Managed services and data utilities hold the promise of reduced data management costs, streamlined operations and support for regulatory compliance, but they also raise questions about flexibility, legacy systems and the ongoing costs of internal data management.
These issues, and more, were debated during a panel session moderated by Chris Bannocks, founder of Grasp Associates, and entitled ‘New Commercial Models for Enterprise and Reference Data Management’, at the A-Team Group Data Management Summit in London this week. Bannocks set the scene for discussion, noting that a mix of consortia and individual companies are coming to market with a range of managed services, all driven by financial firms’ needs to reduce costs and meet regulatory requirements.
His first question to panel members asked exactly what a utility is and received different answers. Nick Murphy, director of consulting at iGate, which has taken a lift and shift approach to developing managed services and is moving towards shared services and utilities, said: “A utility for reference data should be owned by the community and should be like gas and water utilities. It should be the lifeblood of the financial services industry.”
The Utility Model is Still an Aspiration with a Long Way to Go
Nick Taplin, a consultant on data management services at SmartStream, which intends to provide a platform on which the industry can run its own utility, suggested a utility should be a platform that provides economies of scale by handling data once and disseminating it many times. Roy Williamson, global head of sales at Bloomberg PolarLake, which provides a managed data service that offers economies of scale but meets individual client requirements, questioned the question, asking: “Is a utility for all or for a few? If it brings together and refines data, will it suit everyone? The utility is still an aspiration and has a long way to go, and it doesn’t yet have board level buy-in.”
Considering why the industry has taken so long to develop the utility concept, panel members agreed that the industry did not focus on data until required to do so by regulations that are driving change and making data management a business rather than an IT issue.
Looking at the challenges of managed services and utilities, Steve Cheng, global head of data management solutions at Rimes Managed Data Services, a provider of reference data and benchmark services, said: “Utilities already work in some areas, such as trade confirmation, but reference and entity data are viewed in different ways by different people. Utilities want to close things down, but they should be architected for change. From a cost perspective, the focus on savings doesn’t consider the cost and difficulty of what must be done once data is inside a firm. The rule of thumb is that for every dollar spent on licensing market data, three or four dollars are spent on people and processing. The industry needs to look at this.”
Budgets and limited understanding of the importance of data in financial firms are also challenges. On this, Williamson commented: “Regulators are driving data management, but are there budgets for it? Senior managers need to understand and take a new view of data. They need to recognise it as core to their business and consider what will happen if they get it wrong.” Murphy added that while there is interest in shared services at the chief technology officer level of many organisations, below that level there is a tendency to protect data silos.
Similarly, legacy systems can be a barrier to the acceptance of shared services, with firms fearing that they will have to rip out and replace systems in which they have invested to embrace change. This fear was allayed by Taplin, who said: “It is not necessary to rip out systems. We ask customers to identify their own goals in terms of better data and where and when they want it.” Other outstanding issues in the move towards utilities were noted as the extent to which managed service providers should support data governance and regulation, and the possibility of creating data standards to ease the operation of utilities.
Responding to Bannocks’ final question on how best to achieve change, Murphy and Williamson called for more industry collaboration, Taplin suggested more guidance from regulators, and Cheng noted a need for market participants to show greater respect for data management.
You can listen to a full recording of the session here.