Six Best Practices for Reconciliation Solution

Automation has become a necessity in asset management, and reconciliation is no exception.

A powerful combination of forces—challenging economic conditions, rising trading volumes, globalized competition, a growing emphasis on transparency, and increased regulatory scrutiny—is driving demand for accurate and timely reconciliation. With daily reconciliation now considered an industry best practice and real-time reconciliation on the horizon, this demand will only increase.

That means hedge funds and alternative asset managers start the day by reconciling positions, cash balances, and transactions across portfolio accounting systems and external counterparties, including prime brokers, custodians, and fund administrators.

Unfortunately, reconciliation remains a laborious, time-consuming, and risk-laden process that involves employees combing through spreadsheets and manually “ticking and tying” every transaction and position record. Not only does this divert resources from higher-value activities, it can cause significant mistakes, reputational damage, missed investment opportunities, and, worst of all, regulatory fines.

In other words, the traditional approach to reconciliation is not only inefficient and unsustainable—it severely blunts your competitive edge.

More effective solutions are available. Specifically, automated reconciliation and exception-based workflows can give firms quick wins in the form of higher productivity, performance, and profitability. Taking advantage of this technology can position your firm to thrive and is rapidly becoming a competitive requirement.

Here are six ways automated reconciliation can take your firm to the next level.

1. Increased productivity and growth.

Manual reconciliation that used to take days or weeks can be completed in hours with an automated, exception-based reconciliation solution. This empowers your team to focus on higher-value functions in operations, client service, and other areas that help grow the business, increase revenues, and streamline costs.

2. Standardized, compliant processes.

An automated reconciliation and exception management system reduces errors and operational risk, maintains accurate audit trails for regulatory reporting, and ensures a standardized approach. Automating reconciliation also makes it easier to demonstrate compliance and keep up with changing regulatory requirements.

3. Streamlined, efficient processes.

By automating the reconciliation process and switching to an exceptions-based environment, asset managers can gain enhanced visibility into counterparties’ service delivery and identify potential improvements. Management can track where breaks occur using sophisticated investigative tools and reporting.

4. Error-free reconciliation.

Automated reconciliation eliminates the vast majority of human errors. The nature of manual reconciliation raises the risk of overlooking a sum or misreading a figure, and missing the discrepancy can create a lot of extra work as the team tries to resolve issues at month-end closing. Automation brings a level of algorithmic precision that detects anomalies quickly and easily.

5. Lower risk of fraud.

Because it is both fast and highly accurate, automated reconciliation helps protect against fraud. Any irregularities are detected rapidly so they can be thoroughly investigated. If any fraud were to occur, it would most likely be at a lower level and be less damaging to the organization.

6. AI/ML powered suggestion engine.

A suggestion engine powered by artificial intelligence (AI) and machine learning (ML) uses unstructured data (e.g. similar names, abbreviations, or synonyms) to make matches. Using AI/ML technology to break reconciliations also enhances the effectiveness of break investigation and classification, keeping a focus on the fund’s specific strategy and business processes.

Learn more about the benefits of the IVP Reconciliation Solution or contact us at sales@ivp.in to set up a live or online demo.