Centralized data gathering

Compliance casts a wide net but there are events and occurrences that can slip
through the interstices. A major pitfall of centralized data gathering is the wide
variety of derivatives products offered and the need to standardize the data. This
aggregation process can come at a cost of accuracy in the details of individual
transactions. The derivatives business has evolved dramatically and controls and
compliance efforts may fail to keep pace.
Business and technical support often falls into strict control units or divisions and
there is little overlap with other units. The systems requirements are often developed
devoid of ensuring compatibility within the entire organization. Since the same
salesperson can often sell products on behalf of a number of legal entities, effective
control becomes more problematic. Data fields, reports, etc. can mean different
things or be used for different purposes within different parts of an organization.
Information is often aggregated for risk management or accounting purposes and it
becomes difficult to isolate all the details of individual transactions. A related problem
occurs when holding are managed by an outside manager and the numbers need to
be manually ‘rolled into’ total holdings reports.
With specially tailored transactions, there may be special provisions or options
that cannot be recorded in the existing systems. As a result they may not appear on
a regular report. For simplicity, information may be ordered by stated maturity date
and not include other pertinent data. A major challenge is that report cutoff times
are often different and a good deal of time is spent on needless reconciliation. There
may be classification overlaps as well. Trusts, partnerships and affiliates and custody
agents may all figure in the equation and one may not readily obtain a complete
listing of all positions held.
To ensure that all data is being collected, one should obtain process flow diagrams
covering all product and customer flows. Lists of reports and samples of each reports
should be obtained to ensure completeness. Special attention should be paid to
reports whose formats or scope change over time since this may trigger unintended
omissions or other unhappy consequences.
Typical problem signs occur when you sometimes have the original trade documents
and sometimes copies. This indicates a lack of consistency or control. All
transactions should be serial numbered or time stamped in order to enable crosschecking
with market levels and credit limits. Files that contain only part of
the required documents or inconsistency in contents and storage locations of the
files should also cause concern. One should be especially alert for backdated
approvals.
One should also obtain a document-aging list. A signed document gives protection
against breaches since it provides the written terms of the deal and often the four
corners of the document may be the exclusive basis for determining the terms
and condition of the contract. If unsigned documents are outstanding longer than
60 days, you may want to reconsider doing another deal with the same counterparty.