The industry is moving to an entity driven world and entity data is a “natural extension to reference data”, delegates to FIMA’s Entity Data Management conference in New York were told. This reliance on entity data is evident when a crisis like the collapse of Bear Stearns hits and firms are scrambling to identify exposure, speakers explained.
This recognition has meant that financial services firms are finally investing in infrastructure and processes to improve identify entity exposure and better manage counterparty data. The issue is going up the chain to senior management at the chief technology officer and chief operating officer level, delegates were told. Moreover, mergers are highlighting inconsistencies in identifiers across firms thus raising the visibility of the problem.
Much of the current infrastructure and symbology schemes are 20 to 30 years old and seriously in need of this investment. Industry participants on the various panels recommended fixing the data layer first, before fixing the applications that use the data.
However, entity data management must be a strategic initiative within the firm and not treated as just another project, delegates were warned. Hierarchies have to be built in as a foundation to data management and access and consistency must be ensured via rules and correct “roll-up to a name”.
Because of the importance of identifying entity exposure and tying issues to issuers in risk management, firms are realising the limitations of long accepted instrument identifiers, like Cusips and ISINs, the delegation heard. Fixed income exposure is a particular issue because one entity can issue multiple bonds.
Market data vendors could help firms resolve some of the entity challenges but this must involve a certain type of service level agreement. Furthermore, common standards across vendors should be introduced in entity identification because they currently use different identifiers and this makes cross vendor comparisons difficult. To this end, FactSet has created an entity master file to help tie together its spectrum of vendor data, delegates were told.
Some panellists felt that risk management should drive these initiatives and own the issue of entity identification. It would then become the responsibility of the business areas, which have kept siloed data for a long time. According to the speakers, the current state of play is that there is a hierarchy of risks that firms look at including: credit, market, operational/compliance and capital/trading.
Several firms talked about workflow orchestration and automated processes can be used to help manage both entity infrastructure and counterparty data. In this case, there should be one view of a customer and one client on-boarding process in a firm, speakers explained.