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Portfolio Risk & CECL Investment Accounting

Investment accounting compliance: How technology helps

Neekis Hammond, CPA
February 6, 2025
Read Time: 0 min
Investment Accounting

Meeting investment accounting and reporting requirements 

The right technology tools  can help institutions manage investment accounting compliance and risk exposure across various investment types.

Key topics covered in this post: 

Streamlining regulatory adherence

Financial institutions thrive on their ability to manage money effectively, whether for their own balance sheet or client accounts. Compliance with investment accounting and reporting requirements plays a central role in ensuring operational efficiency and regulatory adherence. Investment accounting compliance not only minimizes operational risks but also reduces regulatory scrutiny.

Accurate and streamlined investment accounting supports overall risk management, particularly in areas like credit, market, and liquidity risk. However, compliance risks often present significant challenges for financial institutions managing complex investment portfolios.

The right technology tools can help institutions manage both regulatory compliance and risk exposure across various investment types, including fixed-income securities, structured notes, derivatives, and funding instruments.

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Investment accounting compliance risks

U.S. bank and credit union regulators expect financial institutions to implement robust internal controls for managing the credit, market, liquidity, and operational and legal risks associated with investment holdings.

At the same time, financial institutions face increasing pressure to streamline investment accounting, enhance compliance, and reduce operational risk—all while ensuring leadership has timely and accurate financial data to drive decision-making. Manual processes, reliance on key individuals, and fragmented systems create inefficiencies, regulatory exposure, and reporting delays.

Relevant regulations for investment portfolios

The OCC states:

Like loans, investments are credit extensions involving risks that carry commensurate rewards. However, risks in the investment portfolio should be minimized to ensure that liquidity and marketability are maintained. Bank management must recognize that the investment account is primarily a secondary reserve for liquidity rather than a vehicle to generate speculative profits.

— OCC Handbook (Section 203): Investment Securities

The National Credit Union Administration (NCUA) also emphasizes that a credit union’s board must take full responsibility for investment oversight, ensuring proper reporting structures are in place.

Investment compliance and regulatory requirements can pose operational challenges regardless of institution size, from community banks under $10 billion in assets to large, multinational firms.

The Federal Reserve highlights operational risks as a critical area of concern for institutions engaged in investment activities, noting that:

“Inaccurately assessing or controlling operating risks is one of the more likely sources of problems facing institutions involved in securities and derivative activities.”

Regulators point to these specific operational risks tied to investment accounting and regulatory compliance:

  • Inadequate procedures
  • Human error
  • System failures
  • Fraud

Many of these risks can be linked to outdated investment accounting processes, particularly reliance on manual reporting, single employees, and disjointed information systems.

How investment accounting technology reduces risks

Key Person Risk

Adopting an automated investment accounting solution allows institutions to eliminate reliance on individual employees for critical accounting functions. A robust technology platform provides a centralized system of record, ensuring that institutional knowledge is retained within the organization rather than concentrated in a single person. This shift removes key dependencies and strengthens operational continuity, reducing financial and compliance risks.

Integrated investment accounting platforms also strengthen compliance and efficiency because they:

  • Standardize and automate accounting calculations and formulas to ensure consistency
  • Automate complex processes that were previously manual and prone to human error
  • Ensure transparency across teams since multiple team members have access to the same standardized data and workflows
  • Reduce errors and improve audit readiness by removing manual, spreadsheet-based accounting

Key person risk in investment accounting

Many institutions rely on a single employee to manage investment accounting. This creates a critical Key Person Risk, where critical accounting processes depend on a single individual. If that individual is unavailable or leaves, the institution risks losing essential financial knowledge, potentially delaying month-end close and exposing the firm to errors.

two people reviewing financials on a tabletThis risk is especially prevalent when institutions rely on manual, Excel-based processes for accounting, reporting, and compliance.

