The New Counterparty Data Attributes

With increasing anticipation around regulatory change, the need for greater transparency and demand for information continue to be top priorities. It is now time for firms to ensure their systems and data can keep up with the regulatory overhaul. And considering the changing environment, it may not be a surprise that the need for more counterparty data fields is now regarded as a must by many.

Regulation continues to be a direct driver for data management projects, and with new requirements coming out left, right and centre there is a constant need to add more data. Even the anticipation and uncertainty of what is yet to come is making firms focus on having robust data sets to meet future requirements and mitigate risk.

London-based Julia Sutton, head of customer data, RBC Capital Markets, says one of the main drivers for firms needing to access more data fields “stems from what we can see happening with the regulators—we can see that they are moving towards much lower levels of granularity, so people are trying to align themselves with that. We know that whatever we do and whatever happens, these regulations are real and we have to be able to demonstrate we have control of our data,” says Sutton. “People are now trying to become pro-active rather than reactive by trying to be prepared for the regulatory changes we know are coming. We are all global players and have to comply with multiple regulators.”

Boston-based Fritz McCormick, senior analyst at Aite Group, also says these regulatory obligations will become, and are already, drivers for firms taking more data, and will grow in importance. “In the near term, firms will have to ensure they manage the increased expectations in the regulatory space, while in the long term it will be about analyzing and understanding more fully what data those regulations are going to require,” says McCormick.

Regulation is fueling the interest in data and impacting the requests data vendors are receiving from clients. Toronto-based Ken Price, CEO of counterparty data vendor Avox, says regulatory concerns have changed the nature of client demands. “We are now being asked to provide more data that supplements what we already have for the credit risk capabilities and operations, mainly because compliance and KYC have a deeper set of requirements depending on the level of the entity itself,” says Price.

The need to take additional data fields is also related to risk management. New York-based David Goldberg, managing director, head of the enterprise client data management program, BNY Mellon Asset Servicing, says he thinks the need to reduce counterparty risk has played a large role in the increasing need to have access to more data fields. Risk management around counterparty data has become more prominent due to events in the past couple of years, and as a result, counterparty risk management has become even more sophisticated, says Goldberg, who suggests that due to the increasing complexity of financial instruments, people are looking for more granularity, more detailed data.

The details needed means client data records can include a large number of fields, with the latest additions often being fields that help describe clients. Vendors have also seen firms adding fields on risk ratings and fields that tie the client to internal accounts and transactions.

McCormick says that especially from a risk management perspective, firms are looking at additional attributes mostly focused on counterparty risk mitigation. “It’s [about] getting more correct data on the nature of counterparties and clients, being more attentive across the organization to link positions, transactions and holding information based on those clients,” says McCormick.

The Culture Impact

The changing regulatory scene has also pushed firms to reduce the number of duplicate efforts within their organizations. McCormick says that while in some cases there is a very specific expansion of attributes and collaboration between firms, there is also a strong notion of what will happen when the regulation does arrive. “Firms must avoid duplicate efforts internally,” he says, adding that in some cases there is anxiety around how the regulatory obligations will be fulfilled.

The demand for additional data sets is currently aligned with quite a strong drive by senior management to amalgamate duplicate data collection and verification efforts to feed into credit risk management systems, says Price. Firms may have one team focusing on hierarchical data and some of the legal names and linkages between entities, another team doing client on-boarding and the annual or bi-annual data verification process to comply with the particular regulatory regime in that jurisdiction, and another cleaning up data for CRM. “What we are seeing is that the requirements are being looked at more holistically across financial institutions, and instead of having these teams doing redundant work, they are trying to consolidate them and have one team gather all the information and what is required to feed these different departments,” says Price.

Meanwhile, from an enterprise-wide perspective, the push for more data is being promoted by both compliance and risk teams. In fact, risk teams are increasingly more involved when it comes to data management in general. Copenhagen-based John Visti Madsen, head of market data sourcing and strategy, Saxo Bank, says: “You have to know your internal risks, and that is a fact that is driving this increase in demand for data.” At the moment, Saxo is putting a lot of resources into risk management to do more risk evaluation of instruments, he explains.

Previously, risk units were not as involved in data as they tend to be now. Risk teams have become a central element of the operations and are much more aware than in the past regarding what fields and data types firms subscribe to, says Madsen, adding that it is all about knowing your risk and increasing transparency.

The need to reduce counterparty risk has become a key driver behind the need for more information. Price thinks that while there is definitely a requirement for organizations to work more closely together internally, collaboration between the different teams has been forced upon them to some degree.

The work patterns have changed. “Previously, compliance would have been  driving any upcoming changes to regulation, which sometimes resulted in a delay before engaging with the operational groups, but now, with the strong industry groups out there involving us so much sooner in the regulatory lifecycle, sometimes it is the operational teams going to compliance,” says Sutton, explaining that the huge benefit we are seeing internally as a result is that there is  a feeling of partnership between operations and compliance.

This type of joined-up approach is resulting in better opportunities for firms to centralize counterparty data activities, ensuring efforts are focused on getting the right data in, and providing the relevant groups with access to the data they need. The trend towards taking more data attributes is only expected to increase—it is not only about meeting regulatory requirements, but also about mitigating risk.