By Martijn Groot, Vice President Marketing and Strategy, Asset Control.
Data management has long been one of the most difficult and challenging problems facing financial services businesses. Across the sector, change is a given and the resulting data management requirements are a moving target. The latter needs are driven by an increased focus on the strength of the integration process, business requirements for faster access to more data to improve decision making, management needs for actionable KPIs and process transparency and, perhaps most important, regulatory demands for more granular reporting.
Given all that, it is surprising and even alarming that nearly one in five (19%) of asset managers polled in a recent survey commissioned by Asset Control, said they had ‘not made any changes to the way they handle data’ in response to recent industry regulations. In some sense, the need to deal urgently with the implications of these regulations acts a brake on innovation as it crowds out other agenda items. Nearly half the survey respondents (49%) rank regulatory concerns among ‘the two main barriers in place that prevent their organisation from enabling new data management initiatives today’.
Beyond that, however, it is often an over-reliance on in-house approaches to data management that slows the pace of change. The data issues faced by financial services firms are frequently compounded when they adopt a partly or fully in-house approach. Well under half the survey sample (45%) claim to be ‘very confident’ that ‘the data management systems and processes they have in place in-house can track where their data is going and where it has been’. Also, more than four out of ten respondents (41%) rank ‘lack of in-house data management skills’ among the ‘two main barriers in place that prevent their organisation from enabling new data management initiatives today’ and nearly a third (32%) put ‘poorly-integrated legacy systems’ in that category.
Why Managed Services Can Work
Given all the issues highlighted above, it is not surprising that we are beginning to see more firms looking outside their own organisations for the help and change they need.
In the survey, over half of respondents (58%) said that recent financial services industry regulations had resulted in their organisation either investing in new technology or bringing in a third party to help meet new data management requirements. But cost is also seen as a key driver of the move to outsourcing. Some 33% of the asset managers surveyed said that reducing the cost of change is one of the main benefits of outsourcing data management for buy-side firms.
The costs involved in building an internal data management solution might initially seem attractive. However, when you factor in the effort to keep the solution up to date given rapid change, the costs quickly mount up. Tweaking systems to keep pace with new regulatory and business requirements is costly and unpredictable.
The key challenges highlighted above impact both hedge funds and traditional asset management firms but also retail, commercial and investment banks. In line with this, we are seeing a growing number of financial institutions deciding to make the move to a managed service model in order to help keep control of their data, meet regulatory requirements and achieve a reduced, transparent and more predictable cost of change.
Added to this, outsourcing financial data management allows firms to access the skills and expertise of a specialist provider that has captured common industry requirements. Increasingly, we are seeing financial services businesses looking to join forces with a hosting, applications management or IT operations provider, in a bid to achieve a faster cycle time and a faster ROI into the bargain.
It is also true that managed services shift the operational onus to vendors and can allow internal IT to manage more activity and complete projects faster. As well as using managed services for day-to-day operations and small change, a vendor is typically able to more rapidly onboard change coming from internal and industry requirements.
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