As I previously predicted, the spectre of incoming regulation and the standards developments around a new legal entity identifier (LEI) were popular topics for discussion at yesterday’s Data Management for Risk, Analytics and Valuations (DMRAV) conference in London. Panellists and delegates alike discussed the changing dynamics within the data management universe that have meant much more investment and attention has been directed towards the function from both regulators and the industry as a whole. The LEI discussions in particular were also likely prompted by last weekend’s G20 pledge of support for the new identification initiative.
Saturday (15 October) saw the issuance of a G20 communiqué indicating the group’s support for globally coordinated standards initiatives such as the one that has sprung up around the LEI. To this end, it states directly: “We underscored our support for a global legal entity identifier system which uniquely identifies parties to financial transactions with an appropriate governance structure representing public interest.”
The pledged support for the establishment of a new global LEI is therefore predicated on the adoption of a suitable governance structure for the system (an issue that I raised during Sibos. No doubt the topic of a potential conflict of interest between commercial and cooperative/industry utility focused activities will be a particular point of focus for the group.
Noting that the meeting was conducted at a time of “heightened tensions and significant downside risks for the global economy” and that the priority is to restore confidence in the markets, the G20’s statement highlights the importance the group is placing on global coordination and increased transparency in the markets. Hence the group has been working on an action plan that it will present before the leaders of the G20 at its meeting in Cannes next month, during which data standards and their place in monitoring systemic risk are likely to crop up, even if the LEI is only briefly mentioned (as in this communiqué).
Moreover, the focus of the group in all these efforts is in implementing “enhancements towards a more integrated, even-handed and effective surveillance framework” across the globe. Hence new trade data repositories are also on the agenda, as well as better definition of systemically important financial institutions (SIFIs) and enhanced oversight of the shadow banking sector. The communiqué also notes: “We reaffirmed our objective to achieve a single set of high quality global accounting standards.” Pricing and valuations teams take note.
Building on my blog from last week about the increased strength and capabilities of the Financial Stability Board (FSB – see here), the communiqué also states: “To ensure that the FSB keeps pace with our ambitious financial regulation agenda, we commit to strengthen its capacity, resources and governance building on its chair’s preliminary proposals and call for first steps to be implemented by the end of this year.” Increased powers are on their way for the global body before the year is out.
Turning back to DMRAV for a second, panellists including Matthew Cox, managing director of BNY Mellon, and Chris Johnson, head of product management for market data services at HSBC Securities Services, (see more on their panel here) discussed some of the regulatory developments and the LEI. Cox explained that the LEI is a desirable development for the industry provided that it is globally accepted. Having to map to countless different nationally divergent LEI standards will not result in any perceived benefit in the long run. Standards for standards’ sake add cost and complexity without any benefit to the industry (or perhaps even regulators).
One message that was clear at the event, however, was that regulation has raised the profile of data quality initiatives and underlying data management infrastructures within financial institutions. It has put data management on the map of business concerns for CEOs and their C-level counterparts, as a discussion topic and potential concern (even if investment in new systems is not yet forthcoming for all players).
As Victoria Stahley, associate director of client data management at RBC Capital Markets, said: “Data managers shouldn’t waste the opportunities presented by a crisis.”