No Single View of Single Client Views

If the financial services sector existed in a perfect world where pristine data management was king, firms would undoubtedly maintain a single view of their clients. As it is, deposit-takers operate in a scrambled labyrinth. By failing to homogenize during badly managed pre-crisis mergers and acquisitions, and because subdivisions within firms snubbed each other as their data management platforms evolved, customer data has become increasingly siloed.

The upshot is mildly perilous: if a single client holds a number of accounts across a number of business lines, there is a stout possibility the deposit-taking firm will not know about it.

Although the layman might be surprised that single customer views (SCV) have not been necessitated before now, the mundane truth is that while industry participants can appreciate blue-sky clichés such as “a greater depth of understanding,” “enhanced client relationships” and “knowledge of one’s own business,” the ideological advantages of SCVs have never been seductive enough to out-do the obstacles of implementation. This is why regulation has had to take the wheel.

Since the crash, reforms have swept the G20 nations; Australia, the US and the European Union are all developing SCV regulation, but it is the UK that is leading the way, with firms being expected to generate a SCV file by the end of the year.

And yet, in a recent survey by DataFlux and JWG, only 14% of UK firms are embracing SCV compliance as a vehicle for competitive advancement. Market insiders are warning that by neglecting to take advantage of SCVs, firms are set to lose out.

Data Fudge

As compensation scheme regulations stand in places such as the UK and Australia, deposit-takers are not required to provide SCVs for all clients. Rather, they are mandated to supply data for a small subset of their customer base, typically small firms and individuals who are eligible for compensation in the event of a default.

Cost-conscious firms have realized that to meet this regulation, they are free to contribute the bare minimum in terms of SCV implementation. “Even the most forward-thinking banks have been circumnavigating elegance and efficiency for good old-fashioned data fudging and screen scraping in their effort to present a single client view,” says London-based Alex Kwiatkowski, principal analyst, financial services technology, Ovum.

By compartmentalizing SCV reporting in this way, SCV files may be under-used—available when asked for but largely redundant in terms of the day-to-day operations of a firm. With the current focus on reform, market participants are frank about the fact that SCV regulation is being pigeonholed as just another box-checking exercise. “The climate at the moment is very strong on regulation, so basically if it’s a directive coming from the FSA, it’s something we want to take very seriously,” says London-based James Williams, head of operations engineering and strategy, RBC Capital Markets.

Williams adds: “It would be beneficial in terms of establishing our single position if we were looking to do an exercise across all our clients, but as it is that’s not what we’ve been targeted with by the regulator.”

Despite the regulatory stigma attached to SCVs, there is a whiff of a saving grace. Although the DataFlux and JWG survey found the majority of firms were not “investing in developing world-class capabilities,” 57% said they were “starting to put a basic toolset in place to address business and compliance drivers other than compensation scheme reform.”

Indeed, market insiders are reporting a palpable shift towards leveraging SCV reporting in lieu of the old “box ticking” adage. In particular, there is a growing consensus that without de-scoping or corner-cutting, enterprise-wide SCVs can act as a business differentiator.

“We’ve spoken to a number of forward-thinking firms who now recognize the business value of a more holistic view across the enterprise,” says London-based Darren Marsh, European business manager, risk management and compliance services at Interactive Data. “As part of a strategic rethink of SCVs, firms are beginning to recognize the pitfalls of ‘reinventing the wheel’ every time a new regulation comes along.”

For Colin Rickard, managing director EMEA, DataFlux, the pièce de résistance of enterprise-wide SCV implementation is the elusive single view of risk. “At the point of lending,” says Rickard, “a single view of risk would be a huge benefit offering potential competitor advantage. Without it, you have to be more conservative with lending and less competitive with pricing.”

A Deadline in the Ointment

Although grandiose plans for enterprise-wide SCV reforms are seeping into the sector’s consciousness, there have been cries of foul-play. Some London-based industry experts fear tight deadlines in the UK have straight-jacketed deposit takers into box-checking rather than implementing SCV initiatives effectively.

London-based PJ Di Giammarino, chief executive at regulatory think-tank JWG, explains: “There was too much time spent deliberating the set of requirements that weren’t pegged down to any real satisfaction of the industry. As a result, firms have had to spend a lot of time and effort working out what they thought this all meant, and once that was done there wasn’t time.”

Comparing SCV deadlines across the G20 nations, there is certainly a sense that UK firms are playing hare to everyone else’s tortoise.

As part of Australia’s compensation scheme reforms, the Australian Prudential Regulatory Authority (APRA) is in the midst of a consultation with deposit-takers that is expected to stretch on until April next year. Although the official word is that SCV reporting will begin in early 2012, an added stipulation means firms will be able to apply for a further two-year transition period. On this basis, some deposit-takers in Australia might not commence SCV reporting until 2014.

In the US, SCV regulations are even more ambiguous. In the extensive Dodd-Frank Wall Street Reform and Consumer Protection Act, “SCVs are not mentioned specifically,” says Nick Paraskeva, principal of US-based regulatory information provider Reg-Room, “though as part of proposals around the new living wills required for systemically important firms, I expect regulation to be outlined over the next six months.”

Despite the ostensibly unfair lack of uniformity popping up across the globe, some voices are far from sympathetic. “Firms will always raise concerns over implementation timescales, but they can’t be surprised over this as it’s been around long enough,” says Ovum’s Kwiatkowski.

Highlighting the fact that, as a concept, SCVs have been around for more than a decade, Kwiatkowski argues that deposit-takers should never have shied away from implementing SCVs when they transformed their front-end systems prior to the recession. “Instead of tackling some of the thorny problems head on, each internal ‘empire’ developed its own data management system. Now that short-sighted decision is going to come back and bite firms in a fairly sensitive place—their wallets,” he says.

DataFlux’s Rickard is slightly more agnostic. “Are the deadlines stopping UK firms from implementing strategically?” asks Rickard, “yes and no. If your plans aren’t very well down the road now, then yes, but actually if you looked at this a couple of years ago, you could have made the January 2011 deadline date a step towards a strategic business-wide SCV implementation rather than an isolated and tactical solution.”

The truth is that with the UK jumping the gun on SCV reforms, there is scope for other G20 nations to learn lessons, not just about timelines and deadlines, but also about the best ways to implement strategically.

It is too early to say if SCV requirements will play a big part in changing the way firms manage data. It sounds as though the requirements can present an ideal opportunity for firms to kick-start strategic entity data management programs, but it is now up to the data management community to identify the best way to meet both regulatory and internal requirements.