About a-team Marketing Services
The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Capital Markets’ Regulatory Burden: The Case for FIBO as a Relief

Subscribe to our newsletter

By Bob Iati, Senior Director of Capital Markets at Dun & Bradstreet

The financial industry expends so much effort to meet difficult regulatory requirements that its ability to invest in innovative technologies is severely curtailed. However, many in the industry now find that investments in data standards – such as the Financial Industry Business Ontology (FIBO) – may create an improved path to meet the requirements of BCBS 239 and similar regulatory initiatives.

By its very nature, the capital markets industry sells investment vehicles, or securities, that are contractual cash flow exchanges rather than tangible merchandise. Capital markets contracts – transaction confirmations, investment deals, clearance and settlement obligations – are filled with data that tie together the sometimes disparate facts that define the agreements between the parties. In order for all parties to the transaction to agree to the terms by which they exchange these contracts, the parties need to ascribe similar meaning to the data in the contract. Simply put, they want to speak the same language.

Surely, the solution to standardising these contracts rests in the process and technology applied to define and understand the solution. In fact, much of the solution boils down to data. I’ve often written of the need to make our data smarter, rather than simply bigger, and I will again associate the smarter theme here. Smarter data will make for smarter – and more certain – contracts.

The nature of (often loosely defined) data within contracts leaves open the possibility for counterparties (and regulators) to interpret contractual information differently. As a result, regulators and industry participants seek the ability to more precisely understand these contracts – to make their language and meaning more transparent – in order to functionally decompose each of their elements. Firming up the semantics (embedding the contracts with smartness) brings us closer to that goal. FIBO is best applied in this case.

FIBO creates standardised executable code to identify all components in the contract that give clear meaning to the data used. It associates that data precisely to each term’s legal characteristics and all of the interpretations associated with it. Using FIBO, the industry can make these smart contracts machine readable, easily applying common meaning to all industry participants.

As capital markets products become more highly engineered and creative, for example interest rate swaps with derivatives, the contract data behind them becomes increasingly robust and complex. As such, the industry’s approach to make these contracts smarter should focus on the properties and relations between the data – the ontology. In other words, the contracts require common and easily understood semantics that clarify the relationships between all parties. This will remove misunderstandings in their meaning, enabling smart contracts to quickly create terms that satisfy participants as well as regulators.

Catalysed by the EDM Council, the industry is looking to FIBO to prove data through standardised, demanding semantics. Together with a major bank and a smart data platform, D&B has been an integral part of a proof of concept for FIBO to harmonise the data across all systems and use it to generate analytics dealing with relationships.

These analytics draw information from the data that had not previously been possible. As our proof of concept progresses and extends to include additional use cases, we are discovering more of the value offered by the new standards.

FIBO gives capital markets institutions the opportunity to bring together information across all participating investment firms in ways that standardise their accepted definitions. These firms have committed a great deal of resources to the current data models that define the securities and relationships so integral to their daily business. FIBO can provide an information layer connecting the many disparate systems that house data elements that have shared meaning, creating improved ability to reduce the risk inherent in any contract. For banks and brokerage firms, this certainty offers an increased ability to service all customers.

With continuing pressure to create regulatory transparency, all major financial institutions are looking to FIBO as a basis for making their contracts smarter.

Original content found on http://www.dnbpartner.com/capital-markets-regulatory-burden-the-case-for…

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: MiFID II and FRTB Data Analytics, Benchmarks and Risk Modelling

Don’t miss this opportunity to view the recording of this recently held webinar. Markets in Financial Instruments Directive II (MiFID II) and the Fundamental Review of the Trading Book (FRTB) require huge volumes of data to be sourced and managed. This webinar will discuss what sort of data analytics you need to implement to be...

BLOG

A-Team Group Names Winners of Data Management Insight Awards 2021

A-Team Group has named the winners of its prestigious 2021 Data Management Insight Awards. The annual awards, now in their ninth year, recognise leading providers of data management solutions, services and consultancy to capital markets participants. Award categories ranged from best data lineage solution to best data quality analysis tool, best standards solution, best corporate...

EVENT

Data Management Summit New York

Now in its 12th year, the Data Management Summit (DMS) in New York brings together the North American, capital markets enterprise data management community, to explore the evolution of data strategy and how to leverage data to drive compliance and business insight.

GUIDE

Regulatory Data Handbook 2021/2022 – Ninth Edition

Welcome to the ninth edition of A-Team Group’s Regulatory Data Handbook, a publication dedicated to helping you gain a full understanding of regulations related to your organisation from the details of requirements to best practice implementation. This edition of the handbook includes a focus on regulations being rolled out to bring order and standardisation to...