Middle vs Front office - people and systems

Most institutions have quite separate systems for front office (basically functions like valuation, trading and clearing) to their systems for middle office (limit setting, portfolio monitoring, risk analysis, var calculations etc). We often find situations where banks have multiple valuation and risk systems in the same organization for the same portfolio. This encourages game playing and prevents executives have a single view of value or risk at an operational level of trades, positions, counterparties, businesses etc that they need in order to make decisions. Middle office has long been thought of as the poor relation of the financial institution. They have long been viewed as a cost centre that will always lose in any standoff between front office traders wanting to put on one more transaction, and risk managers pushing against limit breaches. This cannot continue. Traditional management accounting structures (P&L center, cost center etc) fail to capture the reality and instead discourage integration, and ignore the reality (certainly in buy side institutions and increasingly on the sell side) that middle office is a value added activity. Of course, management’s role in defining the culture as well as the incentives, is crucial in affecting the integrity between front and middle office.