Buy vs Build: Navigating A Bank Ledger Transformation.

Introduction

For any large bank embarking on a complex ledger or sub-ledger transformation, the path forward requires careful consideration. Many of our clients have standardised Amazon Web Services (AWS) as a core strategic platform and have many other vendors such as SAP, Oracle, Axiom, Apptio, Workday, and the list goes on as part of their systems landscape.  

This blog post explores the technical complexities of building a custom ledger or sub-ledger solution on AWS compared to the advantages of a pre-built solution like Oracle's Accounting Foundation Cloud Service (AFCS). We'll explore how AFCS addresses the specific capabilities most of our banking clients need for a successful transformation.

The AWS Advantages

Many of our banking clients have made long-term investments and committed to AWS as the core pillar of their enterprise data platform strategy.   There are several reasons for this, including:

• Scalability and Elasticity: AWS excels at providing scalable and elastic storage solutions. You can easily scale storage capacity up or down based on your needs, which can be beneficial for managing large and fluctuating datasets.
• Cost-Effectiveness: AWS can offer a cost-effective storage solution for specific workloads compared to traditional on-premises infrastructure. Pay-as-you-go pricing allows you to avoid upfront capital expenditures.
• Variety of Storage Services: AWS offers a wide range of storage services, each with its strengths. You can choose the service that best fits your specific data needs, such as S3 for object storage, EBS for block storage for databases, or Glacier for long-term archiving.
• Integration with Other AWS Services: AWS services integrate well, making building and managing a data ecosystem easier within the AWS cloud.

Many of our clients view AWS as a universal platform that can address all data-related application requirements. There may be several reasons, such as the intention to minimise the use of multiple platforms and enhance the return on investment and total cost of ownership figures for their AWS investments.

We advise our clients to avoid using AWS as an Operational Data Store (ODS). We define an ODS as a centralised repository that stores frequently updated operational data from various sources within a business. It is specifically designed for use in close to real-time reporting, analytics, and operational decision-making.

In the following section, we will discuss some of the particular difficulties involved in developing an AWS application geared towards operational use cases. Such use cases often require frequent data refreshes or loads, fast reporting and analytics, and workflows that demand quick decision-making.

The Ideal Architecture

The ideal architecture would involve AFCS and AWS working together, with AFCS serving as an Operational Data Store and AWS functioning as an Enterprise Data Store. They would share a common data catalogue, and AFCS would refresh the data to AWS at the end of each day.

Building on AWS: A Technically Demanding Path

While AWS offers a vast array of cloud services, building a robust sub-ledger system from scratch presents significant challenges:

• Kafka for Real-Time Data Ingestion (Challenges): Expertise is required to manage schema definitions, security, and operational overhead associated with Kafka.
• Parquet for Data Storage (Challenges): Parquet's limitations in immutability and query performance for complex ledger queries necessitate additional considerations.
• Security Management Across Multiple Services: Securing a custom sub-ledger necessitates managing access controls, encryption, and vulnerability patching across various AWS services (RDS, ETL tool, Snowflake, Athena). This distributed security architecture requires significant expertise and ongoing vigilance.
• Data Consistency and Reconciliation: Ensuring data consistency across disparate AWS services becomes a critical challenge. Frequent reconciliations and data quality checks will be necessary to maintain trust in your data.
• Performance Optimisation: Optimising query performance for complex ledger queries across diverse AWS services can be intricate. Expertise in query tuning and data modelling is essential.
  
  

Beyond Technical Hurdles: Integration and Compliance

Technical challenges extend beyond core components:

• Integration Challenges: Integrating various AWS services (RDS, Python code, ETL tool, Snowflake, Athena) into a cohesive ledger system is complex and requires ongoing maintenance.
• Regulatory Compliance: Ensuring adherence to evolving regulations like Basel IV becomes complex and time-consuming. Maintaining audit trails and complying with data residency requirements adds complexity.

We have encountered various challenges in multiple client scenarios, with one significant hurdle being the process of importing data into AWS Parquet files. AWS operates on a tenancy model that requires data owners to upload their data into their respective containers. This can cause delays due to conflicting priorities between finance teams and differences in data models used by these teams. As a result, it can significantly slow down the process of making all the data available in AWS for reporting purposes..

The following section outlines an approach to deploying Oracle’s AFCS fully integrated with AWS to create the best possible approach to any ledger or sub-ledger transformation.

