Business Management

David Sheriff (Europe) - Too Smart to Split

To help prevent another global financial crisis and to reduce the risk to the retail banking customer, some governments are threatening to split the banks' retail and investment divisions. However, technology is able to bring the much needed transparency to financial and risk reporting and prevent the need for regulatory break-up.

Traditionally, technology has been split between different banking departments. The problem for banks is that they now have hundreds of legal entities, either acquired or internally formed, and either fully or partially owned. As they have expanded into multiple lines of business, more varied reporting processes have been added to the business's portfolio and have made it increasingly difficult to gauge the health of the overall organisation.

Banks are highly decentralised, with each operating unit running its own systems, with separate accounting and risk functions. Each one therefore has its own interfaces to risk analytics and the general ledger.

For example, the different departments will consolidate data into monthly reports: a process that absorbs a significant portion of the month for group finance directors. Surveys repeatedly show managers' frustration with the different, time-consuming reporting processes that impede their ability to provide value-adding insights to the business in a timely manner and the discrepancies between different reporting regimes (e.g. finance and risk).

Technology Provides a Solution

Silo processing and reporting is not only time inefficient but also leaves the company unable to truly measure risk. Much of the problem is the tangle of unwieldy computer systems that make it hard to extract the right data for analysis or compare findings of accounting and finance with those produced by risk managers.

If banks adopt an accounting hub, all transactions would be processed in one place, according to standardised accounting rules. This would ensure that the resulting data is of the quality required for purely accounting purposes, as well as allowing the same data to be used by all reporting units in the company with high accuracy.

Getting to Know the Locals

It has been suggested that a better general ledger is the best way to deal with highly decentralised banks. When adopting this process, every department (business units, legal entities and other concerned parties) within the business is asked to conform to one ledger configuration standard, to define a fat, single chart of accounts that will work for all. However, local units need to report accounts according to local regulations and individual units. Sometimes this just cannot be reflected in a one-size-fits-all general ledger (which is not designed for the volume and timeliness of granular data) and the process becomes costly and unmanageable. An accounting hub and associated sub-ledger standardises the process of delivering information according to rules that ensures data is of the quality required for all accounting purposes in all regions. This allows every department to share the same data, consistently articulated by the accounting hub, which is of "Books of Record" quality.

Risk reporting also varies from finance reporting even within the same business units, undermining control and comparisons across the company. Traditionally, banks have tried to address this by implementing an enterprise resource planning (ERP) system, together with a data warehouse to gather all of the non-ERP based data. This discrepancy in the level of detail and inability to drill down from balances to transactions, coupled with the completely independent data paths for risk and finance reporting has proven woefully inadequate.

To combat this, an ERP solution should be combined with an accounting hub that draws on the common source data and a single, integrated, detailed sub-ledger. This will work in tandem with the single general ledger created for the organisation, generating an accurate and consistent reporting environment.

It's as Simple as a Central Store

Ensuring that all reporting is pulled from the central accounting hub will allow banks to create comprehensive reports across all business units and have clear sight of the organisation's risk and financial landscape as a whole.

It's no surprise that banks are under even more scrutiny from regulators, governments and the public since the financial crisis. Regardless of this, it is very much within the interests of the banking sector to adopt a centralised accounting hub to improve transparency and accuracy going forward.

By David Sherriff, CEO, Microgen.



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