The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Financial Institutions Should Focus on Unstructured Financial Data in the Rush for Effective Risk Management, Warns ClusterSeven

Financial institutions will continue to report high profile instances of data mismanagement and fraud unless they take 100% control of the vulnerable financial data files that move and manipulate information between their business systems. These include files known as CSVs* (comma separated variable), plus spreadsheets and Microsoft Access Databases. Systemic failings in the way these files are tracked and monitored remain unresolved; for many businesses this will lead to financial misreporting, leading to financial and reputational losses.

Ralph Baxter, CEO of ClusterSeven, an international provider of software to manage unstructured financial data, said: “Spreadsheets and CSVs are the ‘glue’ that joins everything else together. If this ‘glue’ is contaminated – such as bad data values – then this will be extremely difficult to spot further down the line.

Many firms get used to accepting exceptions in this data such as test values or balancing items. However, these loopholes can hide more malicious entries for long periods. Many firms do not realise how vulnerable their unstructured data processes are until it is too late as they lack formal processes and tools to make sure all these critical data files are accurate and truthful.”

The intense focus on data management by banks and insurers, particularly in light of Basel III, Solvency II and other regulatory moves, has shone the spotlight on the highly sophisticated spreadsheets and CSVs that underpin modern businesses – yet many people fail to realise this basic fact.

Recent studies by ClusterSeven (June 2011) and by risk consultant Protiviti and accountancy institute the ICAEW (July 2011) have concluded that organisations are putting themselves at considerable financial and reputational risk by failing to properly control the way they use spreadsheets. The Protiviti/ICAEW survey revealed that three quarters (75%) said that their company did not have a policy or processes in place relating to the design, development and/or control of spreadsheets.

Of those accountants surveyed, almost a quarter (23%) claim their organisation has experienced financial or reputational losses that can be directly attributed to the use of spreadsheets or poor controls governing the use of spreadsheets.

It is not just banks and insurance firms susceptible to data management challenges. On 12 August this year, the ONS issued a correction after admitting an “arithmetical error” had caused it to overstate the strength of the UK construction industry for Q2 by 180 basis points. According to the ONS’s initial calculation, the sector grew 2.3% in the three months to June (enough for some economists to revise upwards UK economic prospects); the ONS subsequently cut the number to 0.5%.

Ralph Baxter, CEO of ClusterSeven, added: “Most people know of some spreadsheets that help run their business, but these are only the tip of the iceberg of all the unstructured financial data activity in their organisation. We see an increasing demand for our software from firms big and small. However, the worry remains that significant shortcomings remain at the heart of many of the world’s financial institutions. This is a shame as, rather than being a weak link in a firm’s risk management process, properly managed unstructured financial data will strengthen it.”

Related content

WEBINAR

Recorded Webinar: Developing operational resilience

Financial institutions’ operational resilience – essentially the ability to prevent, adapt and respond to, and recover and learn from operational disruptions – has come under extreme pressure during the coronavirus pandemic, with last year’s March lockdown creating unprecedented circumstances for financial firms. Employees working from home raised the stakes, as they still do, adding to...

BLOG

Broadridge’s $2.5 Billion Itiviti Deal Aims to Simplify Firms’ Front-to-Back Workflow

Broadridge Financial Services is seeking to bolster its multi-jurisdictional reach with the €2.143 billion (approximately $2.5 billion) cash acquisition of Scandinavian trading and connectivity solutions provider Itiviti, announced last week. Itiviti’s order and execution management systems (OEMS) and messaging middleware give Broadridge a strong presence in the front office. But it also addresses clients’ needs...

EVENT

Data Management Summit Virtual

The Data Management Summit Virtual brings together the global data management community to share lessons learned, best practice guidance and latest innovations to emerge from the recent crisis. Hear from leading data practitioners and innovators from the UK, US and Europe who will share insights into how they are pushing the boundaries with data to deliver value with flexible but resilient data driven strategies.

GUIDE

Entity Data Management Handbook – Seventh Edition

Sourcing entity data and ensuring efficient and effective entity data management is a challenge for many financial institutions as volumes of data rise, more regulations require entity data in reporting, and the fight again financial crime is escalated by bad actors using increasingly sophisticated techniques to attack processes and systems. That said, based on best...