AFCS: A Pre-Built Solution Addressing Technical Complexities and Business Needs

AFCS Solution Overview

The Accounting Foundation Cloud Service (AFCS) is a Software-as-a-Service (SaaS) product developed by Oracle. It helps our banking clients collect, standardise, assess the quality of, repair, enrich, group, and publish data from multiple sources for accounting and financial reporting purposes.  It’s much more than a ledger.

The system is an Operational Data Store that operates at the instrument level. It has built-in consolidation features such as eliminations, translations, journal audits, and pre-canned regulatory reports. The system has a finance data catalogue with thousands of attributes to choose from and can extend beyond actuals into planning, stress testing, and business partnering data within finance. Additionally, it can include risk, impairments, and capital data at the contract level, positioning it as an operational data store.

AFCS creates instrument-level balances that match the general ledger to provide a detailed management ledger. This ensures that balance figures in both ledgers are aligned, forming a reliable source of data for complex finance processes. Combining the general ledger and detailed management ledger forms the "single source of truth" or the "golden source" of data for various financial reporting needs, including statutory, regulatory, and management information. 

By doing so, AFCS speeds up the process and reduces the cost of creating analytical insights on the data contained in the ledgers. However, replicating these capabilities in AWS would require considerable time, effort, and cost and would present a high degree of risk.

Core Capabilities

In addition to the capabilities outlined above, AFCS also has capabilities specific to the workflows we often see in our banking clients, including:

Daily Ledger Segmentation: 

Daily ledger segmentation in AFCS refers to the ability to partition your general ledger data daily. This functionality offers several advantages for banks undergoing ledger transformations:

• Enhanced Transparency and Analysis: By segmenting the ledger daily, AFCS allows you to analyse financial data more granularly. You can track daily balances, identify trends, and perform intra-month analysis to gain deeper insights into your financial position.
• Improved Regulatory Reporting: Daily segmentation simplifies the process of generating regulatory reports that require daily snapshots of your financial data. AFCS can readily provide the necessary data for reports like Basel Liquidity Coverage Ratio (LCR) or Net Stable Funding Ratio (NSFR).
• Streamlined Month-End Close: Daily segmentation can help expedite month-end closing processes. With daily balances readily available, reconciliations and other closing tasks become more efficient.
• Flexibility for Real-time Analytics: Daily segmentation facilitates real-time or near real-time analysis of your financial data. This empowers business leaders to make informed decisions based on the latest information.
  
  

Streamlined Journaling and Automation:

• Pre-built Journal Templates: AFCS provides pre-built journal templates for common accounting transactions, reducing manual effort and ensuring consistency in journal entries. No need to build these templates from scratch.
• Manual Journal Capability: AFCS empowers you to post ad-hoc journals at a granular level (Permanent and Reversing capability required) for trade, customer, or balance adjustments.
• Bulk Journal Entry Processing: AFCS allows you to process large volumes of journal entries efficiently, saving time and minimising errors compared to manual data entry.
• Automated Journal Generation: AFCS integrates with other systems within your bank. This allows automatic journal entry generation based on events like trade settlements or account activity. This reduces reliance on manual journal entries and streamlines workflows.
• Workflow Management: AFCS offers workflow management capabilities for journal entries. You can define approval processes and assign roles, ensuring proper oversight and control over journal postings.
• Real-time Visibility: With AFCS, you gain real-time visibility into journal entries. This allows for faster identification and correction of errors, improving data accuracy.
• Automated Journal Capability: Leverage robotic processes or algorithms to generate and post journals based on accounting results produced as part of your End of Day processes, streamlining daily operations.
  
  

Automated Reconciliation Features:

AFCS streamlines bank reconciliation processes in several ways, saving time, reducing errors, and improving overall efficiency during ledger transformations. 

Here's a breakdown of the key functionalities relevant to our clients:

• Pre-built Reconciliation Rules: AFCS offers pre-built reconciliation rules for common account types, automating the matching process between different data sources. This reduces manual effort and ensures consistent matching criteria.
• Data Integration and Matching: AFCS integrates seamlessly with various banking systems, automatically pulling data for reconciliation. Matching algorithms within AFCS compare data points between the general ledger, sub-ledgers, and external sources like bank statements.
• Exception Management: AFCS identifies and presents unmatched items for review and resolution. This lets your team focus on exceptions rather than sifting through large datasets.
• Workflow Management: AFCS facilitates the creation of workflows for reconciliation processes. You can assign tasks, set deadlines, and track the progress of reconciliations, ensuring a clear and auditable trail.
  
