Regulations such as BCBS 239 are forcing changes in the usage and governance of spreadsheets and other end-user computing (EUC) applications in financial markets. This paper outlines the main risks in spreadsheet usage in derivative and fixed income valuation, and explains some of the regulators motivations in addressing this source of operational risk.
Although spreadsheets are a tremendously powerful tool for the valuation of fixed income, complex derivative and over-the-counter (OTC) instruments due to their openness and flexibility, spreadsheets do not lend themselves easily to the challenge of conforming to new regulatory requirements such as IFRS, BCBS 2391, Dodd-Frank and Solvency II. These regulations require much more control, consistency and transparency regarding input and output data used in instrument valuations. Against this background, the manner in which many financial institutions currently use and manage spreadsheets within the valuation process is simply not fit for purpose.