Centralization of reconciliation operations and technology is key to delivering reductions in both risk and cost in the banking industry, confirms an enterprise reconciliation survey conducted by TowerGroup, a Corporate Executive Board company, on behalf of SunGard.
TowerGroup conducted a survey of 65 tier 1 banking institutions around the world in March 2011 to determine the operations and technology challenges banks are facing in reconciliations.
Despite the impact of the financial crisis on balance sheets, tighter margins and lower return on equity, almost 80% of banks rate risk reduction as the most critical driver behind reconciliation investment this year.
With more than two thirds of banks increasing their overall reconciliation spend compared to last year, banks must look to balance the need for operational risk mitigation investment with a continued downward pressure on operational costs.
Over half of respondent banks would expect a cost reduction of 15% or more through consolidation alone, yet currently only 47% of these banks leverage a centralized reconciliation environment. This suggests that even though firms are keen to centralize, the process of creating an enterprise-wide centralized reconciliation environment is still fundamentally challenging and such a move cannot be achieved overnight.
Survey results indicate that this figure will rise to 70% as banks seek to deliver projects that will generate both a reduction of operational risk and a tangible return on investment.
“In the wake of the financial crisis, banks are beset by the pressures of lower revenues, heightened risk sensitivity and greater regulatory scrutiny,” says Steven Murphy, research director at TowerGroup, a Corporate Executive Board company. “In order to comply with rapidly evolving regulatory demands, banks are refocusing their efforts towards centralization of key operational processes. Centralization can help banks achieve significant benefits including lower costs and tighter risk controls.”
Jennifer Hanes, executive vice president, reconciliations, SunGard’s Ambit Corporate Banking business unit, says the research indicates that institutions are exploring ways to move from disparate, reconciliation departments to a more strategic centralized reconciliation environment.
"Centralization of reconciliation teams, systems and tools is critical to help enhance transparency, visibility and control, which in turn enables better risk management and greater cost-efficiencies,” says Hanes.
MORE ARTICLES ON FINANCE AND BANKING