Banks need to make significant investments to avoid a repeat of the trade reconciliation log-jam that affected the market in March 2020, according to a survey by research firm Acuiti.

In a survey conducted for software provider Kynetix, Acuiti spoke to over 60 sell side firms and found that not one top tier bank had fully automated its trade reconciliation process, compared to 29% of brokers and non-bank futures commission merchants (FCMs).

Meanwhile 81% of Tier 1 banks were using spreadsheets as part of their core reconciliations process, compared to 55% at brokers and FCMs.

“Reconciliations is one area where investment can make a major impact on risk reduction, capacity and efficiency,” the report said. “However, to truly realise the positive impact, a paradigm shift is required in which ‘good enough’ is no longer the benchmark.”

Overall, more than 60% of respondents said that lack of data standardisation in trade reporting was the biggest challenge for reconciliation processes. This bears out the conclusions of recent investigations and regulatory updates in response to Covid-related market disruption.

The best practices for reporting under the European Market Infrastructure Regulation (EMIR) were updated last month by the trade associations that administer the guidance, to increase standardisation and reduce paring and matching fails related to trade reporting fields.

The Bank for International Settlements has called for market feedback on proposals to update clearing margin models and transparency after a 460% jump in variation margin (VM) requirements in March last year.

The Acuiti report, published on Wednesday, said that these fragmentation issues extend to the use of software for different asset classes. The survey says that 52% of respondents that used the same software across asset classes said that this was an issue for cleared derivatives reporting. Once again, this varied by type of sell side firm, with 88% of brokers and non-bank FCMs well-integrated with other platforms compared to just 50% of tier 2 and 3 banks.

Although there has been significant investment in different areas over recent years, Acuiti says this should be a continuous process, linking satisfaction levels with investment and automation.

“Investment in automation is by far the driver of change and efficiency for reconciliations,” the report said. “60% of firms with fully automated reconciliation processes completed their runs on time all of the time with the remainder doing so 90% of the time.”

A series of data harmonisation initiatives such as the CFTC trade reporting rule rewrite and the EMIR REFIT rules, could be a catalyst for an extension of data agreements, governance and technology, experts have said.