TABB: Blockchain the answer to reconciliation woes
04 November 2016 New York
Image: Shutterstock
Blockchain technology could be the answer to inefficient reconciliations and data management, according to a report from TABB Group.
The report, Inside Reconciliations: Capital Markets Dirty Little Secret, noted that increasing compliance pressures and demand for investor transparency is exacerbating the need for accurate, timely and well-integrated data.
Senior analyst at TABB and author of the report Dayle Scher suggested that the way firms react to the data challenge is a “critical differentiator in an ecosystem where only the agile and accurate will survive”.
She said: “Securities firms may have a wealth of customer data, product data, business rules, and analytical tools, but the typical technology architecture does not make it easy for different functional areas to share information or for firms to provide the full client picture to employees and managers.”
The report went on to say: “Inconsistencies and discrepancies that arise due to an inefficient infrastructure and unsuccessful reconciliation processes can have multiple—all damaging—consequences.”
These include over-sells, violation of compliance guidelines, incorrect counterparty exposures, inaccurate client reporting, skewed risk and performance analytics, and trade delays.
Of buy-side firms surveyed, 52 percent said they experience trade errors, with 8 percent saying they experience this ‘constantly’ and 14 percent saying it happens ‘often’.
Of those that said they experience trade errors, the majority, over 60 percent, attributed this directly to poor reconciliation.
The report suggested that distributed ledger technology could be used to communicate transactional data through an internal blockchain, creating a shared audit trail. This could potentially significantly reduce the costs of the reconciliations process, and the cost of personnel and systems could be reduced, or removed entirely.
The report said: “Once the trade is on the blockchain it is distributed to the other systems or platforms that need to mirror it and they can ‘see’ the original terms. No participants can modify or delete data added by another.”
While acknowledging that this could lead to issue regarding inter-departmental and regional privacy, Scher noted: “The challenges are certainly easier to overcome than those posed by communicating data externally.”
The report advised that firms should focus their resources on investigated the uses of internal blockchains before researching external uses, a strategy that would also allow more time for common standards to become established in the technology.
It concluded: “By utilising a single immutable source of transactional data, as espoused by proponents of blockchain or distributed technology, the need for multiple internal reconciliations and the risk of trade or reporting errors is vastly reduced.”
The report, Inside Reconciliations: Capital Markets Dirty Little Secret, noted that increasing compliance pressures and demand for investor transparency is exacerbating the need for accurate, timely and well-integrated data.
Senior analyst at TABB and author of the report Dayle Scher suggested that the way firms react to the data challenge is a “critical differentiator in an ecosystem where only the agile and accurate will survive”.
She said: “Securities firms may have a wealth of customer data, product data, business rules, and analytical tools, but the typical technology architecture does not make it easy for different functional areas to share information or for firms to provide the full client picture to employees and managers.”
The report went on to say: “Inconsistencies and discrepancies that arise due to an inefficient infrastructure and unsuccessful reconciliation processes can have multiple—all damaging—consequences.”
These include over-sells, violation of compliance guidelines, incorrect counterparty exposures, inaccurate client reporting, skewed risk and performance analytics, and trade delays.
Of buy-side firms surveyed, 52 percent said they experience trade errors, with 8 percent saying they experience this ‘constantly’ and 14 percent saying it happens ‘often’.
Of those that said they experience trade errors, the majority, over 60 percent, attributed this directly to poor reconciliation.
The report suggested that distributed ledger technology could be used to communicate transactional data through an internal blockchain, creating a shared audit trail. This could potentially significantly reduce the costs of the reconciliations process, and the cost of personnel and systems could be reduced, or removed entirely.
The report said: “Once the trade is on the blockchain it is distributed to the other systems or platforms that need to mirror it and they can ‘see’ the original terms. No participants can modify or delete data added by another.”
While acknowledging that this could lead to issue regarding inter-departmental and regional privacy, Scher noted: “The challenges are certainly easier to overcome than those posed by communicating data externally.”
The report advised that firms should focus their resources on investigated the uses of internal blockchains before researching external uses, a strategy that would also allow more time for common standards to become established in the technology.
It concluded: “By utilising a single immutable source of transactional data, as espoused by proponents of blockchain or distributed technology, the need for multiple internal reconciliations and the risk of trade or reporting errors is vastly reduced.”
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