SmartStream
Reconciliations must rapidly adapt to T+1
Banks know that the deadline for shorter US trade settlement times is fast approaching, and there is much to do to make data management and reconciliations processes ready. Yogesh Shenai, senior product manager for SmartStream, tells Future Banking how the transition to T+1 will affect reconciliations, and how banks can ensure their processes are ready in time.
horter settlement times pile pressure on banks in different ways, not least because they have to ensure that many disparate processes operate in an efficient and timely manner. Any failure to meet the new deadline will be costly, not only in terms of cash, but also customer satisfaction and reputation. Faced with the incoming T+1 settlement regime in the US – and the fact that all major global markets will inevitably follow suit at some point – potentially huge pitfalls lie in wait for the unprepared. Inevitably, the biggest pressure is felt in the reconciliations process, on which the entire settlement process rests. A shorter timescale and an ever-growing volume of data, partly due to the richer data sets required for the ISO 20022 payment standards, mean that reconciliations infrastructure that is often built on a patchwork of fragmented legacy systems and manual processes could struggle to cope. The efficiency of the reconciliations process determines the speed of settlement, and any mismatches or missing data will see the post-trade process grind to a halt. Banks can ill afford this under the new regime, as they have always struggled to some extent to achieve seamless reconciliation in the past. Far too many banks still rely on manual processes in the reconciliation cycle, particularly when it comes to managing exceptions. Any discrepancies between the two parties’ recording of a trade must be identified and resolved faster than ever. Any exceptions that are not dealt with immediately can severely erode confidence in the banks and the broader financial system. Any fines that result from delayed trades will increase trading costs, as well as leaving a bad taste in customers’ mouths. As a result, any manual processes that are involved in trade matching have just become enemy number one. These processes already tend to involve large teams of people, so are slow, laborious and highly inefficient, so they should already be high on the list for improvement, but T+1 intensifies the call for automation across the market.
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“T+1 fundamentally depends on automating the trade life cycle, which may look very different depending on someone’s role,” says Yogesh Shenai, senior product manager for SmartStream. “For instance, the life cycle of a buy-side asset manager is different compared to a broker or a custodian or any other intermediary.
“It is important that any reconciliations system offers configurable workflow tooling, and is capable of tracking multiple parallel life cycles for any trade,” he adds. “Banks need solutions that offer configurable workflow components which can deal with both synchronous as well as asynchronous life cycles.”
The complexities of matching data T+1 not only brings its own challenges, but it exacerbates other problems with which banks constantly struggle. A prime example is the need to manage a rapidly growing volume of data while ensuring that it is accurate. This means banks must work hard to guarantee high-quality data is going into an increasingly efficient and automated infrastructure. That is no simple task, as the data banks are consuming comes in a dizzying variety of forms – some highly structured, some entirely unstructured, such as information in PDF invoices or printed receipts. The reconciliations infrastructure must be able to handle all of it, all at once, with very little margin for error. That is why the market is turning towards automated solutions. Having accurate and up-to-date information about each trade, clear and efficient processes for resolving discrepancies, and robust controls are the prerequisites for meeting T+1, and automation is the only way to guarantee these elements are in place. Building those automated processes in-house will be too expensive, too proprietary in nature, and – most important of all – too slow. So, banks are turning to external organisations that can help them to deliver on time, and that have the necessary experience and insight to help them review their current infrastructure
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Yogesh Shenai, senior product manager
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