August 2016

Barclays’ Latest Fine Highlights Growing Control Problem in the Industry

By Christian Nentwich, CEO

Yesterday the CFTC fined Barclays $800k for supervision failures related to clearing and exchange fee processing. The full press release is available on the CFTC web site: http://www.cftc.gov/PressRoom/PressReleases/pr7419-16#PrRoWMBL

It is not usually our practice to comment on such matters, but there is a pattern in the industry that began to emerge when Merrill Lynch was fined for very similar failures two years ago. Post-trade architectures in large dealers have not evolved to any substantial extent compared to what was in place ten years ago.

As a consequence, firms are continuing to struggle to enforce internal and external consistency. Banks of the stature of Barclays employ hordes of smart people who would have plugged this gap long ago if it wasn’t a fundamentally complex issue: reconciliation of fees, counterparty reference data, setup schedules, all of it sounds easy in principle.

But the issue is caused by the legacy system estate, and is largely data-related: the lack of clear golden sources and standards for data representation makes it hard to attack the problem.

We set up Duco in the first place because we saw that data, rather than complications in matching it, was the root cause of the issue. The legacy problem will never go away. The financial services industry needs to adopt, across all business processes, adaptable and self-learning solutions that can deal with data “as is”, and that can be switched on in 24 hours without 1980s style projects. We cannot solve this issue with technology assumptions from a decade ago.

As a firm, we will continue to focus on educating the industry about the fundamental change in operating model provided by new types of technology. Life in the back office can and will be easier and more enjoyable once innovative technology is adopted.

And regarding the direct case in question, we are happy to be working with CME Group on a clearing fee reconciliation service that attacks this problem head-on. So watch this space…