The Spreadsheet Risks & Challenges of Brexit
From speaking to our customers, while the uncertainty around Brexit continues, practical preparations have begun – many banks are now well in the throes of duplicating or moving some of their systems and business processes from London to cities in the European Union (EU) with strong links to the financial services sector, like Frankfurt, Paris, and Dublin.
Extricating these systems and processes will be no easy task, whether one considers a bank’s enterprise systems or its spreadsheet-based processes. Banks typically have a solid grasp of the issues and capabilities needed to effectively disentangle their core enterprise systems and data. However, in this separation of processes, banks are most likely to be challenged in situations where there are common or interconnected Microsoft Excel spreadsheet-based processes that are deeply linked with the rest of the banking group.
The greatest array of issues will be centered on situations where a bank involved is euro-denominated transactions, investment and instruments. If a bank is forced, or chooses, to move the systems and processes that underpin these services into the EU, it must find a way of separating them and migrating them from its current London-based infrastructure. This will be complex but achievable on systems based on corporate IT applications and standards. If spreadsheets feature in these processes, the challenge increases exponentially. If any instruments involved encompass multiple asset classes, this complexity grows yet further still.
While the operational challenges are daunting, the business risks associated with this are even more significant. Should a business fail to identify a euro-based liability, managed in a spreadsheet, and not transfer it to its EU-based entity, it could expose the bank to regulatory, legal and commercial harm. Equally if a spreadsheet-based liability is transferred to an EU-based subsidiary, but is not identified and provisioned as such by the risk management function, it leaves the bank open to being overcapitalized for the risks it is exposed to.
Furthermore, any institution, that has identified these issues and has plans to mitigate the risks involved, will still face the budget risks and project risks inherent in a complex, high profile project.
To safely split the complex, inter-connected business-critical processes that reside in spreadsheets, banks must ensure that they have complete visibility and an in-depth understanding of the spreadsheet landscape across the banking group. This includes the enterprise systems used and corresponding data flows; the associated spreadsheets and their distinctive data flows – along with the numerous intricate interconnections across the combined landscape and indeed the wider organization. Given the number of spreadsheets involved and the complexity of the dataflows and connections, trying to understand this manually will be an impossible task. Also, if undertaken manually, it will be time consuming, costly in man-power and prone to error.
The impact of poorly separated processes could be enormous on banks’ operations in these new locations. An automated approach to spreadsheet management will be essential to delinking the processes, and ensuring their accuracy and integrity to minimize financial, operational and regulatory risk.
In fact, this approach is already proven in M&A type situations for operational transformation, which to some extent resembles this Brexit scenario. The disentangling of the Scottish Widows Investment Partnership (SWIP) from Lloyds Banking Group to Aberdeen Asset Management in 2014 is a good example. Following its acquisition, SWIP needed to separate its business from Lloyds so that the necessary and critical processes could be migrated to Aberdeen Asset Management. SWIP utilized technology to inventory the spreadsheet landscape, identify the business-critical processes, and understand them to pinpoint those that needed to be transferred. At the same time, technology helped expose the data lineage for all the individual files, clearly revealing their provenance, data sources and relationships with other spreadsheets. SWIP was able to securely migrate the relevant business processes to Aberdeen Asset Management and where necessary, even decommission the redundant processes.
Banks will do well to pay particular heed to their spreadsheet processes as they plan and execute their response to Brexit.