Consider a common scenario where a single employee manages the firm’s investment accounting using a complex Excel model. If this individual is unavailable due to illness or leaves the company, the firm loses access to essential knowledge, potentially jeopardizing the accuracy of month-end financials and regulatory reporting.

Risks tied to disparate systems

Many institutions’ investment accounting management also rely on fragmented systems, increasing compliance risk. Many institutions manage investment pledging and collateral tracking using separate systems that may include spreadsheets, outdated databases, or disconnected third-party tools. Data silos lead to inconsistent reporting, reconciliation errors, and compliance risks, including:

  • Mismatched collateral values between internal records and regulatory reports
  • Duplicate data entries and reconciliation errors
  • Inaccurate pledging data that affects liquidity ratios and stress tests
  • Audit discrepancies due to inconsistent tracking of pledged securities

Financial institutions increasingly turn to integrated investment accounting platforms to automate compliance processes and reduce operational inefficiencies.

Single source of truth: Pledging, collateral & risk 

Modern technology to manage and account for investments can also play a critical role in pledging and collateral management, which is essential for liquidity, regulatory compliance, and risk reduction. Advanced investment accounting software consolidates pledging and collateral management into a single platform, ensuring:

  • Real-time visibility into pledged securities and collateral positions
  • Automated tracking of regulatory limits to avoid compliance breaches
  • Accurate reporting for audits and regulatory examinations
  • Elimination of duplicate data entries and reconciliation errors

By unifying investment accounting, compliance, and collateral management, institutions reduce operational risk. With all users accessing the same system and the same real-time data, the risk of out-of-sync data across multiple platforms is eliminated, ensuring consistency across regulatory filings, liquidity management, and investment oversight.

Faster close & better business decisions

The game-changing end result of modern investment accounting software? Daily, real-time investment results that allow banks, credit unions, and REITs to close their books faster at month-end. This means:

  • Management receives complete, accurate financial data earlier
  • Executives can make better-informed decisions with up-to-date insights
  • Compliance teams spend less time chasing errors and reconciling reports

Smarter, more reliable investment assessments and decisions

An advanced investment accounting platform doesn’t just help institutions stay compliant. It enables them to gain a competitive edge by accelerating financial reporting and providing the data leadership needs—faster, more accurately, and with greater confidence.

While full-scale stress testing is typically conducted through dedicated risk platforms, investment accounting software provides real-time risk assessment capabilities that support portfolio-level decision-making.

Case study: Enhancing investment oversight & compliance

A regional bank with a diversified investment portfolio needed a solution to streamline compliance with risk-based capital requirements. By implementing an integrated investment accounting system, the bank achieved:

  • Automated calculation of risk-weighted assets (RWA) for regulatory reporting
  • Real-time portfolio monitoring to adjust risk exposures dynamically
  • Reduction in manual compliance efforts through integrated reporting tools

The transition to an advanced investment accounting solution significantly improved operational efficiency, minimized regulatory risk, and enabled the institution to maintain compliance without increasing administrative burdens.

 

Technology to navigate compliance challenges

Regulatory compliance presents a complex challenge for financial institutions, requiring robust investment accounting systems to support audit readiness, risk management, and operational efficiency.

By adopting advanced investment accounting technology, banks and credit unions can:

  • Enhance compliance reporting
  • Reduce operational risks
  • Improve investment oversight
  • Increase efficiency in post-trade operations

A strong technology partner ensures financial institutions stay ahead of evolving regulatory changes, enabling them to build resilient investment portfolios while maintaining compliance with U.S. banking regulations.

This blog was written with the assistance of ChatGPT, an AI large language model, and was reviewed and revised by Abrigo's subject-matter expert.

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About the Author

Neekis Hammond, CPA

Vice President, Portfolio Risk Sales and Services
Neekis Hammond has amassed a wealth of knowledge on ALLL, CECL preparation and methodologies, and various portfolio analysis and risk topics. Prior to his consulting work, he worked on acquisitions up to $2 billion in size at a multi-billion-dollar financial institution.

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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