The buy side community’s data managers are being faced with a tricky balancing act of ensuring their output to clients is optimised from a technology and data standpoint and that their data inputs are of sufficiently high quality for regulatory and client purposes, according to panellists at last week’s A-Team Group and SmartStream roundtable. Speaking about the data management challenges for the buy side in 2011, Gerard Walsh, head of delivery at Schroders Investment Management, and Chris Johnson, head of product management for market data services in the Fund Services division of HSBC Securities Services, both elaborated on the tensions between keeping pace with technology change and meeting the requirements of the incoming wall of regulation.
Walsh explained: “The challenge for firms in our space is to convert factual data on ‘systems of record’ into useful information delivered through ‘systems of engagement.’” He discussed the generational, technological and infrastructural changes that mean “information is now ambient,” driven by the take up of engagement technology such as smartphones, wi-fi networks and tablet computers like Apple’s iPad.
He also outlined the promising market for investment management firms that are able to capitalise on both the client and business to business opportunity offered by ‘social’ technologies. Walsh then elaborated on examples of firms that are taking full benefit of smartphone technology, for example Chase’s mobile banking app and even investment manager Fidelity Investments’ smartphone app. “We no longer search for information, information finds us,” he explained.
Walsh highlighted the data supply chain around the provision of this information to clients and noted that the dynamics may be changing, but data quality and reliability of service are still paramount. “Data managers have a role to play and a market to service in helping financial services firms to deliver information to the device of the client’s choice,” he contended. Direction can also be taken from the use of this technology in countries from the “new world,” such as Asia Pacific, South America and Africa, where mobile technologies have enabled them to “leapfrog” developments in more traditional markets.
The ability to distil decision-making information for delivery to mobile applications, however, requires firms to pull data from across internal silos in an on demand fashion, which is far from a simple task. This challenge is further complicated by regulatory and cost pressures facing investment managers in the current environment, noted audience members.
Johnson elaborated upon the challenges he sees from a data input standpoint in the face of the multiple regulations facing the buy side this year. Regulations such as UCITS IV, Solvency II, the Alternative Investment Fund Managers Directive (AIFMD), MiFID II, Dodd Frank and Basel III (to name just a few) are asking these firms to provide much more data transparency than ever before and for data to be sliced into new reporting formats and be subject to new standards.
Walsh noted that there has been recent concern from buy side industry associations in Europe that these new regulations may make the European investment management industry uncompetitive versus other domiciles. Such regulations may therefore represent a brake on innovation by imposing onerous data requirements that will necessitate the building of new systems designed solely to meet these requirements.
SmartStream’s recently appointed director of its DClear data utility business Hugh Stewart noted that firms should attempt to engage with the regulatory community in order to provide feedback about the impact of these regulatory changes. Johnson added that there is a “window of opportunity” for firms to get involved in standardisation debates such as the one going on within the US with regards to entity and instrument identification as part of the Office of Financial Research (OFR) developments.
Walsh noted that the current “Tower of Babel” that exists within the financial services ecosystem, where a lack of standardisation of reference data items means firms must engage in costly reconciliation processes, needs to be addressed in a sensible fashion in order to allow the industry to keep pace with changing technology requirements. Without a ‘common shared language’ , the speed of data delivery can be negatively impacted if extensive data reconciliation is required.
Panellists and attendees alike agreed that communication with the regulatory community is essential to ensure there is a globally joined up approach to the data standardisation challenge. However, getting the right message heard and acknowledged by the right parties is far from a simple matter.