Increasingly, the FCA is expecting financial services firms to take full responsibility for their system suppliers and asking senior management to attest to the efficiency of their firm’s controls and BISS and Elkhorn believe that this independent benchmarking assessment will play a key role in aiding this requirement. The move to T+2 starting in October 2014 holds significant operational challenges for all types of financial services firms, if they are to achieve at least the same percentage of successful settlements as today. Notably, there will be a high focus on their ability to confirm and match transaction details on trade date, as well as increased efficiency in agreeing settlement instructions.
The initial assessment will focus on individual firm’s readiness for the change on 6 October 2014, which will be followed by a series of benchmarks targeting specific processes and controls that firms rely on for managing both risks and efficiency in achieving T+2 settlement. Elkhorn Consulting will carry out an on-site assessment of the firm’s operational readiness for T + 2 that will be audited by B.I.S.S. Research. Following which an analysis and certification report will be issued for client review. The FCA is expecting financial services firms to take full responsibility for their system suppliers and the independent benchmarking process will aide this requirement. The initial T+2 benchmark tests will evolve in future years to cover specific challenges that will emerge as financial services firms move into a near real-time management of their business both within the Treasury and Risk departments. This will include data management and the technical capability to integrate key data throughout the business for management and regulatory reporting.
Software vendors and back office outsource suppliers can also take part. Their system and or service can be assessed and accredited against the industry benchmarks. An accreditation report and logo will be issued to suppliers that have successfully achieved the benchmarks, which can be used to demonstrate system/service readiness to new and existing clients. In addition to BISS Research’s usual promotion of Accredited Suppliers, BISS has agreed with Diliger to list the T + 2 Accreditations on its Directory providing further value and market exposure to all participants.
Gary Wright, C.E.O., B.I.S.S. Research and creator of the B.I.S.S. Accreditation said “T+2 will not be easy for the Securities Industry to adapt to, as it will require far greater efficiencies in operations and systems than today. The loss of one day in the settlement process brings into focus the need to confirm/match/reconcile and communicate on trade date. Errors that lead to failed settlements will need to be resolved during the day or early next day if they are to settle on T+2. Both buy-side institutions and those on the sell-side must have matching capabilities either from central sources or bilaterally. The challenge of error free settlement instructions will entail more efficiencies in reference data and its management and reconciliation. The Regulators expect financial services firms to take full responsibility for their systems whether in-house or third party and we believe this independent assessment will assist firms to gain confidence that their in-house processes/system or chosen supplier can meet their requirements, proving to the Regulators that they are being responsible.”
Ian Perham Director of Elkhorn said “T+2 will create both opportunities and challenges. We think that the move to T+2 will be the catalyst that finally moves the industry to achieve same day and near real-time trade agreement and settlement instruction and that this will ultimately deliver significant cost, risk and service benefits. This is not just about internal change: clearly firms are also dependent on their counterparties, suppliers and other market participants to achieve this. We believe that benchmarking will be a key component of firms’ strategies for defining and delivering the changes needed. “
Christian Bower Director of Diliger said “In this case the price of progress is that IT and operations personnel have to fine tune already automated post-trade procedures for greater efficiency, minimising mismatches and finding ways to efficiently deal with exceptions. The opportunity presented by this unique offering to test your T+2 readiness should be grasped with both hands by those responsible for the aftermath. The T+2 certification will appear as a Diliger filter for fund administrator, middle office and securities services. “
About B.I.S.S. Research
B.I.S.S. Research is an independent research company providing training, advisory services, business benchmarking, Accreditation and analysis of technology and services of suppliers in the Global financial services industry. B.I.S.S. Research analysts are all from a business to IT background with a long track record of procurement in the financial services market place, which enables them to produce unique and valuable assessments of technology and services and their value to the supplier and the market place.