Data Standards Can't Keep Up with Data Use Cases

It’s been 12 years since the 2008 financial crisis, which prompted an era of increased regulatory oversight and industry-wide pursuits of data standards. As pivotal a point as that year was for financial services, the big data boom was still around the corner. While data has grown and continues to grow exponentially, areas that demand data standards have also grown almost too fast for the industry to keep up.

Datasets like environmental, social, and governance (ESG) data remain sorely lacking in standardization, as do more basic areas of data governance, such as know-your-customer (KYC) data, said industry participants speaking on a virtual panel at WatersTechnology’s Innovation Exchange event.

A client can be a counterparty, an issuer, a technology vendor, a consulting services provider, a combination of those things, or all of them at once, said Dessa Glasser, principal at risk management services firm FRG, and board member at Oppenheimer Holdings. In order to get a “360-degree view” of a client and gauge exposure to them, a firm has to be acutely aware of all the ways in which they deal with that entity.

“[If] you do something in one area, you may say it’s a very small client, or if they’re a vendor and you upset them in one area, you may not get the next bond issue,” she said.

Though there are a host of KYC information providers to choose from—including IHS Markit, Dow Jones, LexisNexis, and Refinitiv, which scrapped its KYC-as-a-service, but remains invested in its KYC products—Glasser said an initiative like the Legal Entity Identifier (LEI) could be a standard that solves the 360-degree view problem.

However, the LEI—a 20-digit, alphanumeric code based on ISO standard 17442 and developed in response to 2008’s events—is taking so long to get to a critical mass of adoption that the financial industry is losing faith in the initiative.

That is the heart of the issue. Good standards without practical timelines to implement them leave vendors to plug the holes and data users with headaches.

Last year, buy-side organizations and the Financial Information Services Association (FISD) of SIIA, the Software and Information Industry Association, began a push for the industry to adopt alt data standards in response to firms struggling with the data science aspects of integrating the data. Meanwhile, the alt data industry grew to $1.64 billion this year, and is projected to reach more than $17 billion by 2027. And for all the money that’s been poured into ESG investing—the value of global assets using the data hit more than $40 trillion this year—there’s still no widespread agreement on how to report ESG data or compose ratings.

Panelist Roger Fahy, vice president and COO of Cusip Global Services, said the explosion of alt data and the increasing importance of data science to the financial services industry has put pressure on data management organizations and the content itself to ensure commonality across disparate content sets.

It’s an interesting situation for the industry to be in: Trading firms actually want to see greater standardization, and organizations around the globe are trying to find solutions, but the progress being made is very slow at a time when new datasets are coming to the market every day. Right now, it would seem, there is no clear way forward.