The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

The Counterparty Data Management Space is Evolving, Says A-Team, GoldenSource and CounterpartyLink

Senior managers have finally got a handle on counterparty data’s importance with regards to risk and entity exposure and they are now attempting to leverage it as an asset to fuel growth, according to recent research carried out by A-Team Group and sponsored by GoldenSource and CounterpartyLink.

The research, entitled Counterparty Data Emerges as a Business Asset to Fuel Growth, indicates that counterparty data is rising up the priority list within institutions. Maryann Houglet, senior vice president of consulting at A-Team Group, explains: “An evolution in counterparty data management is underway, the goal of which is to take a bottoms-up operations to top-down strategic insight.”

Real advances have been made in ensuring counterparty data quality, reducing redundancy and putting new data management practices in place over the last year. Institutions have progressed from a focus on compliance and risk in counterparty relationships and, where possible, firms have now moved on to leveraging counterparty data.

“Once firms understand risk and can identify exposure to entities, counterparty information becomes a business enabler,” said one of the respondents in the study, identified as a UK data manager at a leading bank.

A-Team Group conducted an extensive survey into counterparty data management in September last year, but the advances made in the space of a year have been striking, according to this year’s report.

“It’s now about how we leverage counterparty information into making or saving money. As you show business intelligence, more managers get on board, and you can use it (counterparty data) in profitability analytics,” another respondent to the survey explained.

“Managing counterparty data has, over the past year, evolved from working to understand complex ownership structures and exposure to each counterparty, to turning that valuable information into business intelligence, used to fuel growth,” explains Houglet. “With this advancement come data management, infrastructure and governance practices that should be tailored to each firm’s business management style.”

She continues: “There are a few more pieces of the puzzle to be resolved, and industry leaders are now focusing their attention on them. The long term benefit is a scalable solution that can turn tactical challenges into strategic direction.”

Counterparty data management has assumed its place in the wider picture of central data management strategies, the report explains. However, there are ongoing discussions about how much of this data should be managed centrally. “In 2008, the movement appears to be toward centrally holding and governing common data, such as identifiers or legal entity names, needed to aggregate and monitor firm-wide exposure,” the report states.

Some data related to specific business areas or asset classes may be best served by maintaining it in the business units that are close to it. This includes data such as standing settlement instructions, which can be managed in sub-master files maintained by these downstream businesses, industry experts suggest.

“Two elements play into counterparty data management reengineering decisions,” explains Houglet. “First and foremost, what information do the business areas need and have available, and second, how can the firm leverage technology and infrastructure to achieve business objectives. Experience is showing that successful decisions are business-driven. On the other hand, that doesn’t mean business siloed.”

In 2007, risk management and compliance ranked the highest as areas driving customer data aggregation projects, and this was again the case in this year’s survey. “Now, management appears to be focused on depth of understanding – who are the real counterparties – and validating assumptions on exposure to counterparties because of complex ownership issues,” the report states. This year’s survey indicates that improving operations also plays a key role.

“Putting measures in place to ensure data quality and completeness is an important step in managing risk. As in other data areas, firms rely on external data sources as an objective barometer for comparison as well as a source for hard to find items, like business entity,” says Houglet.

The increase in investment in alternative asset classes has reinforced the need for the integration of issue to issuer links into the securities master, the report adds. Furthermore, from a data quality perspective, data validation through both internal and external sources is common practice in the market, according to survey respondents. This shows progress, as firms value the need to check internal data sources against external independent ones.

Also on the data front, the lack of a global industry accepted business entity identifier is, once again, acknowledged as a problem. There is a gap in the counterparty data solutions in the market with regards to this space and it seems that this is not likely to go away any time soon.

Houglet concludes: “What started as a project to accommodate more stringent regulation launched a new way of thinking for financial services managers. Having counterparty data accessible through generally accessible data repositories that adhere to firm established governance can provide heightened awareness of which business relationships could be leveraged and which could benefit from change. Tie this perspective into knowledge of business entities, and management has a better understanding of customer exposure.”

Related content

WEBINAR

Upcoming Webinar: Sanctions – The new pre-trade challenge for the buy-side

Date: 22 September 2021 Time: 10:00am ET / 3:00pm London / 4:00pm CET Duration: 50 minutes Sanctions screening at the security level is a relatively recent requirement for the buy-side. It dives deeper than traditional KYC and AML screening and is immensely challenging as firms must monitor frequently changing sanctions lists, source up-to-date sanctions data...

BLOG

Covid Proof: The Future of Onboarding High-Net-Worth Clients

By Hugo Chamberlain, COO, smartKYC. The future of high-net-worth client onboarding has arrived – and it is one well suited for our post-COVID world. Automated and paperless, it enables wealth managers to accelerate acquisition, fully comply with the most stringent KYC regulations and deliver a frictionless start to the beginning of the client relationship. In...

EVENT

Data Management Summit Virtual

The Data Management Summit Virtual will bring together the global data management community to share lessons learned, best practice guidance and latest innovations to emerge from the recent crisis. Join us online to hear from leading data practitioners and innovators from the UK, US and Europe who will share insights into how they are pushing the boundaries with data to deliver value with flexible but resilient data driven strategies.

GUIDE

Entity Data Management Handbook – Seventh Edition

Sourcing entity data and ensuring efficient and effective entity data management is a challenge for many financial institutions as volumes of data rise, more regulations require entity data in reporting, and the fight again financial crime is escalated by bad actors using increasingly sophisticated techniques to attack processes and systems. That said, based on best...