Robert Kugel's Analyst Perspectives

Back-office operations in commercial and investment banks are among those critical functions that are underappreciated until they stop working well. This includes transaction reconciliations and the related exceptions management. Reconciliations are necessary to achieve a reasonable assurance of complete and accurate record of trading activity. The process is especially challenging now, partly because of today’s high and growing volumes in the wide range of asset classes in which all larger financial institutions trade. Reconciliation is a necessary accounting function that has to be completed before external financial statements can be published. I recently received an update on SunGard’s IntelliMatch Solution Suite, an application for handling reconciliation, exception management, financial governance and archiving processes that is used mainly by large financial institutions. While the software’s basic function is to manage reconciliations, two aspects of IntelliMatch – financial governance and trending and analytics for rules optimization – are worth noting because of their potential to increase the effectiveness and efficiency of a financial institution’s back-office operations. Ideally, every entry in a financial institution’s transaction system will match up with its trading partners’ data and be internally consistent as well. In practice, this never happens because people make mistakes or omit information. To achieve the appropriate financial governance capabilities in a high-volume setting, reconciliation software must quickly and automatically identify where there are issues. When it finds these, IntelliMatch supports the follow-on actions by providing workflows and supplemental information users need to make the right decisions as well as preserve narratives and commentary about those decisions. Workflows automate the chain of reviews, approvals and attestations needed to complete the process. SunGard has added an option for a lightweight visual workflow management system so that non-IT people can easily configure (and reconfigure) these workflows to meet the dynamic requirements of the markets without having to wait for the IT department to do it. Although the bulk of reconciliation work is still done at the end of a period in batches, some financial institutions are using the process as a way to promote greater transparency of transactions, which can be used as a higher-level control to manage risk more effectively. Another benefit of the governance process is being able to speed up the end-of-period, post-close activities. SunGard expects its largest customers to be able to reduce this process from four to eight weeks to two to three weeks. Analytics are important capabilities of IntelliMatch, and SunGard is adding to the suite on an ongoing basis. With any application designed to collect data, there is considerable value for users to be able to analyze what’s there. General ledgers, for example, became more useful when business intelligence and analytics were added to provide dashboards and scorecards that help improve performance management. In the case of IntelliMatch, being able to look at, for example, the matching logic used in the reconciliation process can help determine if there are better methods or useful tweaks that can be applied to achieve a faster, higher-quality process. These sorts of analytics can be used to create alerts, assess individual and business unit performance faster and more accurately, improve the accuracy of plans and forecasts and, ultimately, fathom even complex trends in business flows. One of the drawbacks of being underappreciated is that it seems to take a long time for back-office operations to get the kind of tools they need to improve performance, reduce costs and provide better information to executives. Over the decades, only a few senior executives have used their back offices strategically (for example, Citicorp’s John Reed and, with Peter Cohen, Sandy Weill) to build their business. Money saved in operations (in this case, by eliminating swaths of hidden costs) flows directly to the bottom line, rather than having to be shared with highly compensated bankers. And tighter governance will continue to pay dividends. Banks should regularly examine how to reduce the full life-cycle cost of processing transactions. IntelliMatch should be on their list of tools to consider when they do that. Regards, Robert D. Kugel – SVP Research

Robert Kugel's Analyst Perspectives

SunGard IntelliMatch: Financial Governance and Reconciliations

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