Regulation and risk are driving data management change programmes in many financial firms, but the approach is tactical rather than strategic, leaving the ultimate goal of consistent global data that could avert another crisis some way off. These issues were a focus at last week’s A-Team Group Data Management Summit, where a panel of experts moderated by A-Team Group editor-in-chief Andrew Delaney discussed the impact of regulation, rising risk requirements and the need for change.
Delaney’s first question to the panel considered whether regulation and risk are driving firms towards the holy grail of consistent information across their enterprises. Ian Webster, managing director, EMEA at risk management product provider Axioma, responded: “This is the holy grail as we know there isn’t a consistent view of data across the world, but unnecessary consistency is the hobgoblin of small minds. We need to achieve necessary consistency.” Webster also said that despite the adage ‘Never waste a good crisis’, this is exactly what the industry did. “Everyone said something different needed to be done, but more of the same has been done,” he commented.
Building on this starting point, James Phillips, director of regulatory strategy at Lombard Risk, said: “Regulation mandates reporting in common data formats so that data can be shared. For example, Corep requires the XBRL format and EMIR requires the legal entity identifier. This makes data points more consistent. We need to embrace this consistency, fulfil regulatory obligations and get more out of it. Data management approaches to risk and regulation are still very tactical and do not improve the use of data.”
Picking up on the tactical response to regulation and questioning how risk and regulation are related, Webster said: “Has regulation made the financial environment less risky or as risky but with more reporting? We need to think and converse about risk in different ways as it is not just about the veracity of data. A firm may have a risk team, but everyone needs to worry about risk and the problems of an organisation. This is the way to change the DNA of a firm, rather than simply adding layers of regulation.”
Noting that regulators stepped into capital markets at a macro level because companies were losing money and agreeing that risk is the driver of change, Marcelle von Wendland, director at advisory company Bancstreet Capital Partners, said: “The real driver of change is risk, regulation just adds cost. If we pinpoint where risk is costing money and cut that cost, it can be offset against the cost of regulatory compliance.”
Turning to practical approaches to data management for regulation and risk, Delaney asked the panel how practitioners are addressing the issue and whether their approaches are making markets saver. Laurent Martinet, European senior clients and regulators relationship manager at Bloomberg, which recently set up a team to look at regulatory requirements in Europe and Asia and drive product solutions, said: “If we combine technology, the willingness to change technology and better tools, we could achieve better efficiency around risk, data management and transparency all at once. This would help to solve the current crisis, but we don’t know what the next one will be.”
Webster added: “I agree that we need to combine technology, business, risk and regulation and take an enterprise view of risk and regulation rather than a department view. We also need to solve the problems of the last crisis, but the underlying causes of crises are usually similar and are asset bubbles around instruments. These are transparent and we should undo them rather than write more reports.”
A final question from the audience asked how banks should be penalised if their data management fails to meet regulatory compliance requirements. The panel agreed that big fines imposed on large universal banks have little impact on data management and only effect shareholders, leading Phillips to conclude: “Ring fencing or restricting a bank’s business has to be more effective.”