Quick Take: Global Bank Ledger Transformation with Oracle Accounting Foundation Cloud Service.

Introduction

Is it feasible to create a unified, enterprise-level ledger that can satisfy regulatory reporting requirements such as BASEL 4 while also providing the necessary data model and detail for complex financial analysis, including Fund Transfer Pricing, Customer Profitability, Planning and Stress Testing, Fair Value Analytics, and Real-Time reporting?

This target is possible, and this blog explores Oracle Accounting Foundation Cloud Services (AFCS) 's role in making this vision a reality. 

Challenges of Global Bank Ledger Transformation

Global banks grapple with several challenges in their quest for efficient ledger transformation, but the ones we've seen the most are:

• Standardisation and Consolidation: Managing numerous sub-ledgers and offline books across global operations breeds inconsistency and errors. AFCS provides a centralised platform to unify ledgers and enforce consistent accounting standards throughout the bank.
• Regulatory Compliance: Keeping pace with ever-evolving global regulations is a constant struggle. AFCS simplifies regulatory reporting by offering a single source of reconciled financial data. Furthermore, its support for instrument-level detail facilitates adherence to regulations like IFRS 9.
• Data Reconciliation: Reconciling data across multiple systems can be tedious and error-prone. AFCS automates reconciliation between core banking systems, the Accounting Hub and the General Ledger, streamlining the process and highlighting discrepancies for faster resolution through a workflow-based correction process. It has the optional feature of automatically correcting reconciliation discrepancies, which is particularly helpful for achieving a faster financial close across geographically dispersed operations.
• Complex Financial Instruments: Global banks deal with many intricate financial instruments. AFCS offers functionalities like revaluation, translation, and detailed balance management, allowing accurate accounting treatment of these instruments.
• Operational Data Store Demands: We’ve seen our banking clients spend tens of millions defining and building an authoritative enterprise-wide data store using platforms like AWS, Azure or GCP. These platforms are very broad, general-purpose engines and extremely costly to develop and maintain. Our experience is that they slow down finance processes because of performance issues and complexity. Most of the problems are related to data injection and extraction to the data stores. AFCS can act as an Operational Data Store for all finance data, taking away reporting performance demands from the enterprise data store and removing the performance bottlenecks.

Benefits of AFCS for Global Banks

By leveraging AFCS, global banks can unlock a multitude of benefits:

1. Intraday Instrument Level Reporting: AFCS has been designed to manage hundreds of millions of customer-level transactions in a day. It can process intraday consolidation and reporting through its ability to easily manage large volumes of data (hundreds of millions in hours of processing time).
2. Reduced Costs: Streamlining processes, automating tasks, and consolidating ledgers lead to significant cost savings. AFCS eliminates the need to maintain and integrate multiple legacy systems, reducing IT infrastructure expenditure.
3. Improved Efficiency: Automating manual tasks and providing real-time access to financial data significantly enhances overall efficiency. Faster reconciliation cycles and streamlined reporting free up valuable resources for more strategic priorities.
4. Enhanced Risk Management: Having a single source of truth for financial data strengthens risk management. AFCS facilitates better analysis of financial information, enabling proactive identification and mitigation of risks.
5. Increased Scalability: As a cloud-based solution, AFCS effortlessly scales to accommodate your bank's evolving global needs. On-premise infrastructure constraints won't limit you.
   
   

Thin Ledger Strategy: Why it Makes Sense

A thin ledger approach offers several benefits, including quicker processing, faster reporting, and faster financial closing. However, adopting a thin ledger can present challenges related to data availability, data reconciliation, and source drill-back, which may affect the finance team's confidence in such a ledger.

AFCS acts as a great enabler to the Thin Ledger Strategy, offering several advantages for global banks:

• Improved Performance: Traditional general ledgers (GLs) can become overloaded with detailed transaction data, impacting the speed and performance of the critical financial close cycle. Through its strong instrument ledger implementation, AFCS supports a thin ledger creation downstream, storing only summarised balances and high-level transaction information in the GL. This design reduces storage requirements and significantly improves query performance for the GL, which is crucial for real-time financial insights across your global operations.
• Enhanced Reconciliations: Thin ledgers focus on summarised balances, making reconciliations between the GL and sub-ledgers (like loan or deposit systems) faster and more efficient. Through its three-way reconciliation approach, AFCS automates much of this process, highlighting discrepancies for quicker resolution.
• Regulatory Compliance: Global banks must comply with regulations that require detailed instrument-level data. AFCS integrates seamlessly with enterprise data stores, where all granular transaction information is housed. This design ensures regulatory compliance without compromising the GL's performance.

Integrating AFCS into Your Existing System Architecture

Using pre-built connectors or APIs, AFCS can easily integrate with your current core banking systems, such as Flexcube, Finastra, or SAP Core Banking. This approach simplifies the data flow from source systems to AFCS for processing and consolidation. AFCS acts as a central hub that processes and consolidates data from various ledgers across your global operations. It transforms and reconciles data before feeding it into the thin GL, ensuring consistency and providing a single source of truth.

In addition, working as an Operational Data Store, it has capabilities to integrate into your strategic Enterprise Data Stores (AWS, GCP). It stores end-of-day data in the enterprise store as a batch process while supporting fast data retrieval and reporting demands intraday.

A Typical System Architecture with AFCS Integration:

At the highest level, we see most deployments taking this shape:

• Core Banking Systems (CBS): Transaction data originates from your core banking systems like Oracle Flexcube, Finastra, SAP Core Banking, etc.

• Data Transformation Engine: Data is extracted from the CBS and transformed into a format compatible with AFCS.

   

• AFCS (Operational Data Store): Transformed data is fed into AFCS at the instrument or contract grain with intraday segmentation, Consolidation, Reconciliation, Automated Journal Posting, FX Revaluation/Translation, and multi-currency reporting.

   

• Thin General Ledger (GL): AFCS sends summarised balances and high-level transaction information into the thin GL (typically through Oracle Accounting Hub Cloud Services).

   

• Enterprise Data Store: Granular transaction-level data is stored in a separate detail store for regulatory compliance and audit purposes.

   

• Reporting & Analytics: Real-time financial data from the GL and detail store is readily available for reporting and analysis, including regulatory BASEL IV reporting.

• Business Partnering: AFCS data is used to generate customer profitability analytics, fair value analytics, funds transfer pricing, liquidity and balance sheet management, risk analysis, etc.
  
  

Conclusion

We believe that as part of a broader ledger transformation approach, AFCS will enable most of our banking clients to streamline ledger transformation, simplify regulatory compliance, and achieve superior analytical insights while working alongside your existing core technology investments.

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.