has never been more compelling … Despite this importance, 57 percent of respondents to our survey stated their firm still relies on spreadsheets to some extent for performing reconciliations. Unsurprisingly, therefore, our survey found that four in five (79 percent) respondents also said their reconciliation processes struggle to handle their current data volume or would struggle if their volumes were to increase,” the report notes.
Firms will ultimately have to decide whether the benefits of modernization outweigh the ongoing costs and risks of manual systems.
“While failing to modernize will lead to rising operational costs, automation is not just about protecting expenditure; it is a strategic necessity that allows firms to shift from manual, repetitive tasks to high-value, strategic initiatives. To remain competitive and mitigate these challenges, firms must prioritize investment in automation, data management systems, and talent development,” according to a key conclusion from the report.
AutoRek describes itself as a provider of an end-to-end financial controls platform that automates reconciliations, data management, and reporting.
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