Perhaps the biggest area of exposure for firms regarding change is across system technology transformation and integration. In this article, we discuss how firms manage migration away from spreadsheet-based CASS & Safeguarding reconciliations given the increased prominence of effective change management across CASS & Safeguarding audits.
As firms increasingly mature their governance and operating model around client assets and customer funds in anticipation of the forthcoming FCA consultation paper, it’s a natural progression to consider system and process automation across a firm’s recognised system of books and records. Furthermore, such records are consumed within associated reconciliations, be that for Client Money, Custody Asset’s or Safeguarded Funds.
Migration to automated reconciliations is no small task, given the importance of the activity and the notification expectations placed upon firms by the FCA should such mission-critical processes fail. Due to the importance and small margins for failure, such migrations can be a complex and drawn-out process if stakeholders aren’t aligned, and the project is not managed with the meticulous care and attention it requires.
10 Key Considerations When Transitioning from Spreadsheets to Automated Solutions:
1. New Products and Permission Variations
When introducing new products or services, firms should conduct a comprehensive impact assessment of how resulting changes will impact transaction flows and associated timings. This process involves understanding and documenting how a new product or service will alter the current transaction processes. This includes mapping out each step of a transaction and identifying any deviations from existing procedures.
Analysis should be conducted to see how the timing of transactions might change. Different products and services, or the introduction of new technology may impact the scheduling for processing transactions, potentially impacting the timely recording and reconciliation of client money or assets.
2. Staff Impact
Change initiatives often require the involvement of key staff overseeing critical BAU processes and controls, potentially leading to compliance lapses. Firms must take steps to ensure that staff with business knowledge expertise are retained and adequately trained to handle the transition to automated systems, preventing knowledge loss and ensuring continuity in compliance.
3. Technology Change
System integration and technology transformation can pose significant compliance risks. Transitioning to automated reconciliations involves complex processes that require careful planning and execution to avoid non-compliance. Crucially at the outset a thorough analysis to understand the specific business requirements should be completed and documented, identifying data sources, transaction flows, and reconciliation processes that are in the scope of the transition. Comprehensive data mapping is necessary and ensures accurate migration of data from legacy systems to the new automated reconciliation system, supported with data quality checks and validations to ensure the integrity and accuracy of the migrated data.
4. Implementation Resource
A well-defined implementation program that considers CASS and Safeguarding specific requirements and involves all stakeholders is crucial. Effective communication and structured planning with clear milestones will help mitigate risks associated with the migration.
Project resources will ensure the active involvement and consultation of all relevant stakeholders and ensure that all requirements and concerns of those involved are considered and included in the planning and execution of the migration.
A project team will define the scope of the migration with a detailed plan of milestones, and timelines inclusive of contingencies to manage any issues and blockers as they arise.
Testing and parallel running are critical aspects of any well-run migration project and is considered below.
5. Testing
Testing is crucial since it ensures the new reconciliation’s accuracy, integrity, and compliance before being fully implemented. Rigorous testing helps identify and rectify any discrepancies or errors in data migration, system interfaces, and reconciliation processes, preventing potential compliance breaches. It also validates that the new system meets all regulatory requirements and can handle real-world scenarios effectively. By conducting a thorough proof of concept tests, parallel running, and continuous monitoring, firms can mitigate risks, safeguard client assets, and maintain seamless compliance throughout the transition.
6. Auditor Engagement
Involving your CASS auditor at an early stage in any reconciliation migration is crucial for remaining compliant with regulatory standards and compliance requirements. Early engagement enables auditors to identify potential risks and gaps in the migration plan, provide their guidance on best practices and the respective “house view”, and ensure that robust controls are established from the outset. This proactive approach helps manage and reduce costly errors, enhances transparency, and creates a comprehensive documentation trail that is invaluable during subsequent audits. Moreover, early auditor involvement fosters a collaborative environment, facilitating smoother transitions and significantly reducing the likelihood of compliance issues post-migration and during future audit engagements.
7. Third-Party Vendors
The FCA expects firms to complement their internal operational resilience by extending this oversight to arrangements with third-party providers. The regulator expects firms to manage such vendors to ensure business continuity and reduce operational risk and harm to consumers. Third-party reconciliation solutions are business critical and therefore firms should have a comprehensive understanding of vendor processes, controls and points of criticality, extending way beyond initial and ongoing due diligence exercises, ensuring such solutions meet the required standards. Effective oversight expects firms to explain transaction flows, data integrity controls, and system integrations managed and maintained by such vendors as if they were an extension of the firm’s own internal departments and functions.
8. Governance
When aligned with a strong implementation programme, a strong governance culture is crucial in managing reconciliation migrations because it ensures that management has adequate visibility over the process and how it adheres to regulatory standards. Additionally, robust governance ensures the firm maintains data integrity and mitigates strategic risks for which such managers are personally accountable. Effective governance provides a structured framework for decision-making, accountability, and transparency, which are essential for handling the complexities of the migration and help in aligning the migration strategy with organisational goals, monitoring progress, and addressing issues promptly. By establishing clear roles, responsibilities, and communication channels, governance facilitates coordination among stakeholders and ensures that the migration is completed efficiently, securely, and within the specified timeline.
9. Documentation and Record-Keeping
Central to best practice, is consistent and comprehensive documentation. Such disciplines should always be extended to any programme of change, particularly as firms navigate significant regulatory & reconciliation change.
Maintaining comprehensive and accurate records throughout the change process makes the process evidential and easier for subsequent audit reviews to conclude on the compliance of the new process. Where firms are in the midst of implementation during any given annual CASS audit, they should use the opportunity to start orientating their auditor to the new process and system in readiness for the next engagement cycle. This approach also builds resilience in instances where such change may trigger increased regulatory scrutiny. Orderly change management aligned with strong project governance and fully documented approaches ensures that regulatory demands are met while managing the transition effectively.
10. Client Reactions
Whilst looking inwardly across a change programme, it’s easy to overlook one critical component: the end customer. Firms should seek to address client concerns proactively by providing clear communication and handling inquiries efficiently should they have awareness or visibility to such change. It may be necessary to amend customer contracts to align with updated rule interpretation and treatment rationales the new reconciliation may prompt.
Want to learn how Grath help you transition from spreadsheets to an automated solution?
Grath’s CASS & Safeguarding Reconciliation solutions can help to tackle common change management challenges.
If you would like to book a call with one of our specialists to learn more about Grath’s approach to the implementation of CASS or Safeguarding Reconciliation, please contact us here. We have a team of subject matter experts with over 40 years of combined experience completing CASS & Safeguarding reconciliations.
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