Introduction

Profit and loss (P&L) is an important element of financial reporting, and monitoring P&L performance is essential, with the front office, product control and accounting all drawing critical information from the process at different times during the day.

Key findings

• Current systems deployed by banks – Banks deploy a combination of both home-grown and third-party systems across their business lines, with many citing a preference for in-house solutions. Third-party solutions include those from players such as Murex, Quartet, and StreamBase.
• Centralised P&L repository – Banks tend to collate information from separate P&L systems that carry out the calculations, which are then fed into a central repository.
• Integrated vs. disparate systems - While there is some movement towards integration between P&L calculations and accounting systems, systems remain separate for risk computations and systems for the purpose of regulatory purpose and internal controls.
• P&L calculations – Half the banks interviewed undertake the same calculations across their business lines, while others perform different calculations. Today, traders generally have access to flash P&L on a daily basis, with the final P&L produced on T+1.
• Control & management – Product control is gaining significant presence and role within banks, ensuring controls are performed on a daily basis to complete verification.
• Buy vs. build – While two banks plan to continue with in-house implementations, other banks are increasingly considering third-party solutions that can help achieve a fast return on investment.
• Future strategy – Investments are planned to tackle issues such as the reliance on manual processes, spreadsheet risk, and disparate systems.

Conclusion

The global investment banking industry has increased its awareness of risk and P&L management practices significantly as a result of the financial crisis that hit the market in 2008. A lot more emphasis is being given to the quality of internal management and control systems as a key way to prevent trading losses and fraudulent activity experienced in recent years.

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