Financial Services Firms At Risk Due To Poor Management Of Business Critical Data

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Research by ClusterSeven on C-level executives and senior managers working in financial services in the UK has revealed dangerously poor attitudes to business critical data managed in spreadsheets and similar databases.

Half (51%) of C-level executives say there are either no usage controls at all or poorly applied manual processes over the use of spreadsheets at the firms. Nine in ten (89%) admit they rely on manual oversight to maintain data integrity, with only one in 10 (11%) saying there is an automated control policy that allows them to fully understand changes between different versions of spreadsheets and see a clear audit trail for data.

The findings are surprising given that 55% of C-level executives rate spreadsheet risk – the risk of serious financial/reputational loss from poor management of corporate spreadsheets and databases – as either ‘very serious’ or ‘serious’, while around one in seven (15%) admit their firm has suffered a significant data breach. Moreover, in an indication of the significant role spreadsheets play in the modern financial services industry, one in five (19%) C-level executives say that they use spreadsheets to manage values of over £1bn, with the average from all respondents at £350m. Over nine out of 10 (93%) use spreadsheets as much as, or more than any other applications for managing financial data with over half (53%) saying that they either only use spreadsheets or use them more than other applications for managing financial data.

The study by ClusterSeven, a specialist data management firm, comes in the wake of recent, high-profile losses announced by financial services firms attributed to poor spreadsheet management. Also in January, the Basel Committee on Banking Supervision released the report Principles for Effective Risk Data Aggregation and Risk Reporting – the first time that spreadsheet management has ever been specifically mandated at such a high level.

Ralph Baxter, CEO at ClusterSeven, said: 'Financial services firms, and the senior managers and executives that run them, rely heavily on spreadsheets for much of their business critical processes. However, there are significant risks associated with this and all stakeholders are now waking up to what these are. Risks include anything from basic ‘cut and paste’ errors to miscalculations, fraud and corrupted files. The losses announced by some large financial services firms are tangible, real-life indications of the dangers and risks firms are exposed to, and it is not surprising that regulators and supervisors such as the Basel Committee are now focusing on spreadsheets as a fundamental carrier of corporate data.

'No longer will it be possible to hide behind overly-optimistic IT plans suggesting that business-critical spreadsheets will soon be eliminated. ClusterSeven has understood this absolute and fundamental use of spreadsheets by the world’s blue-chip institutions since it was founded in 2003, and I’m delighted that this is being corroborated by market and regulatory developments towards best-practice data management.

The research reveals that over half (51%) of C-level executives think that regulators will become more focused on spreadsheets over the next 12 months. There has been a clear shift in sentiment and now, looking forward, internal audit and other key functions should assess the effectiveness and efficiency of the internal control, risk management and governance systems and provide assurance on these systems'.

Spreadsheet Risk Table - ClusterSeven

Baxter continued: 'Many people will be astonished just how reliant firms are on spreadsheets and similar databases for their day-to-day processes given how many billions of dollars have been invested in standard financial applications, such as ERP and Business Intelligence. Senior managers, including C-level executives, are also spending significant amounts of time on spreadsheets. Where this manual activity is part of routine processes much of this effort can be easily replaced by automated checks using spreadsheet management technology'.

London and New York based ClusterSeven, which now has a third of the world’s top 30 banks as clients as well as a number of leadings insurers and asset managers, was one of the first firms to identify how strategically important spreadsheets are to modern businesses and financial services institutions. It has developed a range of market-leading software products that provide oversight and transparency of a firm’s databases and spreadsheets, giving functions such as finance, risk, and internal audit full confidence in the integrity of their firm’s data while also offering substantial savings on the time and resources used to check data processes and accuracy.

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