Effective reconciliation of trading: Managing and mitigating operational risk

Abstract

We are operating in a world of constant change and unrest — politically, socially and economically. The landscape of financial services is continually changing, as transactions become more complex and business grows more global in nature, with increased regulation and oversight. Additionally, industry initiatives are shortening settlement windows and increasing risk exposure and regulatory controls.Reconciliation and matching activities are a core component of any firm's operational risk programme, yet the historic focus has been on niche solutions rather than on a platform that caters for the overall needs of the enterprise. We see today, more than ever before, a focus on centralising matching and reconciliation activities across all asset classes. We see moves by the regulatory bodies and central government to focus us on improving controls through regulations, such as the Markets in Financial Instruments Directive (MiFID) and Basel II. We are also seeing the industry become more self-aware, taking steps to improve process efficiencies and to enhance automation with messaging standards, technology and best practices.Taking these factors into account, this paper will explore the evolving trends that are being witnessed in the financial services industry as firms expand the role of reconciliation in their search to mitigate and manage risk. It will also examine where we are, where we have been and, more importantly, where we are heading.