BNY Mellon Asset Servicing has invested in its client and regulatory reporting systems as a result of valuation and regulatory changes such as FAS 157 and FAS 132R-1, explains Chris Richmond, managing director of global product accounting for the fund administrator, to Reference Data Review. This has involved a significant investment in automating the upload of non-standard pricing sources and the scrubbing of same security prices from multiple sources, he elaborates.
Richmond reckons the regulatory changes have overall had a positive impact on the valuations space by encouraging more competition in the vendor space and increasing transparency. This has meant an improvement in the quality of data feeds from vendors and regulatory scrutiny has also allowed financial institutions some leverage to justify investment in the valuations space. “Industry changes have also resulted in what appears to be more transparency in pricing, data behind prices and the methods to which prices are calculated or obtained,” he explains.
BNY Mellon itself has been compelled to work with multiple pricing vendors and data vendors to be enabled to offer multiple price sources and transparency into the pricing process for its end clients. This data is also included in the firm’s SAS 70 audit review, adds Richmond.
Non-standard pricing sources for the more complex end of the asset class spectrum has become increasingly important due to the industry focus on fair value in the post-crisis environment. Accordingly, BNY Mellon has invested in automating the cleansing process for non-standard data: “This has most recently been updated to include swaps and other OTC derivative types.”
This year, Richmond reckons data collection and normalisation for value added use in addition to an increased call for transparency will be significant trends across the market. “Collection of data, intelligent use of data and reporting of this data will likely be continued development efforts through 2010 and beyond. Within the asset servicing space, firms do appear to be presenting capabilities of data centralisation, reporting of data and value added services utilising the data. This will become a differentiator if it has not already,” he explains.
The importance of applying wider data management strategies such as enterprise data management (EDM) to the valuations space has been noted by A-Team Group in a research paper released towards the end of last year. The survey, conducted in cooperation with GoldenSource, examines the challenges being faced when managing pricing and valuations data and indicates that many firms are now considering extending EDM to cover this data. The survey indicates that 78% of respondents have an EDM strategy in place and 86% of these respondents claimed they had included pricing and valuations in the overall plan.
BNY Mellon is certainly focused on a centralised approach to this data. It has also made “significant strides” in the reporting of price levels, price transparency and exception type board reporting, says Richmond. “Through centralisation of this process and scale, we have the opportunity to look across more data and work with vendors to improve their pricing and price transparency, continued technology spend and effort will be necessary to fully take advantage of the data across the industry to evaluate price quality,” he explains.
Valuation systems need to pull in more data sources than ever before, provide more data to identify the source of calculation and be able to provide more sophisticated exception-based rules. “With the recent and ongoing regulatory and industry changes, it appears that the investments are being made in these systems, however in a number of cases it appears too early to tell if the investments are ‘keeping up’ with the various risks in the current market,” says Richmond.
This idea of being able to keep up has meant BNY Mellon has focused on investments in key areas such as improving data checks, data scrubbing, client reporting and vendor communication for additional source data behind the prices.” Investments in collection and scrubbing of prices from non-standard or non-vendor sources allows for greater transparency into the overall market. Our performance and analytics offering offers additional comparison of valuation data and analysis, while we have made significant efforts to normalise all this data and provide value added reporting to our clients, continued efforts are planned to keep pace with the regulatory and industry changes,” he says.
Pricing transparency is paramount: “We have created a section of our Workbench client portal dedicated to pricing transparency, our clients have the ability to see the vendors that we use, the SAS 70 reports of our vendors and the methodology of the vendors. This information is available to assist clients and regulators. Additionally, collection of other data sources such as rating data and source data used in price calculation, allows clients additional transparency into the process.”
He continues: “On the holdings side, look through into non-registered funds held within client accounts is a key transparency issue impacting valuation, performance and other key client areas. BNY Mellon performs a look through of accounts holding funds at multiple levels, this allows clients to look at their holdings of funds at the fund level as well as at their prorated holdings level. This effort is significant, but adds real value to clients. From an industry perspective, there are real opportunities in transparency of this type of data, this change in the private investment and non-regulated space may be driven by investors or may be driven by regulators.”
As for future investments this year, Richmond reckons there are several reasons for continued development in the valuation space. Client demand, risk reduction, regulatory requirements and cost avoidance will be the primary drivers of spend in the valuations technology sector over the next year, he contends.
“We see opportunity in further automation of data scrubbing to allow our staff to focus on exceptions and new exception types. We also see client needs for continued reporting development looking board reporting type data showing pricing exceptions based on a variety of rules as well as support of regulatory requirements and changes. This represents a significant opportunity to add value to our clients and show differentiation to potential new clients. BNY Mellon has efforts underway for continued development in this space for the foreseeable future,” he concludes.
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