How to free your data for better risk management
Learning to love your data can lead to better investment decisions, better risk management and improved performance analysis. In a world where regulatory burdens continue to rise, the back office has never been more important.
They may not have grabbed the headlines during a busy 2015, but Basel Committee on Banking Supervision (BCBS) 239, Solvency II and Markets in Financial Instruments Directive (MiFID) II provided financial institutions with some of their biggest challenges of the last year. Whether dealing with new rules on risk data aggregation or requirements on liquidity coverage ratios, these mounting regulatory burdens placed great pressure on the ability of firms to respond efficiently and quickly.
Whilst new regulations introduce fresh complexities for firms, there are commonalities underpinning the regulatory demands. Data underpins every financial risk assessment and every regulatory filing. Many regulations require similar and familiar data fields, and some demand new ones – such as classification codes.
Even seemingly familiar and standard reference data fields can trip up a firm, resulting in compliance fines. Who knew that through the EU Transparency Directive Amending Directive it would be critical to understand (if filing in France) how long the shares have been held in order to correctly calculate your holding based on voting rights? Unlike many other providers, Thomson Reuters voting rights data takes this into account.
Regulatory change has introduced the requirement for market participants to source, manage, store and show confidence in their data. Attestation of data quality on regulatory filings is fast becoming a reality. Transparency is key. From this perspective, data management in combination with regulation and risk management emerged as the key trends in 2015 for financial professionals. They are also shaping the trends for 2016.
The financial trinity
The cost and time implications associated with meeting new regulatory reporting requirements and enhanced risk management obligations are both significant and unavoidable – particularly if your back office operations are stifled by legacy tools and technologies, and your data architecture diagrams resemble a plate of spaghetti.
In the context of today’s demanding post-crisis, risk- reporting climate, it is clear that regulation, risk and data management are the financial trinity. What is even more clear is that a firm’s effective control and management of its market data operations are absolutely critical for the efficient and assured delivery against regulatory and risk management needs.
Unfortunately, due to system complexity, some banks have been forced to invest more effort in the creation of their risk reports than in the analysis of the results. The first step here is getting the basics right. By transforming core business operations, banks can better position themselves to tackle the increase in regulatory pressure that they face in an efficient, high-quality, automated way.
There are multiple steps market practitioners must take to deliver on their risk and regulatory obligations with confidence, accuracy and efficiency. For these reasons, automation, data interoperability and developing robust enterprise data management models will remain important in 2016.
Data management becomes buy-side issue
The buy-side now finds itself front and centre of regulatory pressures that had been hitherto concentrated more on the sell-side, having to address infrastructure and data management issues, and understand and endorse the dynamics of previously outsourced processes in order to comply.
At the same time that financial institutions must comply with risk and regulatory reporting, the pressure for growth and better results is driving a need to reduce costs, increase automation and, ultimately, make better trading and investment decisions.
Continued investment in FinTech, as well as in managed services and utilities, will also drive increasing collaboration and partnership across the industry as players seek to focus on their core business, achieve growth and scale, and deliver efficiencies and automation.
Thomson Reuters is committed to partnering with the market’s leading (indices) service providers, ensuring market participants are able to benefit from our award- winning content via multiple partners, platforms and applications. Banks will continue to invest in FinTech in their quest for bank digitization.
Setting data free
Risk, regulation, data management and technology are inextricably linked in the drive for greater efficiencies. Setting data free from the silos in which it has been hitherto trapped is a key enabler for adopting a proactive approach to the management of risk, enabling growth-oriented decisions rather than post-event mitigation decisions.
Firms will begin to see additional benefits through managing their data more effectively – better investment decisions, better risk management, improved performance analysis, and holistic and creative customer service.
The investment in data will deliver returns for years to come.