Product Control
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Product Control is a control and support function, responsible for ensuring accurate
financial reporting Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
for
trading Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market (economics), market. Traders generally negotiate throu ...
, lending and treasury
desks A desk or bureau is a piece of furniture with a flat table (furniture), table-style work surface used in a school, office, home or the like for academic, professional or domestic activities such as reading (activity), reading, writing, or using ...
. The function is an important
risk management Risk management is the identification, evaluation, and prioritization of risks, followed by the minimization, monitoring, and control of the impact or probability of those risks occurring. Risks can come from various sources (i.e, Threat (sec ...
element within
investment banking Investment banking is an advisory-based financial service for institutional investors, corporations, governments, and similar clients. Traditionally associated with corporate finance, such a bank might assist in raising financial capital by und ...
, and is also often employed by corporate treasuries,
hedge fund A hedge fund is a Pooling (resource management), pooled investment fund that holds Market liquidity, liquid assets and that makes use of complex trader (finance), trading and risk management techniques to aim to improve investment performance and ...
s, and more recently, crypto trading firms. Given its responsibilities, The role of a product controller
Robert Walters
Product Control will straddle Finance and Risk Management, reporting into both the CFO and the CRO. See Middle office and . As a major deliverable, Peter Nash (2017).
Effective Product Control"
Wiley.
Product Control produces the daily profit and loss ("P&L") and
balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
, which internal stakeholders (like the business, financial control, management reporting) all rely upon to assess the performance of the business; the business will need to approve the P&L. (Such approval implies, i.a., that material differences to a trader flash has been resolved.) These results also make their way outside the organisation and are consumed by regulators - such as the
Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of ...
or the
European Central Bank The European Central Bank (ECB) is the central component of the Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's Big Four (banking)#International ...
. Once completed, the controller has a thorough picture of the P&L result, and will explain the drivers in a P&L commentary, " P&L Explained", which accompanies the P&L report. Here, re "P&L attribution", the P&L is decomposed into its underlying components, such that P&L from existing positions is attributed to its underlying pricing drivers. Typically, Product Control is responsible also for Valuation Control. As a key element of the governance structure of financial institutions, Valuation control
PricewaterhouseCoopers PricewaterhouseCoopers, also known as PwC, is a multinational professional services network based in London, United Kingdom. It is the second-largest professional services network in the world and is one of the Big Four accounting firms, alon ...
this team will independently verify asset prices, thus ensuring that traders mark their books correctly — an important protection against rogue traders — and that the balance sheet is then aligned to the accounting definition of
fair value In accounting, fair value is a rational and unbiased estimate of the potential market price of a good, service, or asset. The derivation takes into account such objective factors as the costs associated with production or replacement, market c ...
; see Valuation risk. Controllers (here) are usually assigned to a particular asset class, for example
Credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
,
Rates Rate or rates may refer to: Finance * Rate (company), an American residential mortgage company formerly known as Guaranteed Rate * Rates (tax), a type of taxation system in the United Kingdom used to fund local government * Exchange rate, rate ...
or FX. If the regulator requires it, Valuations governs the Bank's "prudential valuation" submission. There are additional controls that this function executes. New and amended trades are analysed to ensure these are genuine and measured appropriately, and may then be reported. Funding charges or benefits are reviewed, as are any fees and valuation adjustments. Product Control also assists the business with the onboarding of new products. They do this by ensuring the financial architecture and control framework can accept and process the new products. There have been high-profile cases in which banks have been fined for this control not working effectively, examples including the USA's financial services regulator, the
Securities and Exchange Commission The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market m ...
, fining European investment bank
Credit Suisse Credit Suisse Group AG (, ) was a global Investment banking, investment bank and financial services firm founded and based in Switzerland. According to UBS, eventually Credit Suisse was to be fully integrated into UBS. While the integration ...
over mismarking bonds during the height of the subprime credit crisis. Poor product control procedure was also noted in the collapse of several US investment banks such as Lehman Brothers.


References

Financial markets Financial risk Banking terms Financial risk management {{Bank-stub