To Address Risk Data, Consider Consortia

In a series of Q&As appearing over the last couple weeks of 2015, Inside Reference Data is asking financial services data management industry experts what progress they have seen in data management technology and leadership during 2015, how new and ongoing regulatory compliance and standards efforts will continue to affect data operations, and how increased attention to data harmonization efforts may change data management and operations in 2016. Today, we hear from Robert Iati, senior director of capital markets at Dun & Bradstreet.

What data management technologies have matured the most or gained the most ground during 2015?

The acceptance of consortia to collect and manage data within our industry will be the greatest catalyst for change. Capital markets institutions have always been very cautious and protective of their data, causing reluctance to participate in and trust third-party consortia with this responsibility. Now that the demands caused by onerous regulation and attention to risk have overburdened many with data management controls, firms can no longer ignore the potential benefits of consortia. We'll continue to encounter obstacles in this model that will alter the pace of adoption, but I've seen more knowledge and acceptance of them this year than I've seen in the past 25 years.

How will risk mitigation and management needs, along with Basel III and BCBS 239 regulation, affect how risk data is handled?

The challenge in managing risk data is less about the needs of specific initiatives, but rather, about how well we use all the data we have, and how our data management strategies and systems adapt to enable us to effectively address specific regulations. We know that risk and regulation will generate new data management requirements for the foreseeable future. To address this need, a different approach is in order. We will need to raise our game—to be smarter in how we acquire, cleanse, normalize, manage, govern and synthesize data in a way that reduces the noise and positions data to be a more valuable predictor of risk rather than a reactor to it.

Are EDM systems and efforts prone to issues with data quality and processing? Will those issues increase or be reduced in 2016?

The industry continues to increase its focus on data management. It has developed new technologies that have improved quality, in particular through the new consortium-driven efforts. However, until the industry can begin to address data management differently, data quality will remain an area of focus. Afraid of missing that one critical data element, many gorge on all the data we can get our hands on—much of it unstructured—but we still have not perfected a process that ensures that quality. As a result, these imperfect processes handle far more data than ever, which is a recipe for more problems. Sometimes it is simply bad data, but other times the problem is too much noise that obfuscates the right data.

What regulation will have the most impact on data management operations in 2016? Will it be MiFID II in Europe (if it remains in force starting in early 2017)? What will it be elsewhere, such as the Americas and Asia-Pacific?

To most buy-side and sell-side institutions today, regulation is no longer tied to a geographic region. They view regulation as a singular, universal concern. So the answer for our data systems is for our institutions to more effectively manage their data, enabling them to address all regulatory demands—current and future. If we think MiFID II or Basel III will have the most impact, we haven't elevated our approach beyond simply aiming to keep up with the latest regulation. We need to aim for a data management system to handle the holistic regulatory demand.

Are firms finding stores of data that can be used to address multiple regulations at once? Are they developing such overlap on their own or is such harmonization being driven by the compliance demands?

The easy answer is that it's a combination. For instance, we at Dun & Bradstreet have data and analytics on public and private companies, corporate family relationships, payment and public record information, and predictive risk indicators, which are used by firms to address a variety of risk and regulatory needs, from KYC and KY3P to BCBS 239 and the LEI [legal entity identifier]. Compliance is certainly the catalyst, but part of the new and more innovative approach adopted by our institutions is to seek out these data stores for this purpose. We've found that some of their legacy datasets can be mined and adapted to address multiple regulations, while, at the same time, new datasets are always being created specifically with regulation in mind.

How did the chief data officer (CDO) role evolve in 2015 and how may it continue to evolve in 2016?

Simply, the CDO's responsibilities and influence continue to grow. Not only has the CDO assumed the accountabilities previously held by operations or technology, but the CDO now has more influence on trading and compliance. With it, the CDO is forced to have greater knowledge of technology to manage data infrastructure and processes with a fresh eye and an agnostic business perspective, rather than one biased by existing technology platforms or solutions. As I stated earlier, we need to do things differently—and the CDO needs to introduce more innovative approaches to maximize efficiencies. Ten years ago, most would never have considered the role of CDO as one that requires innovation. But the demands of today's compliance environment has changed the playing field for everyone, including the CDO.