As Fed governor Daniel Tarullo’s speech drives forward the data agenda in the US, across the pond, Arja Voipio, senior advisor at the Financial Supervisory Authority in Finland (FIN-FSA) and chair of CESR-Tech, the information technology governance structure of the Committee of European Securities Regulators (CESR), told delegates to Marcus Evans’ reference data conference that regulators were open to communicating more with the industry on getting data quality right. Industry participants should not be afraid of talking directly with regulators about their data management challenges and work together to establish a dialogue around achieving greater reference data standardisation, said Voipio.
In line with the European Central Bank’s (ECB) proposed reference data utility, CESR is keen to encourage greater standardisation of reference data in the financial markets to better supervise them. “MiFID led to CESR becoming a data vendor by law, as CESR members must exchange transaction reporting data across Europe, and this drew the regulators’ attention to the nightmare of tracking firms’ ultimate parents,” said Voipio.
CESR’s own endeavours to track transaction and underlying reference data have therefore highlighted the lack of an international business entity identifier (IBEI), for example. The regulator itself uses the Swift Bank Identifier Code (BIC) to track some of this data, but is aware of the current shortcomings of this standard. “We chose the BIC but it is not the ideal solution as not all firms have a BIC and some have several. We are currently working with Swift to organise some kind of hierarchy within these codes for parents and subsidiaries,” explained Voipio.
It has also been engaged in extending standards for derivatives instrument identifiers with the establishment of the Alternative Instrument Identifier (AII). The regulator had first wanted to extend the ISIN to cover these instruments but was unable to do so due to industry concerns and has since been working on getting the AII off the ground, she said.
However, Voipio remains an advocate for the wider implementation of the ISIN codes and feels this could be a starting point for encouraging greater reference data standardisation. BICs could also represent a similar opportunity for the entity identification space, once some of the issues have been worked out, she added.
Voipio indicated that the ECB had originally approached CESR to set up the utility but the regulator felt that this was not its place: “Regulators only do what they are told to do and we can’t create our own agenda. Any such endeavour needs to be mandated and financed. However, firms can and should attempt to influence the regulatory agenda by getting involved in consultations.”
Despite the fact it is not likely to take on the mantle of utility provider, the regulator is not a stranger to the challenges faced within institutions to establish a centralised data repository. In order to be able to carry out a number of its critical risk tracking functions, CESR was forced to invest in its own internal instrument database four years ago, Voipio explained. Although the regulatory body was keen for vendors to provide the foundations for this database, the costs of using a third party provider were prohibitively expensive and CESR was forced to develop it internally. The regulator currently maintains its Instrument Reference Database System (IRDS) by sourcing data directly from regulated markets, elaborated Voipio.
However, due to the commercial interests of the market and, accordingly, an agreement with the Federation of European Securities Exchanges (FESE), the regulator is unable to make this data public. “Such a move would require a renegotiation of the terms of the agreement with FESE and this is unlikely to happen,” she explained.
In the meantime, Voipio is keen for those from the reference data world to speak out about the challenges they face in order to better shape regulation. Many firms represented at the event expressed their desire for a “regulatory stick” to be introduced to compel investment in the data space, however, rather than having the regulator come up with its own arbitrary rules, the data community should take the initiative, she concluded.