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Risk Management

09:23 AM
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Cost of Exceptions Drops

The cost of exceptions has dropped 30% in the last 12 months, according to a recent study by SunGard eProcess Intelligence.

The cost of exceptions has dropped 30% in the last 12 months, according to a recent study by SunGard eProcess Intelligence. What's more, this rate is expected to drop another 15% by 2005, says Warren Brinker, head of sales, SunGard ePI.

Why the drop? Because more financial-services firms have automated their exception-management processes. Brinker could not place a dollar figure on the current cost of an exception.

A 2002 study by SunGard suggested that automated-exception management was on the rise. At that time respondents estimated that 30 percent of top institutions had implemented fully automated exception-management processes. In addition, respondents predicted 50 percent implementation levels by the end of 2004. Looks like these predictions may hold true.

Brinker adds that 55% of exceptions are now occurring in the pre-settlement environment. "By managing a transaction throughout its lifecycle, from inception through to settlement, firms are able to predict when an exception will occur, and often are able to prevent the transaction from becoming an exception before it settles," the SunGard report states. Brinker says that the industry will see continued improvement in the costs of exceptions as firms focus continue to invest in real-time information and technology.

There has always been a focus on the post-settlement environment during the time that the industry was focusing on T+1, Brinker notes, however "Now there's a realization that pre-settlement is as, or more important, than post settlement."

Even executive-level management is taking notice. Due to the increased pressure around profits, management is now paying special attention to pre-settlement exceptions.

Respondents ranked real-time information a 7 out of 10 - according to level of importance - for delivering benefits in risk management, funding, exception management, and reconciliation. This is because real-time information "will enable better understanding of cash positions and underlying funds to enable them to better manage risk."

Real-time information should help firms to identify and correct those 55% of exceptions that are failing pre-settlement as part of managing the lifecycle, Brinker concludes.

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