Throughout the payment operations process, as in every other sphere of business, risk management is crucial. Some organizations, especially alternative asset management firms, deal in many high value transactions on a daily basis, leading to a number of factors that can pose an immense risk on their business.
These factors include:
Wrong Payment Sent to SSI :
A single incorrect digit in the beneficiary details can lead to funds being sent to an unintended beneficiary. Recovering from such an erroneous transfer can become a huge hassle.
Reputational Risk :
Erroneous transfers can cost the fund more than just financial loss. Errors in areas as sensitive as cash management can reflect poorly on the fund, leading to a negative impact on its reputation.
Duplicate Payments :
When a large number of people on a team are sending multiple payments back and forth, the chance of making a duplicate payment is almost inevitable. When using a manual process, this duplication may go unnoticed and can be difficult to track after a certain period of time.
Incorrect Currency or Amount in Wire :
The risks associated with manual entries in the absence of range checks are rather high. For instance, a fat-finger error committed in 2018 where $100,000,000,000 worth of securities was mistakenly sent to employees would now be very difficult to rectify.
Missed Currency Cut-Off Time :
Most financial institutions have a set currency cut-off time and if missed could lead to an additional delay.
Unnecessary Overdraft Usage :
Lack of information about remaining cash balances and cash forecasts can lead to an unwanted overdraft situation. A fund may end up having to pay a hefty penalty even for a small overdraft amount.
It is rare for any major financial institution to not face hefty penalties for failing to comply with regulations, especially after the subprime crisis. Reg W, MIFID, Dodd Frank Act and many others are now strictly imposed, and any error in payments may attract regulators to a fund’s front door steps.
Although overwhelming at first glance, funds can help mitigate these aforementioned risk factors through the use of a centralized system that connects multiple lines of business to the fund custodian. IVP’s cash management solution, IVP Cash Master, combines automation and customization capabilities to help managers combat these risks and streamline their entire process.