This time last week I was in New York chairing our Data Management for Risk, Analytics and Valuations (DMRAV) conference in front of a packed audience clamouring to hear more about the Office of Financial Research (OFR) from the Fed’s own CDO John Bottega. Although it was not the only highlight of the day (many other interesting discussions took place on the subject of data quality, valuations best practices, risk analytics and more), the Dodd Frank panel demonstrated through the sheer number of audience questions and attendance (standing room only at the back) the concern felt by many about the underlying data challenges resulting from the new US legislation.
Bottega and Mitre Corporation’s Shaun Brady (who has also been involved in some of the OFR work) endured a thorough grilling about the developments underlying the OFR thus far. Delegates were keen to hear about the potential punitive actions that regulators might take against those that fail to comply with new data standards, for example. The answer, unfortunately, in this instance was that enforcement actions have not yet been discussed at length and the industry will have to wait to hear back on the subject. However, Brady noted that one likely tactic would be the naming and shaming of such firms (the threat of reputational damage as a key regulatory stick).
Now that some progress has been made on the legal entity identification front delegates were also keen to hear what is next up on the agenda. Bottega noted that to this end, there will be “no surprises” and that the focus will be solidly on tackling financial instruments, semantics, classifications and data attributes, with a particular focus on addressing markets and instruments where IDs are lacking.
Panellists noted that the systemic risk tracking challenge is one that is in the process of development, but it comes down to an appreciation of a “core set of data” and this is what the OFR is seeking to pull together. Brady noted a recent study that involved 22 different definitions of systemic risk to highlight the potential divergence in practices.
Bottega also stressed that the developments around the OFR are open for public/private collaboration and that the regulatory community is very keen for practitioners to get as involved as they can be. To this end, the associations in charge of determining a suitable solution provider to build a legal entity ID system are in the midst of conducting a solicitation of interest exercise for these vendors to showcase their offerings and are keen for feedback from the market. The vendors have until 3 June to provide their responses to a set of questions aimed at determining their suitability for the job and the associations are urging practitioners to get involved in the selection process (check for a story on the subject soon).
Turning back to DMRAV again for a second, reassuringly, the subject of European and global regulation also came up as an important discussion topic – US centricity was not an issue. Speakers and delegates placed equal importance on non-domestic developments such as MiFID and Basel III. It’s a shame that regulators are not quite as joined up in their approaches as the industry would like. Bottega noted that for the OFR’s part, international cooperation has been successful thus far, with parties from the US, Europe and Asia all having contributed to the legal entity ID discussions. Long may it continue.
Look out soon for a selection of photo highlights from the day.