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JWG-IT Pokes Data Sized Holes in UK’s Response to Europe’s Omnibus Directive

Industry think tank JWG-IT has this week sent a letter to the UK’s House of Commons Treasury Committee warning it of the dangers of overlooking the data infrastructure challenges inherent in the European Commission’s financial services “Omnibus” Directive. The UK government committee has just published its response to the Commission’s proposed directive but PJ Di Giammarino, CEO of JWG-IT, cautions that it overlooks many of the practical implications of regulatory implementation.

Given that the Commission is pushing for the directive to be agreed by the start of December, time is tight for amendments to be made and feedback to be collated. The House of Commons Treasury Committee has been working on its feedback for the last three weeks and, according to JWG-IT, the work has largely focused on points of law and the agreement process.

The think tank warns that the failure to consider the practicalities of the new supervisory regime could put the G20’s objectives at risk. “Another chance to have a meaningful debate about the impractical requirements of a 93 point action plan has been missed,” says Di Giammarino. “There are some real, substantive issues with the current regulatory approach that have not been addressed by this committee. We are concerned that, unless the basic infrastructure issues are discussed in Brussels this year, the regulators and the banks will find themselves in a position where, rather than fighting financial fires, they will be fuelling an inferno of bad data in 2010.”

The JWG-IT letter aims to highlight to the committee the dangers of what it considers to be a “regulatory race to the top”, which it considers is failing to address the enormous data quality challenges inherent in controlling such a fast moving marketplace. “There must be a clear consensus in Europe of what information is necessary and sufficient for successful oversight, plus agreement of what ‘good quality data looks like’ and how it should best be transmitted. Without this common understanding, we are in jeopardy of creating an even bigger conflagration. We are in danger of assessing risks based on bad data, which could well magnify and distort the issues we aspire to extinguish, at great cost to the economy,” warns Di Giammarino.

The lack of data standardisation could prove to be a serious problem for regulators across Europe attempting to work together in a harmonised fashion and it is an issue that has not been properly addressed. The Senior Supervisors Group report, which was released last month, highlighted the issue of fragmented data within financial institutions with regards to tracking risk exposures, but failed to address the similar challenges that regulators will face in the effort to track compliance.

Each jurisdiction has a different approach to collecting and storing data on its markets and this could prove to be a significant cross border stumbling block. “Individually, each member state needs to be able to make sense of the information it has asked for and then share understanding across jurisdictions which have different languages, laws, tax codes, cultures and business systems. With the current approach, it is difficult see how such highly complex and technically challenging set of problems will be overcome to create an integrated picture of risk in the timeframes prescribed,” says Di Giammarino.

The siloed mentality is not one that can be sustained by the regulatory community as well as the financial institutions themselves. After all, the regulatory community should be leading by example, shouldn’t it?

Di Giammarino concludes: “In short, resources are being wasted as firms, regulators and policy makers devote man years to solving these problems in silos. The traditional methods of agreeing detailed standards are being overridden in a race to meet unrealistic timelines. Until politicians and regulators understand that missing standards are inhibiting both the banks’ and the regulators’ ability to do their jobs, many of the G20’s aspirations will be difficult to realise. We recognise that these are challenging times but feel that all parties would benefit from structured dialogue on these issues.”

According to analysis from the European Commission, there are in excess of 50 missing technical standards that are required to effectively share the information required for existing EU financial services regulations. JWG-IT is urging the regulators to begin a dialogue on data in order to tackle these missing components and the whole host of other challenges waiting in the wings.

Di Giammarino has been engaged in examining financial institutions’ own data challenges over the course of this year with JWG’s Customer Data Management Group (CDMG), which was set up last year. Last week, he spoke to the FIMA 2009 delegation about the progress that has been made thus far in its endeavours to determine what “good” looks like for market participants, as well as the regulatory community.

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