Risk data management has become a focus for many financial institutions, not only as a means to comply with incoming regulations, but also as the basis of business benefits ranging from reacting quickly to deteriorating situations to optimising capital requirements and cutting operational costs. A recent A-Team Group webinar discussed the growing importance of risk data, as well as the challenges involved in developing enterprise-wide risk data management.
Andrew Delaney, chief content officer at A-Team Group, moderated the webinar, and was joined by Andrew Barnett, head of investment data at Legal & General Investment Management; Joseph Ohayon, CEO at OTCfin; and Brian Sentance, CEO at Xenomorph.
If you missed the webinar, you can hear a full recording here.
Delaney started the webinar with a review of risk data management, noting the need to meet risk data requirements of incoming regulations such as BCBS 239, Solvency II and the Fundamental Review of the Trading Book, the trade-off between holistic and granular views of risk data, the potential benefits of well-managed risk data, yet the difficulty of aggregating and managing risk data across an enterprise. He also touched on related A-Team Group resources including the Data Management Review website, which includes content covering the data management spectrum, and the company’s Regulatory Data Index, which surveys the market and measures activity and spending levels around particular regulations. You can take part in the survey here and see the results of the index here.
A sense of urgency
Delaney’s first question to the webinar participants considered why the focus on risk data is increasing. Ohayon answered: “Historically, there has been awareness of the need for good risk infrastructure, but now regulatory requirements are putting pressure on financial institutions to increase solvency ratios and accelerating the development of risk infrastructure. The needs are the same, but there is a sense of urgency caused by the regulatory pressure. Also, some firms are ahead of the pack and are driving competitive advantage from good risk infrastructure.”
Sentance added: “Most regulations point in the direction of more risk data granularity, the need to show more detail under headline numbers. Capital requirements and competition issues are putting more pressure on firms to manage risk data at the enterprise level.”
Picking up on the issue of data granularity and adding transparency, Barnett explained: “Everyone talks about big data, but the reality is about small data, understanding the source of risk data, what has to be done with it and how to build ownership around it. If you have good data management and governance in place, regulatory reporting is a little easier.”
A unified approach
Expanding on granularity, Delaney asked how both granular and aggregated views of risk data can be achieved. Sentance said Xenomorph’s approach is to unify data and provide headline numbers as well as the ability to drill down to portfolio data and calculations. Reference data, historical data, position data, derived data and more complex datasets such as curves and surfaces are integrated with analytics, minimising the use of manual and spreadsheet processes in risk data management and supporting dependencies between data. A unified approach also provides an audit trail that can track back to the source of data used in calculations.
Sentance acknowledged that data integration for a unified approach can be complex, particularly where numerous data silos and asset classes are involved, but despite this noted that four of the company’s recent projects have been dedicated to data management for risk.
The webinar participants agreed that securing the right people resources for risk data management can be difficult – Ohayon looks for triathletes with a good understanding of finance, technology and business analytics – but also noted that a strong team building effective risk platforms can deliver substantial benefits.
Responding to a question from Delaney, on these benefits, Ohayon said: “Financial institutions that have their in-house risk data in order can measure exposure across any dimension, react quickly to deteriorating situations, optimise regulatory capital requirements and reduce operational costs. The next frontier is the ability to align risk and performance to provide risk adjusted performance measures.”
On a broader basis, Barnett described the role of the data management office at Legal & General Investment Management in identifying the needs of the company’s global data consumers and delivering datasets specific to different consumers. Taking risk data management into account, he concluded: “Everything the data management office does has a business case wrapped around it. As a service provider, the office delivers effective solutions that not only satisfy regulatory requirements, but also save millions on external data costs, licences and systems.”