The measurement of performance of the activity of financial institutions is scrutinized by many actors with regard to growth perspectives, risk profile, as well as ongoing assessment of strategy. Considering how they are organized, Product Control functions are more or less efficient in their capacity to adequately measure the performance of the activity and raise alerts. In the light of the 2008 financial crisis, regulators are prompting them to reassess their Product Control framework.
The unified model of Product Control is currently gaining momentum, bringing a holistic perspective on the understanding of activities. Seamless ownership of P/L data capture, processing and analysis is deemed providing good control over operational risk, as well as accuracy and timeliness of reporting.
The fragmented / de-coupled model of Product Control delegates responsibility of P/L control to specialized and independent units, giving emphasis to expertise and segregation of duties.
Those two models raise the question of the scope of Product Control. For the sake of controls oversight and comprehensiveness, unified models tend to encompass responsibilities at the borderline of Risk Management, Operational support and Financial reporting. De-coupled models tend to limit the scope of Product Control to P/L production and P/L explain.
Whatever the extent of responsibilities under their scope, Product Control functions almost exclusively handle cross-functional / transversal processes. Financial institutions can therefore consider efficient to place most of their cross-functional / transversal processes under the umbrella of Product Control, provided segregation of duties is still enforced.
At this juncture, Product Control functions will assume an even more pivotal role in most financial institutions. Emerging trends reflect growing importance in Product Control’s valuation function. As a result of FAS 157 the governance, escalation and resolution over level 3 assets is taking an important priority.
In the United States, the IFRS and Basel II regulations will require strong commitment from Product Control for successful implementation. The transition to IFRS will have Product Control very involved in the assessment of P/L impacts, especially for the first time application.
Regarding Basel II, Product Control will be challenged on pillars II and III to facilitate the supervisory review process and the preparation of Basel II disclosures.
Preserving data integrity continues to be the cornerstone of Product Control’s responsibilities. Indeed, Product Control functions can be heavily dependent on spreadsheet calculations, affecting timeliness and reliability of reporting. Automation remains critical to reporting processes with focus on reconciliations and minimizing manual adjustments.