With depositary banks and other institutions subject to strict rules and proactive regulators,
error-prone cash flow monitoring processes risk reputational damage
Cash flow management teams at depositary banks are being stretched to breaking point. Cash monitoring has long been subject to stringent rules imposed by AIFM and UCITS V Directives. But the potential for serious financial and reputational damage has never been higher, as financial regulators respond to the growing popularity of complex asset classes alongside an influx of retail investors in the alternative space.
Scrutiny is increasing, and with it, pressure. But processes have not kept up, and cash flow monitoring and control remains a heavily manual undertaking. That makes it hugely time-consuming, and with high volumes of fragmented data flowing in from multiple sources, the risk of human error is high.
Regulatory compliance – or reputational risk?
In many cases, the cash monitoring process still happens on spreadsheets. Whereas other areas of fund administration have seen at least some degree of automation in recent years, depositary operations are seen as a cost center and digital transformation has been slow.
That may be changing. Stretched depositary teams are having to do more with less. I know from experience that Linedata clients are exhausted by the continual stream of new regulator requests. Manual data collection and spreadsheet checks are taking more time as the complexity of data increases.
In response, cash flow and control teams are taking a harder look at digital automation. In some cases, they’ve gone further, building and implementing in-house solutions that take at least some of the pain away.
But for many banks and service providers, there is much more to do. Their digital journey has only just begun if – it has started at all. They’ve barely scratched the surface of the benefits that a comprehensive automated cash flow management solution can bring.
The benefits of cash flow automation
What are those benefits? In short, automation streamlines your cash flow management processes, reduces the opportunity for error, and frees up your staff for more creative problem solving.
Staff are spared laborious data collection and cash flow monitoring work and can spend more time investigating discrepancies and resolving issues.
A digital solution will safeguard your hard-earned industry knowledge, embedding best practice in a series of repeatable digital processes. So, if your most experienced operator leaves, 20 years of accumulated expertise doesn’t leave with them. That’s an especially important benefit in a volatile labor market.
A robust yet flexible automated solution should give you peace of mind. The same tool can accept and aggregate data from multiple sources - brokers, depositaries, fund administrators, and others. By digitizing hitherto manual processes, it speeds up reconciliation while reducing the risk of operational errors.
It also creates an all-important digital audit trail. As regulators ramp up monitoring activities, a digital audit trail – accessible instantaneously – makes it easy to demonstrate you’ve done what you should have done. Compliance and transparency are rooted in the system.
Cash monitoring that meets your needs
Even so, investing in an automated cash flow monitoring solution is not a decision that businesses should take lightly, and costs must be justified. The right system should do all these things and mold to your particular needs, evolving as your requirements grow or change.
Linedata Navquest Cash Monitoring achieves this through an open rules engine, with a library of configurable controls for checking cash transactions. You configure thresholds and acceptable tolerances, and the system polices them on your behalf.
Your team only gets involved if the system detects an issue. Otherwise, Navquest Cash Monitoring validates cash movements and position changes automatically.
Flexible architecture means you can change rules and add new ones as your needs develop, without having to redeploy the system. You can adapt quickly to new demands from regulators or stakeholders.
It’s an entirely client-focused solution, because Navquest Cash Monitoring has been developed with clients in mind. It has not been created in a vacuum – it is a direct response to the challenges our clients face every day.
Linedata brings a wide industry view
Linedata has brought its wide experience of developing fund industry solutions to bear on cash flow management. We work with asset managers and fund administrators, as well as depositary banks and service providers, so we have a holistic view of industry challenges. Everything we do is meeting a genuine need.
Our rules-based cash flow management and control solution is based on hard-earned industry expertise and business logic. It helps you comply with stringent regulatory requirements while easing the pressure on cash management teams. It allows you to integrate data from multiple sources and, at the same time, reduce the opportunity for error.
And it’s all controlled from an intuitive and easy-to-use interface.
Cash flow management and control is a required process and one that is attracting increasing scrutiny. It’s not a money maker, but it can cost dearly in terms of fines and reputational damage if you get it wrong. Investing in flexible and scalable automation is a small price to pay to keep regulators, clients, and staff on side.
For more information on Navquest Cash Monitoring from Linedata, please get in touch.
TO REMEMBER:
• Depositary banks are required by regulators to conduct cash monitoring in line with AIFMD and UCITS V requirements.
• Cash monitoring is often done manually, leading to errors, and putting additional pressure on overstretched operations and compliance teams.
• Linedata Navquest Cash Monitoring automates the cash monitoring process for greater efficiency and accuracy, with a fully digital audit trail.
• It has been developed with client input and is based on over 20 years of industry expertise and fund oversight and monitoring business logic.
About the author, Henri Berthe
Henri Berthe is a Senior Product Manager at Linedata, with over 25 years of experience in the investment fund and asset management software industry. His expertise includes Compliance, Risk, NAV Oversight, and Cash Monitoring for UCITS and AIF.
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