The A-Team Group Data Management Summit held in London this week opened with a review of the company’s Regulatory Data Index and a keynote presentation by Nick Murphy, director of consulting at IGATE, on the potential of shared services or utilities for reference data management.
Regulatory Data Index
The A-Team Regulatory Data Index sponsored by SmartStream Technologies was introduced early this year with the intention of measuring market activity and spending dedicated to data management for specific regulations. While the index will track activity and spending on a quarterly basis, Andrew Delaney, chief content officer at A-Team Group, reported on early findings at the Data Management Summit.
The results of initial research for the index suggest the top priority for firms at the moment is data management for the Foreign Account Tax Compliance Act (Fatca) . The next priority is Know Your Customer (KYC) regulation, which is followed by European Market Infrastructure Regulation (EMIR), Markets in Financial Instruments Directive II (MiFID II) and Dodd-Frank. Also on the priority list are Basel III’s BCBS 239 and Solvency II.
Reflecting these priorities, Fatca also leads in terms of activity, with over 50% of respondents to the Regulatory Data Index survey stating that this is an area of concentration for them. Following Fatca are KYC, Solvency II, MiFID II and BCBS 239.
Looking at spending on data management for particular regulations, more than 20% of survey respondents said they would spend significant sums on Fatca and KYC in the second quarter of this year. Some 30% of respondents said they would increase spending on EMIR, Solvency II and MiFID II in the second quarter, and 25% forecast larger budgets for the Alternative Investment Fund Managers Directive.
Keynote: The shared services model
Nick Murphy, director of consulting at IGATE, argued the case for a shared service model for reference data management underpinned by trust, credibility and vendor agnosticism in a keynote presentation entitled ‘Tales form the Trecnhes: Considerations for Shifting to a Shared Services Model for Reference Data Management’. The keynote was based on the results of research carried out by A-Team among a dozen global market practitioners and three vendors, and designed to gauge the latest industry thinking on shared services and utilities.
Setting the scene, Murphy noted the huge amount of data in the market, increasing regulation including the forthcoming Basel III BCBS 239 regulation, and the emergence of the chief data officer with responsibility to make decisions on data management. Considering possible approaches to data management, Murphy described the silo approach, which has the advantage of good local knowledge, but does not necessarily deliver accurate, complete and timely data, and carries a high IT and operational cost. He also described centralised data management, which is likely to provide better data quality and requires less IT and operational cost, but does require high cost infrastructure.
Turning to utilities, Murphy explained: “A utility can reduce a bank’s infrastructure, IT and operational costs, and as a central operation, it can deliver accurate, complete and timely data.” Looking at how a utility could work in the market, he favoured a commercial model above a not-for-profit bank consortium, and said the utility should not be a source of competitive advantage, but should mutualise expertise, be supply side agnostic and have the potential to offer financial savings. He listed business drivers for a utility as data quality, the most pressing need; operational streamlining, including automation, data standardisation and the replacement of legacy systems; and regulation. Cost, he said, was ranked surprisingly low by organisations taking part in the A-Team research.
Business areas that could benefit from a utility include entity data – but not client data, counterparty and issuer identifiers, security master and instrument data, corporate actions – including notification but not processing, and KYC – excluding suitability analysis. Potential outcomes of using a utility for data management include better data quality and improved business rules, regulatory data mutualisation and improved data audit and lineage.
While the theory behind shared services is sound, Murphy did not shy away from practical obstacles to success. At a macro level, he described problems perceived by banks including trust in providers and their credibility, the feasibility of a utility to deliver services at an agreed cost, responsibility for errors, and internal organisational or political resistance. At a micro level, he noted concern about lack of clarity around data lineage, data distribution to downstream systems and future flexibility.
Obstacles to success suggested by vendors include confusion about what a shared service will look like, a lack of clarity around data lineage and the impact of this on licensing, and the loss of direct relationships with clients.
Summing up the A-Team research and concluding his keynote presentation, Murphy said: “The client side sees potential benefits in shared services, but the supply side is not so sure. BCBS 239 will act as a catalyst for discussion about shared services and success will depend on trust, credibility and agnosticism.”
To find out more about the potential and practical considerations of shifting to a shared services model for reference data management, read the A-Team report sponsored by IGATE.