Regulation has become a game-changer for many financial firms as regulators look beyond reports and demand access to detailed data that must be accurate and complete in a regime of zero regulatory tolerance.
Introducing a panel discussion at last week’s A-Team Group Data Management Summit entitled Enterprise Data Management Business and Regulatory Drivers, A-Team Group editor-in-chief Andrew Delaney questioned what data is essential to client business. The universal answer was an increasing volume of reference data that is transparent and centrally managed to avoid inconsistency and deliver certainty.
With regulation flooding financial markets, panellist Chris Johnson, head of product management, market data services, at HSBC Securities Services, said the regulations that create heavy duty lifting in terms of reference data in the short term include Dodd-Frank, European Market Infrastructure Regulation (EMIR) central counterparty regulations and the Foreign Account Tax Compliance Act, or Fatca. He also noted that the amount of transparent information asset owners must have to comply with the Alternative Investment Fund Managers Directive (AIFMD) and Solvency II moves the bar up significantly for reference data.
Johnson said: “Third-party administrators are preparing themselves to provide asset owner clients with the information they need. Reference data needs to be managed very proactively to prevent bottlenecks and inflexibility, and no matter what we do it still creates some challenges. The business drivers of reference data investment in most financial services firms do not include the creation of revenue as such. This means business benefits tend to be intangible, but I think the primary business driver for reference data is to deliver compliance with new regulations, because without compliance there would be no business.”
Fellow panellist Joost Roelin, director of product management strategy at Wolters Kluwer Financial Services, described the need to manage higher volumes of data to meet new regulation, but also the new regulatory approach in which regulators are asking firms for access to data and analysing it themselves. As regulation drives change, Roelin said: “New regulations are accelerating financial firms’ efforts to eliminate data silos and restructure data. The data needs to form one base that will deliver consistent data to all areas.”
Johnson concurred, noting the need for centralised data management, collaboration on regulation within firms, and industry collaboration to ensure consensus about reference data requirements and a common understanding of the requirements. He also pointed to the need for a central governance organisation with the necessary knowledge of reference data and downstream systems to implement living and breathing governance policies.
Looking at data from a different perspective, panellist John Taysom, 2011 Fellow, Advanced Leadership Initiative at Harvard University, commended uncertainty at a macro level, perhaps caused by different approaches to regulation in the US and European Union, as it can benefit private investors. He also considered privacy issues around data and with a request for a quick show of hands discovered that no firms represented by delegates at the conference have chief privacy officers, although a few have chief data officers.
Looking forward, he suggested regulation will move away from personal identity information to consider something more iterative. He explained: “Insight suggests that what is economically useful is not what makes us different, but what makes us similar. So, data could be stored not on the basis of specific people, but in a collective way that delivers value. Data can then be economically valuable without being invasive.”
Back from the future, Johnson suggested a phased approach to data management for forthcoming regulation based on confirmed implementation dates. Central counterparty regulation, Fatca and AIFMD could be tackled in a first phase, followed closely by Solvency II and MiFID II in a second phase. He also mentioned that some data vendors are supporting the Financial Transaction Tax. Considering a question from Delaney on the viability of an industry reference data utility, Johnson concluded: “It is a laudable idea, but the fabric of the industry is based on data vendors and we can’t succeed without including them.”