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

A-Team Insight Blogs

Counterparty/Client Data Efforts Kicked Up a Notch to Support Proactive Risk Management, Report Finds

Share article

Proactive risk management is a key driver for investment in improving client and counterparty data, finds a new report from A-Team Group, sponsored by GoldenSource. While it has been well publicised that regulations like KYC and AML have forced firms to pay tactical attention to client and counterparty data, it is now clear that there is a move towards more “defensive” management to ensure compliance through proactive risk management. Firms want to achieve full awareness of potential exposure, on an ongoing basis. The recent “credit crunch” has only served to reinforce this trend, the research report suggests.

Eighty-seven per cent of respondents to the research, carried out among banks, broker/dealers and asset managers, cited compliance as the most important reason for aggregating customer data, followed closely by risk (73 per cent), then credit (60 per cent), with a minority (36 per cent) selecting performance measurement (analysis and service reporting) as most important.

The report – New Wave for Counterparty and Client Data: Traditional Methods Make Way for Proactive Risk Management & Compliance – finds that firms have been focused in the past few years on getting internal counterparty data cleaned up and organised. Ninety-three per cent of respondents said they have centralised or plan to centralise management of client/counterparty data; 92 per cent have or plan to have new processes for maintaining this data and defining more rules. Impressively, some two-thirds have completed those modifications.

While most respondents have modified or plan to modify their inhouse solutions (76 per cent), or legacy systems (72 per cent), 38 per cent have implemented a third-party solution to address the issue. A-Team suggests firms favour using legacy inhouse systems for client/counterparty data for three reasons: first, the nature of the data is such that, unlike instrument data, it is fundamentally tied to an institution’s business practices and strategy. Therefore, firms have traditionally managed this information inhouse and treated it confidentially; second, over the years, firms have created new businesses, expanded geographically, and merged with other firms – resulting in a variety of legacy systems to track client/counterparty data. Part of the investment made during the past few years has been in organising cross-business and cross-regional information to get a better picture of exposure, as well as reducing duplicate effort; and third, there are no generally accepted, standardised sources for legal entity data, in part because of the proprietary nature of the data.

It is possible that as senior managers seek flexibility, consistency and scalability in managing client/counterparty data alongside reference data repositories, this bias towards use of inhouse systems may be challenged, A-Team reckons. This could also be encouraged by the ongoing maturity and general acceptance of third-party data management solutions, it adds, coupled with the need to include client/counterparty data in order to achieve the overall risk profile afforded by centralised reference data repositories. In parallel to the growing acceptance of external data management solutions, third-party sources for counterparty data are beginning to resemble those in the more established “product reference data market”, A-Team believes.

In fact, the report contends that the lines between instrument and counterparty data repositories are blurring, as the need for the two types of data to be integrated increases. “By way of illustration, the importance of accurately modeling relationships in complex collateralised debt transactions with ‘nested’ levels of repackaging and redistribution is manifesting itself in the credit markets currently and demonstrating the interrelated nature of instrument/product and counterparty data,” A-Team writes. “Close integration between the two data areas – both in technical design and enterprise deployment – is needed to provide a solid foundation and the depth of awareness required for firms to actively manage the risk/reward trade-offs these products bring.”
This report is the second in a series being undertaken by A-Team on behalf of GoldenSource. The first focuses on instrument data. To view the full results go to www.a-teamgroup.com/research.php

Related content

WEBINAR

Recorded Webinar: The Benefits of Advancing Client Data Management Capabilities

Managing client information is not a new challenge for financial institutions, and it is a challenge that continues to evolve. Bringing together different silos of client information into a single, holistic and hierarchical view to understand client risk and meet KYC and AML obligations is a common issue for financial institutions. Traditionally, client information is stored...

BLOG

Debut Virtual Data Management Summit Highlights Industry Agility

In an extraordinary achievement that attracted over 1,000 delegates and well over 20,000 views, A-Team Group’s debut Virtual Data Management Summit went live last week to showcase the most cutting-edge content from an industry that has shown itself to be both resilient and responsive to the unique challenges presented by the ongoing coronavirus epidemic. Focusing...

EVENT

RegTech Summit Virtual

Regtech Summit Virtual will explore how business and operating models have adapted post COVID and how RegTech can provide agile and enhanced compliance for managing an evolving risk and compliance landscape. As the dust settles, we will look at the outlook for the global RegTech industry, where Regulators are focusing as they get back to business, and deep dive into global regulatory priorities for the rest of the year and into 2021.

GUIDE

Regulatory Data Handbook 2020/2021 – Eighth Edition

This eighth edition of A-Team Group’s Regulatory Data Handbook is a ‘must-have’ for capital markets participants during this period of unprecedented change. Available free of charge, it profiles every regulation that impacts capital markets data management practices giving you: A detailed overview of each regulation with key dates, data and data management implications, links to...