Reconciliation technology is gaining ground as a result of market pressures and greater demands for data transparency and integrity, according to a new report from market research firm Aite Group. In fact, reconciliation is being applied to processes beyond matching cash accounts. But recs onboarding is becoming a significant challenge for firms, Aite found via its surveys for the report.
“Reconciliation onboarding is a particular point of pain for firms, and one of the Tier-1 investment bank respondents allocates 200 full-time equivalent (FTE) days to onboard 20 to 30 new medium-complexity reconciliations and enhancements onto its vendor-provided reconciliation platforms,” according to the report, “Reconciliation Technology in 2014: Check Yourself Before You Rec Yourself.”
In preparing the report, Aite interviewed individuals at 20 different firms, including investment banks, asset managers, fund administrators, custodians, brokerage firms, and a hedge fund during the third and fourth quarters of last year.
The research revealed that part of the problem is that vendors need to provide some relief, says Virginie O’Shea, a senior analyst for Aite and co-author of the report; analyst Will Woodward also contributed to the effort.
Virginie O’Shea,
analyst,
Aite Group
“If you look at it, traditionally, a lot of these solutions don’t really have really good onboarding capabilities,” O’Shea says about current offerings. In many cases, a lot of extracting, transforming and loading (ETL) technologies are needed before recs technology can be deployed. In addition, Woodward says that when nonstandard data is part of the onboarding process, it has to be normalized into industry-wide formats such as SWIFT messaging.
But there are signs of hope that vendors are working to fix the situation.
“I think there’s a lot more flexibility in terms of the range of options out there,” O’Shea says about vendor wares. Many of the incumbent vendors have been adding ETL modules to their platforms. Other providers are offering fuzzy matching technologies with predictive rules to ease the situation. “It should shorten the time-scale for onboarding,” she says.
This should be welcome news for firms suffering with manual recs onboarding that could take as long as six months, O’Shea says. The time-consuming process starts with firms prioritizing the data to be reconciled, which usually involves a long paper document or two. The reconciliation process has to then be set up so that so that staff members are comparing apples to apples. Once all these moving parts are aligned, the recs process can begin.
“You have to go to the business end-users and you have to document every step, and understand every step of the process,” O’Shea adds. “All of that has to take place before you can put the technology in place.”
It’s clear that any IT tool that can shorten a very manual process would be welcome. The ETL modules and predictive IT tools could ease things just as firms are gearing up for derivatives data reconciliation, O’Shea adds.
Automation could help in other ways. Firms could move staff from tedious jobs better performed by software to positions that help the bottom line. “Redeployment is quite common especially because a lot of firms have already chopped a lot of heads,” O’Shea says. “Redeployment is key if you’re running a tight ship. You probably want to dedicate your staff to something more profit-generating than something that is purely operational.”
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