Reference Data Review has noted on a number of occasions that data quality and data management issues lie at the heart of the risk management and compliance challenge and recent research by IT system vendor Oracle is a case in point, which indicates that only 26% of the 450 European respondents to the survey were confident that their data management systems could support full enterprise-wide risk analysis.
The research, which involved a survey of 228 financial services professionals and 222 IT professionals in financial institutions across Europe in early 2010, also highlights the fact that almost half of the respondents were not confident of the accuracy of their risk and counterparty related data. It seems there is a crisis of confidence going on within the data sphere.
Recent fines for transaction reporting and the Lehman examiner’s trials and tribulations earlier this year are hard proof that there are significant issues remaining within the management of key reference data within financial institutions and this Oracle survey adds yet more fuel to the fire. Almost two thirds of respondents, at 64%, said they do not have confidence that their data management architecture and technology system is able to provide a 360-degree view of the entire business. Moreover, only 32% of the participating banks claimed they had access to vital data such as counterparty information and 25% of the participating UK banks couldn’t even produce this information.
“This research highlights that there is still a long way for financial institutions to go to confidently manage their information,” says Nazif Mohammed, vice president of EMEA Finances Services for Oracle. “Outdated or irrelevant data hinders effective decision-making and performance. Without complete visibility into the business, financial institutions will continue to be unable to react to market conditions as they occur.”
A piecemeal approach to the management of key data sets is therefore holding back many financial institutions from meeting regulatory compliance and risk management requirements and with the advent of Basel III, this could be a serious inhibitor for survival. The report notes with regards to new risk requirements: “At a minimum, banks will need to put in place a central enterprise-wide stress testing framework that is able to address key requirements, including complex stress testing calculations, advanced data management and the ability to stress multiple risk measures across categories. Another aspect that banks need to consider in order to provide accurate and timely information to those that need it, is to incorporate the results of the stress testing process in critical decisions such as capital allocation, risk based pricing and contingency planning.”
Of course, Oracle is keen to push its own unified data model and business intelligence applications to meet these requirements, but its point is valid. Strong data foundations are needed on which to build any form of complex risk measurement and analysis functionality, otherwise it will be a case of rubbish in, rubbish out.
However, the pressure of meeting so many new regulatory requirements is also taking its toll on data management: 40% of respondents to the Oracle survey said that increasing compliance requirements and tougher deadlines will continue to hinder data accuracy. Unsurprisingly, the respondents from the UK were most vocal about this challenge, with around 30% in complete agreement that this would be a problem in the future. Spanish respondents, on the other hand, were more positive about the impact of regulation, with around 35% completely disagreeing that there would be data accuracy problems as a result of compliance challenges.
Almost half, at 48% of total respondents, said the pressure to hit reporting deadlines has meant in the past that the data used just needed to be “good enough” to get the reporting done, rather than being 100% accurate. The majority, however, at 73% of overall respondents, felt that the accuracy of data should always be prioritised over these deadlines in future, likely as a result of the increased regulatory focus on policing data quality.
The full research report is available to download from the Oracle website here.