This week, the US government organised a roundtable event to discuss the developments around tracking systemic risk and the establishment of the Office of Financial Research. Representing the OFR, Richard Berner, counsellor to the US Department of the Treasury’s Tim Geithner, championed the benefits of reference data standardisation, the recent progress made around setting legal entity identification (LEI) standards and detailed plans for a regulatory conference on data issues later this year. He also elaborated upon the recent hires that the OFR has made to assist it in its endeavours, but noted that the director slot is still to be filled.
Berner, who is a former Morgan Stanley chief economist and was appointed to Lewis Alexander’s old position earlier this year provided a status update on the OFR developments thus far, including a brief potted history of its inception and its aim to be “the ‘connective tissue’ needed to fill gaps in both information and analytics” for the regulatory community. He also suggested that the Financial Stability Board (FSB) could act as a “multilateral forum” to bring together all of the work streams related to the setting of a new LEI standard and “establish a dialogue among regulators and industry to establish a global LEI embraced by all.”
For those of you that may have been asleep for the last year or so, the OFR’s mission is essentially to collect data for systemic risk tracking purposes, implement new data reporting standards, develop new risk tracking tools and act as a research hub for all of this reference and economic data. As noted by Berner, it is aiming not to duplicate data collection efforts and therefore will use existing infrastructure to its own devices and will collaborate with the regulatory community at large.
On this note, Berner said: “Staff at the OFR and the Financial Stability Oversight Council (FSOC) member agencies are cataloguing data used and collected by financial regulators. The results of this project will help the OFR, the FSOC, and its member agencies identify data gaps and potentially redundant data calls. With this information, we will be better able to coordinate, simplify, and harmonise future data collection in a manner consistent with the President’s Regulatory Review Executive Order. Going forward, the FSOC Data Committee will be the venue for discussions of data related issues in the FSOC, where member agencies will lay the groundwork for future projects to improve access to and the quality of financial data.”
During his testimony, Berner indicated the positive way in which the OFR views its standards efforts, which jars slightly with the industry’s concerns about the costs of adoption. “Finally, and most important, the OFR will promote standards for financial data that will make it easier for firms to link and aggregate information at a variety of levels for a variety of needs. As a result, they will be able to use the same basic data both for reporting to regulators and for managing their business,” he said.
However, this doesn’t address the fact that proprietary and vendor standards are already embedded in firms’ internal infrastructures and any such new standard will cost money and effort to implement. There have been a number of concerns raised by industry participants that these new standards may be just another cross referencing item, for example.
As for progress, Berner noted that the search for the director slot is “ongoing” (no surprises there then), but in the interim listed its new recruits and the experience they are bringing to the table. He referred to the appointment of the Fed’s chief data officer for its Markets Division John Bottega as an advisor and of its new chief business officer Dessa Glasser, who has previously worked as a director at Credit Suisse but most recently has been working as chief risk officer for global food and agribusiness firm Bunge (a slightly leftfield choice). He also mentioned the appointment of academic Mark Flannery, who has also joined as a senior advisor.
He also provided an update on all of the work that has gone into setting a new LEI standard, noting that it will need to be useful beyond systemic risk tracking purposes (a point of contention over recent months). “In the United States, the OFR is working with the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to ensure that a new LEI standard will help satisfy their requirements for swap transaction reporting, and Federal Deposit Insurance Corporation (FDIC) needs for its resolutions work,” he said.
Berner praised the work of ISO in coming up with a draft of its proposed new LEI so quickly (ISO 17442) and noted its “deep expertise” in this area, which indicates the OFR is likely to follow the industry’s recommendations as they have been laid out this week. He said that the LEI work would be used a “template” for all future standards developments, with instrument standardisation next on the hit list.
He also provided a quick roundup of some of the information security efforts that the OFR is planning to preserve the “security and integrity” of the data that it will be collecting. These include post-employment restrictions, governance policies for data usage and protection of sensitive data. “We are looking at alternative approaches to organisational design that could include the complete physical separation of systems and processes designated for handling confidential information from those for handling non-proprietary information,” he said.
No doubt these and many more issues could be addressed at the OFR and FSOC conference later this year, which Berner announced during his speech. The plan is to bring together “top academics in finance, economics, and computer science along with members of industry and the regulatory community to discuss systemic risk monitoring and potential responses.” Make sure you get on the list…