UK FSA to Review Industry Guidance Proposal

London - UK regulator the Financial Services Authority (FSA) has agreed to review JWG-IT's formal industry guidance draft brief defining the practices firms need to adopt to comply with regulatory initiatives that cover customer data, a move some industry participants see as a step towards self-regulation.

The think-tank will submit a formal industry guidance draft brief to the FSA in February 2009, with the aim of these guidelines achieving FSA Sturdy Breakwater status.

JWG-IT has completed the initial outline and the cost analysis of the initiative. "We are now looking at the baseline process that is required to maintain customer data and the reference issues the banks are wrestling with," says London-based PJ Di Giammarino, chief executive at JWG-IT.

The initiative has also given the industry a chance to reduce counterparty data-related costs. London-based Julia Sutton, global head of customer accounts at Citi and member of the Customer Data Management Group (CDMG), which is defining the minimum standards required for the rolling review of wholesale customer data, says she hopes it will give the industry a framework for budgeting and what is needed to maintain customer data well at reduced cost.

"It is giving us a measure we can use to see what needs to be done and how much we are spending as an industry ... It's the first time we have had an opportunity to work out just how much money we spend to meet the regulatory and business requirements in this area," she says.

The final guidance, which will be released on the group's website by early April, will enable the industry to have common views on how to meet customer data guidelines and principles introduced by regulation such as MiFID and the Third Anti-Money Laundering directive (AML III) (Inside Reference Data, October 2008).

"The idea is to get together as an industry group, work out what the minimum requirements are, go to the FSA with them and adopt them across the bank. This is the way we need to go," says Sutton.

Up to this stage, JWG-IT has identified 17 key issues the firms are looking to offer guidance on, and has identified the minimum data set of customer data that will be required for review.

The CDMG is solely focused on mitigating regulatory, operational and reputational risks inherent in the "rolling review" requirement recently introduced into Europe. The scope of the dataset is defined by the requirements in AML III, MiFID and the Data Protection Act.

One of the most basic challenges being tackled is the definition of what a customer data set is. The terminology used to refer to the different data entities varies and depends on the institution, what type of business it does and its internal managerial policies and controls, says Di Giammarino. Sutton says defining common standards has not been a short process, as getting through the different terminology, processes and issues is a complex task.

Meanwhile, market participants have seen the FSA's agreement to review the proposal as a move to self regulation. Sutton says: "We seriously believe the regulators should be coming up with regulation based on industry knowledge and yes, we need to be regulated with eyes wide open to the operational challenges we face on a daily basis."

"It's a good initiative for people to get involved in ... Anything we can do with the regulators' blessing enhances protection levels for the industry as well as the individual firm," she adds.