Associations Launch Utility Activities, But Questions Still Raised Over Centralized Approach

HONG KONG/WASHINGTON, DC - The reference data utility propositions led by the European Central Bank (ECB) in Europe and the National Institute of Finance (NIF) in the US, have generated momentum in recent weeks, with the launch of several related programs to help facilitate discussion around the initiatives, but there are mixed views about the viability of the work, officials tell Inside Reference Data.

Both utility proposals are addressing systemic risk needs, and the activities are aimed at ensuring data is collected in a standardized format and stored in a central repository. While one of the goals of the NIF proposal is to provide regulators with quality data, the ECB proposal focuses on providing standardized data to the industry (Inside Reference Data, September 2009).

To follow the work on both sides of the pond, industry association FISD has set up a new utility working group to facilitate discussion among the FISD members about both the NIF and ECB and the challenges the initiatives face.

Washington, DC-based Tom Davin, FISD managing director, says: "The new group will identify gaps in the proposals and discuss issues and concerns with the aim of making them stronger and more feasible." The group will be a real asset for both initiatives due to the high levels of reference data and data management expertise in the group, he says.

Washington, DC-based Bill Nichols, program director at industry association FISD, convener of WG1 and member of the new utility working group, says: "We are engaged in a dialogue on a regular basis with those involved. As members raise issues we will inform those involved in the initiatives while trying to bring members' expertise to the table."

The FISD working group's first meeting, which took place in August, served as an information-sharing experience around both the ECB and the NIF proposal. The group's second meeting is expected to take place in October.

EDM Council Embarks on Utility POC

At the same time, industry association EDM Council has formed a new group, and started weekly meetings to complete a proof of concept (POC) of the reference data utility approach. The group, focusing on process flows for mortgage-backed securities, is set to test data flows and show how the reference data utility architecture would work. "We are just demonstrating that the idea everyone is jellying around will work," said Washington, DC-based Mike Atkin, managing director at the EDM Council, at a briefing in London in September.

The group, aiming to finish the work by the end of the year to present to regulators in time for reform, is demonstrating that semantics are there, and that it is possible to tag the data. By taking data from vendors, applying unified standards for data collection, mapping data against the semantics repository and applying unified standards for data distribution, the EDM Council aims to prove that the data aspect of the utility approach is feasible. "I want to separate out the data issue from risk," he said, underlining that the group is not proving that it is possible to use this for systemic analyses.

The POC is currently focused on mortgage-backed securities, and it was explained that this is because mortgage-backed securities is the area people want to look into. Since the group understands how the process works, they can now identify where the gaps are and where the data gets lost.

Yet, some Council members questioned the need for a proof of concept of the data flows, claiming vendors are already tagging data and making it accessible. Instead, members said political issues raise greater concerns, and getting all regulators to adopt external data dictionaries and disregard existing dictionaries could be a challenge. But Atkin stressed the group focuses on data. "I categorically believe comparability of data is at the core of all this," he said.

Sibos Speakers Question Backing

Still, at the Swift-organized conference Sibos in September in Hong Kong, panelists said the utility route does currently not have the necessary backing it requires. Zurich-based Thomas Gross, CEO, SIX Telekurs, said there is little confidence that it (the reference data utility proposed by the ECB) will be a top priority or that it will be successful. "The main challenge is to get enough people to believe in it ... people remain skeptical," he said.

In Asia, where the conference was held, panelists said the fragmented market means it is even less likely to work there than in other markets. Singapore-based David Gilmour, global product head, securities services, transaction banking, Standard Chartered Bank, said while he thinks the utility would be beneficial for the industry, getting to that stage would be difficult. "Unfortunately for Asia, which does not have a central currency or central bank, trying to get some consistency across the region would be very complex," he said, adding that while the region is ready for a utility approach, getting consensus remains the challenge.

The concerns are also shared by some data experts in Europe. Market participants have now started questioning if the utility would be fit for purpose, meet requirements for flexibility, and to what an extent it would tackle the real challenges in the reference data space.

London-based Paul Kennedy, business manager, reference data, Interactive Data, said: "It's not about having a utility to deal with issues, but about having the global market infrastructure and having the right data at the right place at the right time." In the same way standards are only useful if they are fit for purpose - any form of utility will only be successful if it is fit for purpose, he said.

In addition, market participants have raised questions about expertise and ownership. London-based PJ Di Giammarino, chief executive at regulatory think-tank JWG-IT, says there is a tenuous connection between the NIF, EDM Council's semantics repository and the ECB initiatives. "These initiatives do not have strong engagement models with the senior bankers that matter," he said, adding that one of the risks the industry is facing is not having a solid view of what the problem that has to be tackled is, who owns it, when it needs to be done and the downside of not doing it.

"They might end up with a solution that is looking for a problem as opposed to a real solution to a real problem the industry agrees to," says Di Giammarino.

It is also unclear who would own and manage the utility. "I see how the reference data utility can be good for the industry, but who is going to take ownership will be one of the main issues," said Copenhagen-based John Visti Madsen, team lead data management at Saxo Bank.

And some question if professionals are interested in having an active role in the utility work. "I don't think the role of reference data utility manager, for example, could be easily sold to data experts," said Interactive Data's Kennedy.

Still, to address the ownership challenge, the EDM Council announced in September that the association is forming a board committee to look at the governance process of the utility. Further information about this will be released in December, and so far Atkin said: "I don't want to presuppose what the outcome will be."