Despite having already automated much of its confirmations process, there were still many inefficiencies and unnecessary costs. To eliminate these issues, Baker Hughes introduced Enterprise Workflow into its TMS – FIS Quantum – and leveraged the in-built confirmations matching capability. This case study outlines the implementation journey undertaken by the treasury team, and details the benefits now being reaped.
When we look at the life cycle of a treasury deal from an overall process perspective, three main sequences can be distinguished. Front Office executes the deal and passes it over to Middle Office, which confirms the terms with the counterparty bank, settles the transaction, and performs an operational transaction cash reconciliation. Back Office makes sure that all cash transactions are reconciled and is responsible for their accounting in the ledger.
Homing in on Middle Office activity, the cycle starts with a confirmation where the terms and conditions (T&Cs) of each deal are agreed with the counterparty. If our confirmations (“our side”) and the counterparty’s (“their side”) are not matching, Middle Office should follow up with the counterparty and agree on the final T&Cs.
The matching process can be automated via generating SWIFT messages for deals delivered through the SWIFT network to compare or can be manual for more complex instruments. Baker Hughes’ treasury uses SWIFT to confirm FX and money market deals. Our TMS, FIS Quantum, had been integrated with an external matching platform to collect and reconcile confirmations. The external system then communicated the match status back to it via an interface.
While automated, the process had several inefficiencies and overheads:
- The connection to the external system had multiple hops before a message reached its destination, introducing multiple potential failure points
- The system was closed to Baker Hughes users and IT thus requiring every configuration, however minor, to route through vendor support, which was not always timely
- The custom data views were complex and periodically needed to be re-established as they set back to the default settings. This caused us to lose critical data views that needed to be manually reestablished to review confirmations
- The system was classified as ‘SOX’ and as such was subject to strict controls around user and access management, data management and archiving
- If a trade did not match, we needed to download data from both the TMS and the external system, copy into a spreadsheet and compare, which was an arduous manual process
The case for an update
As part of the major application upgrade Baker Hughes carried out in 2021-2022, Enterprise Workflow (EWF) was introduced in the TMS. EWF essentially enables key data sources as reusable components and permits users to build complex reports, custom functionality, and integrated workflows off those sources. Confirmations matching was an optional EWF-based functionality that the Middle Office and Digital Technology (DT) teams reviewed and considered as a replacement for the external confirmations system. The key considerations for EWF were that it:
- Facilitated a leaner application landscape by consolidating a key treasury process in the TMS
- Enabled faster matching, and in turn faster payments processing, due to fewer hops and localised data
- Introduced significant cost savings over the external system
- Simplified compliance controls with the TMS already being a SOX application
- Was user customisable through and through, based on each traded product
Finally, it was a perfect fit for Baker Hughes’s requirements.
Once treasury leadership agreed, Middle Office and DT teams closely collaborated on design and implementation. The customisation to Baker Hughes’s requirements was done in-house, with vendor support, and leveraged deep understanding of Baker Hughes’s processes and EWF. The deployment was successful, and Baker Hughes cut over from the external system with no interruption to operations.
A winning solution
Trade confirmations now match in Quantum. A sleek dashboard provides Middle Office with an overview of the trades for the day and their matching status that processes and updates in near real-time as the counterparty confirmations arrive. Confirmations link directly back to the trades within the same system should additional information be required. Unmatched records are highlighted and enable Middle Office to manually match from within the dashboard and add comments helping document the reason of the discrepancy. It also enables the pulling up of raw SWIFT messages for both “their side” and “our side” onto one screen, side-by-side, to check and compare, if needed.
In addition, the dashboard permits Front Office to view counterparty confirmations arriving in real-time. It is useful, for example, while fixing non-deliverable forwards (NDFs) where small discrepancies from rounding can result in different settlement amounts, and and lets Front Office reach out to the counterparty directly without requiring Middle Office for data.
Occasionally, large numbers of trades need to be confirmed in a relatively short time. Since settlements are dependent on matched confirmations, Middle Office is under pressure to process them in a timely manner and address any discrepancies. The integrated module has simplified the matching process, increased data visibility, and has reduced the time spent on confirmations matching by 60%. This enables treasury teams to define a more efficient process.
While external matching tools can be useful for managing large numbers of different instruments and complex trades, corporations with simpler needs can greatly improve efficiency by utilising the matching tool built into the treasury workstation. Baker Hughes was one of the first FIS clients to go live with the new Quantum confirmations matching solution and continues to be pleased with the result.
