Investment Book of Records: What are the Risks of Not Implementing an IBOR?

February 12, 2014

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Click to Download Whitepaper

As financial institutions weigh the need for an Investment Book of Records (IBOR) and what type of system is needed to address this issue, they must also consider the risk of not implementing an IBOR solution.

An IBOR is a necessity for organizations that have their assets held in disparate systems – either in multiple deployed systems siloed throughout their organization or as part of outsourcing relationships with one or more custodians or service providers. Without an IBOR in these situations, financial institutions are vulnerable to a number of risks:

  • Inability to assess investment risk – without a holistic view of positions and exposures, the financial institution cannot effectively assess and manage investment risk, which could lead to unexpected and major losses if the company is overexposed in a distressed area.
  • Poor decision making – if a financial institution cannot produce an accurate and timely view of positions, investment professionals cannot make informed decisions, leading to poor performance and loss of client trust.

There are additional risks for financial institutions that outsource their middle-to-back office:

  • Data quality issues – although the outsourcing service provider is responsible for processing client data, it is ultimately the financial institution’s fiduciary responsibility to ensure accuracy. If the financial institution has no way to independently verify that pricing data, corporate actions events, transaction activity and positional data is accurate, they will be held accountable for any errors and the ensuing ramifications.
  • Lack of redundancy – if something happens to a custodian or service provider, the financial institution without a shadow book of records may not have quick access to client data to continue “business as usual” for clients, hindering their ability to provide quality service and affecting performance.
  • Overreliance on vendors – when a service provider is the sole owner of the financial institution’s data, this can create too great a dependency on that vendor, making it difficult to switch vendors should the relationship require changing.

Since an IBOR gathers and processes investment information in one place, it can help mitigate these risks by validating accuracy before data is distributed and by providing a common set of investment data to users and up/downstream systems. It also gives financial institutions control over their data, allowing them to make more informed investment decisions, better assess investment risk and meet fiduciary responsibilities.

To learn more about what an IBOR is and what to look for in an IBOR solution click here to download a copy of our whitepaper “SS&C PORTIA: Why You Should Consider an IBOR”.

This blog post is the third in a series from SS&C PORTIA on the importance of implementing an IBOR solution. View our recent posts titled “What is an IBOR” and “What to Look for When Selecting an Investment Book of Records (IBOR) Solution.

–          Matt Bellias, Head of Strategy and Marketing

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