Entity data management has moved up the agenda over the past year, driven by regulatory requirements, the establishment of the Legal Entity Identifier (LEI) and, in some cases, a desire to centralise and provide enterprise-wide access to entity data.
A-Team Group’s London Data Management Summit discussed the progress of entity data management, as well as its challenges and opportunities, during a session entitled ‘Entity Data Management for EMIR and Dodd-Frank’. A-Team Group editor Sarah Underwood moderated the session and was joined by experts Tim Fox, product manager at Avox; Stuart Harvey, CEO at Datactics; and Donald Roll, managing director, Europe at Alacra.
Considering financial institutions’ implementation of entity data to date, Fox said: “There has definitely been progress over the past year. At a macro level, regulation is driving the need for entity data management and at a micro level a survey we carried out recently showed firms dedicating more resources to entity data and looking at all entity types, not just those that are high risk.”
Harvey and Roll agreed that entity data management is a long-term issue in need of a long-term solution. Roll said: “Firms are making progress, but they are on a long journey and they need buy-in from senior management. While regulations are incredibly painful for banks to implement, the results will include cleaner data and a more accurate audit trail.”
Turning to the question of how to set out on the entity data journey and how to achieve best practice, Roll described a project at a Tier 1 bank that is using a Bloomberg LEI directory as an entity data file to which about 30 other identifiers are mapped. Downstream systems are then populated with data from the entity master. He commented: “If the project is executed well, there should come a day when the bank is able to push a button and calculate counterparty risk across its entire organisation.”
On a practical note, Roll favoured a centralised entity data management solution, while Fox and Harvey described the need to start with a clean set of data at the entity level and ensure ongoing maintenance. Fox said: “Timely, complete and accurate data has been the industry mantra for years and it applies to entity data management, but it is only part of the picture. Other aspects of the picture include data governance and best practices involving all stakeholders in entity data. The enterprise solution is about the right data, data governance and accessibility.”
With the ground rules laid for entity data management, the panel turned its attention to the LEI and how it is being used. Harvey said that while the LEI is a large mapping exercise for many firms at the moment, Datactics is preparing for greater take-up by building an LEI database that it augments on a daily basis using data from live Local Operating Units (LOUs) in the Global LEI System. Roll noted that with only 10% of public companies having registered for LEIs there is still a long way to go to achieve broad coverage, and added: “I am a supporter of the LEI initiative, but until recently it has been seen as just another identifier for regulatory reporting. As it evolves, it will be increasingly important and entity hierarchies will become key to the LEI’s purpose of measuring counterparty risk.”
Fox commented: “Regulation is driving enforced adoption of the LEI. So far, it is required by EMIR and Dodd-Frank, but there is an LEI component in Solvency II reporting, and there are many requirements for the identifier in MiFID II. From a regulatory perspective, the LEI is here to stay and firms that are early adopters and build the LEI into their systems will gain long-term advantage. The LEI may be a challenge, but it marks the first time that 310,000 identifiers have been made freely available to the industry.”
With the number of LEIs being issued by LOUs rising, the panel noted the need for the Global LEI System in which they will operate to be finalised. Hierarchy data is critical, but has yet to be defined, and the Central Operating Unit (COU) of the system, which is expected to run a centralised database of all LEIs, has still to be established. These elements of the system will be provided by the foundation that underpins the global initiative and approved by its Regulatory Oversight Committee, but Fox cautioned: “The COU needs to be an effective layer of operational management in the global system, but firms also need to decide which function will be responsible for the LEI and ensure LOUs are provided with the right data before LEIs are issued and on an ongoing basis.”
Concluding with some advice for data practitioners working on entity data management, the panel members emphasised the need for a flexible data architecture and the right content, processes and people. Harvey went on to suggest the industry should look beyond its boundaries at organisations such as the UK’s National Health Service, which already has effective and large-scale entity data management in place.