  

Accelerating Financial Close and Strengthening Controls

For banks navigating complex ledger transformations, AFCS can directly impact expediting financial close cycles and bolstering internal controls. 

Here's how we see this happening:

• Streamlined Journaling: AFCS eliminates manual effort and processing time associated with traditional journal entries. Pre-built templates, bulk processing, and automation ensure efficient journal processing.
• Automated Reconciliations: Manual reconciliation tasks are eliminated. AFCS automates matching and exception management, significantly reducing the time needed to reconcile accounts.
• Real-time Visibility: Gain faster access to financial data, allowing for prompt identification and resolution of discrepancies preventing delays during close.
• Improved Data Quality: Streamlined workflows and automated reconciliations minimise errors and discrepancies, reducing the need for rework and adjustments during the closing process.
• Centralised Platform: AFCS consolidates financial data from various sources into one platform. This eliminates the need to gather and reconcile data from disparate systems, saving valuable time.
  
  

Enhanced Controls Throughout the Close Process:

• Automated Workflows: Define clear workflows for journal entries and reconciliations. AFCS ensures tasks are completed in the correct sequence and by authorised people, promoting order and accountability.
• Comprehensive Audit Trail: Maintain a clear activity record with a detailed audit trail for all transactions and journal entries. This simplifies audits and ensures regulatory compliance.
• Granular User Access Controls: AFCS enables granular user access controls. Only authorised personnel can access and modify financial data, enhancing internal controls and reducing security risks.
• Robust Data Security: AFCS safeguards sensitive financial data throughout the close process with robust security features, ensuring data integrity and compliance.
  
  

Other Capabilities Hard to Cost-Effectively Replicate in AWS

• FX Revaluation: AFCS automatically revalues account balances from transactional to functional currency using EOD regional FX rates, ensuring accurate financial reporting.
• FX Translation: AFCS enables functional currency balances to be reported in alternative reporting currencies, providing flexibility for international operations.
• Multi-Currency Reporting: The banking sub-ledger in AFCS stores accounting events in transactional and functional currency only, simplifying your reporting structure.
• AFCS can integrate with an AWS data lake, allowing accounting events to be sourced from multiple formats for a holistic view of your financial data.
• Ability to Link Balances to Underlying Transactional Data: AFCS clearly links balances to external customer accounts or trades at each reporting date, ensuring transparency and auditability.
  
  

Focus on Core Business, Not Infrastructure Management

By choosing AFCS and letting Oracle handle the infrastructure, our clients can avoid the complexities of building and maintaining a custom ledger or sub-ledger solution. This frees up valuable resources to focus on:

• Data Governance and Security: Defining robust data access controls and implementing security best practices within AFCS.
• Data Analytics and Reporting: Utilising AFCS's built-in capabilities to generate regulatory reports and use the data for advanced financial analytics.
• Enhancing AFCS and AWS Integration: Examine smarter ways to fully maximise the benefits both platforms offer the bank.
• Innovation: Focusing on developing innovative new services and solutions that leverage the data in AFCS for further upstream requirements, such as regulatory reporting.
  
  

Conclusion:

Building a custom ledger or sub-ledger solution on AWS offers a theoretical fit, but the technical complexities, integration challenges, and ongoing maintenance burden can significantly hinder your digital transformation journey.  

AFCS Delivers A Faster Time to Value:

• Pre-built Functionality: AFCS eliminates the need for lengthy in-house development cycles to build a custom AWS solution. Our clients benefit from pre-built functionality tailored for the banking industry, enabling a quicker implementation and a faster realisation of the value proposition.
• Reduced Implementation Costs: Compared to a custom AWS solution's ongoing development and maintenance burden, AFCS offers a cost-effective path to transformation. The cloud-based subscription model eliminates upfront infrastructure investments and reduces ongoing IT resource requirements.

Also, by choosing AFCS, our clients gain a solution designed specifically for the financial services industry. AFCS offers deep industry knowledge embedded within the platform, ensuring compliance with relevant banking regulations and best practices and reducing your implementation burden.

When deployed as an operational data store, AFCS offers many other upsides for additional use cases that can be fully integrated and aligned with any of our client’s broader AWS Enterprise Data Platform strategies.

How can we help?

Revvence can help in several valuable ways:

• Review your existing ledger challenges and create a roadmap for change.
• Create a proof-of-concept to show you the art of the possible and help you build your business case for change.
• The design and delivery of end-to-end ledger transformation solutions.
• Check out Revvy, our Narrow-GPT for Finance Transformation. Read all about Revvy here.