SIFMA 2010

While the annual Sifma Technology Expo in New York in June was less crowded than many attendees had expected, there was no lack of panel discussions and general conversations focusing on regulation, with the efforts, challenges and expectations around data management taking centre stage.

The need to better understand systemic risk and the proposal to set up the Office of Financial Research (OFR)—a data and analysis centre aimed at helping US regulators gain insight into systemic risk—were ongoing themes throughout the conference. But talks also went beyond the OFR, touching upon what regulators will need to make sense of the data, increasing concerns around transparency of illiquid assets as well as questions about whether a systemic regulator could have prevented the crisis altogether. Inevitably, many speakers and conference-goers agreed it all comes down to data.

Earlier in June, a couple of weeks prior to the conference, this was also underlined with the publication of the Systemic Risk Information Study, by Sifma and Deloitte. The study, which senior executives from 22 regulators and globally systemically important institutions participated in, aimed to promote awareness and understanding around systemic risk information, while assisting the industry and regulators in preparing for the forthcoming systemic risk regulation as well as the information requirements that will come hand in hand with it.

One of the conclusions of the study, which was further discussed at the New York conference, was that by adopting a data warehouse-based approach, a regulator could potentially achieve a granular view of data for systemic risk purposes. This option would require regulatory bodies to have a central data warehouse capable of receiving and storing transaction- and position-level data from all relevant financial institutions, while being able to access and analyze data to identify, measure and monitor systemic risk. Yet, the study also highlighted that this was the least popular option in the industry, raising concerns around the viability of a regulator succeeding with this in practice.

Market participants who took part in a Sifma roundtable discussion said firms claimed this approach would be impractical for a systemic risk regulator to implement. According to the report from the study, a data-centric approach poses the risk that the systemic risk regulator could "miss the forest for the trees." "Relying on an approach focused on massive quantities of granular information could provide a false comfort to a systemic risk regulator, who should consider a more holistic view, such as of overall trends, major concentrations and imbalances, and significant interconnections between firms," said the report.

At the Sifma Systemic Risk Symposium held in New York in June, it was established that regulators would have to decide on the right mix of solutions to tackle the systemic data risk aggregation problem, and again, the OFR approach was not popular. "One of the solutions that received the less popular response was an uber data warehouse that would store all the positions for all firms—the impracticality of doing that across all firms was very real," said New York-based John Avery, partner, SunGard consulting services.

Recurring Questions
Just as the study and conference discussions showed, it has been this degree of concern that has impacted the OFR directly in the past months. Many of the questions seem to remain unanswered, and while industry experts agree efforts to better understand systemic risk should be given a priority, talks around whether the OFR proposal could only be regarded as a utopia as opposed to a feasible option continue to grow. How a utility-based proposal could work in practice remains the controversial area of discord.

New York-based Marty Williams, vice-president, reference data product development at Interactive Data, says: "The goal of managing systemic risk is worthy, something that is in the interest of everyone in the market-place, and if people want to manage systemic risk on an industry-wide scale, the issue of getting high-quality data as well as the creation of standards would be essential." The question is around the execution of the proposal itself, he added.

"One of the challenges the OFR faces is co-ordination globally, because so many firms are global and operate in so many different regulatory venues. The question is how broad the co-ordination efforts will be and how successful they will be," said Williams.

New York-based Anthony Scianna, executive vice-president, product management and strategy, at SunGard, says compliance will not be possible without the right data. "The OFR will have to make sure they are strategic in how they roll it out. The OFR is a great idea, but the question remains how to get there and make it a viable option," he said.

But while the utility-based approach was criticised throughout the Sifma week, many now conclude the OFR discussion has at least helped put data management requirements on the agenda. Keith Saxton, global director of financial markets at IBM and speaker at the Sifma conference, said the OFR will be instrumental in creating and pushing forward a healthy debate around data management and what data firms should really be focusing on, for themselves and for regulators. "Most organizations want to give the impression they are very good at data, but many are really struggling when it comes to data management, and that applies to both the central banks, the regulators and many of the firms," he said, adding firms have to tackle the data challenge bottom-up, and recognize the opportunity for operational efficiencies.

TowerGroup's research analyst Stephen Bruel says he thinks there has been a shift in attitude with regard to regulation and business needs in the industry. "Last year, people were more concerned about the slow speed the regulatory agenda was taking, but it seems that now they are glad discussions are ongoing and the real issues are being explored," says Bruel, adding that many have now realized the draconian set of rules some expected months ago may end up being less so.

And New York-based David Goldberg managing director, head of the enterprise client data management program, BNY Mellon, says he has seen the level of awareness around data management undergo a boost over the past three years. "There are now more defined roles around data management within the industry, and it is starting to become a substantive career path for younger professionals," says Goldberg.

Only time will tell to what extent the regulatory focus will impact data management in the long run, but experts agree changes are already taking place. Based on the latest talks at Sifma, firms that have not started to consider their data management practices will have to do so to avoid falling behind the regulatory wagon.