The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

A Tower of Babel for Risk Data

There’s nothing better than a good analogy and this week’s JWG organised panel discussion on the topic of funds transfer pricing (FTP) saw one of the banking industry panellists (Chatham House rules prevent me from naming names) come up with a particularly good (if well used) description of the risk data challenge as one in which firms are striving to build a “Tower of Babel”. The panellist spoke about his own firm’s attempts to develop such a structure (bespoke, in-house rather than vendor bought) in order to be able to aggregate data relevant to risk management from across its siloed legacy systems architectures.

The Tower of Babel analogy has been used in a number of different data management contexts of late, not least of which has been by the European Central Bank’s (ECB) statistics division director general Francis Gross to describe a reference data utility, and it seems that firms are keenly aware of the value of an over-arching structure via which to pool vital data components. Enterprise risk management is predicated on the ability to gather these data sets together in a timely fashion and put them through their paces, after all. That was certainly the message repeated by panellists at our own A-Team Insight Exchange events last month.

However, such an endeavour is no mean feat. The panellist at the JWG event indicated his firm has been working on the project for 18 months already and progress has been slow and arduous. This could be partially explained perhaps by the fact the firm has decided to tackle data relating to the hardest instruments first: the derivatives book.

Another panellist at the JWG event added that his team has been focusing its work on the liquidity risk management space since early 2007 and has yet to find a “magic formula”, other than chipping away at the problem. The increased time pressure from regulators for the production of reports has also meant the “machine has had to be streamlined” by considering a simplification of certain data flows, he said.

A vendor panellist noted the need for risk teams to be able to provide their boards, in light of the new governance requirements coming down the pipe from the Basel Committee (see more below), with the “right information” rather than drowning them in raw data. The UK Financial Services Authority’s Prudential Risk Division director Colin Lawrence also discussed the need for aggregated but sufficiently granular data in order for the right level of transparency to be achieved.

In fact, the Basel Committee’s most recent paper on “Principles for enhancing corporate governance” refers directly to this data aggregation challenge for risk management teams in compiling reports for their boards. “In ensuring that the board and senior management are sufficiently informed, management and those responsible for the control functions should strike a balance between communicating information that is accurate and “unfiltered” (ie that does not hide potentially bad news) and not communicating so much extraneous information that the sheer volume of information becomes counterproductive,” states the paper.

As noted by one of the panellists, in order to achieve this, standards for accuracy and completeness of data (otherwise known as a data quality framework) are needed, and fast. That will mean the difference between a Towel of Babble and a Tower of Babel.

Related content

WEBINAR

Recorded Webinar: How to run effective client onboarding and KYC processes

Increasing cost, complexity and regulatory change continue to challenge firms implementing client onboarding and Know Your Customer (KYC) systems. With an effective strategy and a clearly defined pathway, it’s possible to gain a valuable competitive advantage whilst meeting those all-important compliance requirements. But how to get there? With a myriad of different options out there...

BLOG

To Buy or Build: Four Considerations for CIOs

By: Niall Twomey, CTO, Fenergo. Before embarking on a CLM (Client Lifecycle Management) digital transformation program, most financial institutions (FI) are faced with the ‘buy versus build’ conundrum; to buy something from a third-party vendor or completely build something internally. There are several factors that need to be considered in this decision making process including...

EVENT

TradingTech Summit London

The TradingTech Summit in London brings together European senior-level decision makers in trading technology, electronic execution and trading architecture to discuss how firms can use high performance technologies to optimise trading in the new regulatory environment.

GUIDE

RegTech Suppliers Guide 2020/2021

Welcome to the second edition of A-Team Group’s RegTech Suppliers Guide, an essential aid for financial institutions sourcing innovative solutions to improve their regulatory response, and a showcase for encumbent and new RegTech vendors with offerings designed to match market demand. Available free of charge and based on an industry-wide survey, the guide provides a...