Data Quality Issues Vex Industry
Financial entities operate against a backdrop of risks: market, credit, operational and now, reporting risk. Companies face stiff fines for misstatements to regulators, calling into question the quality of risk management practices that must comply with increasingly granular reporting demands.
The upshot is that firms across the spectrum– investment banks, broker-dealers, hedge funds — must be able to gather disparate financial risk, markets and reference data across asset classes in a consistent, and easy to access format.
“Outside of two or three of the tier 1 players, almost all institutions have issues with data, data quality and the ability to provide accurate consolidated reports,” Brian Sentance, CEO of a provider of analytics and data management provider Xenomorph, told Markets Media.
One reason for this is the legacy systems found in different departments. “During the pre-crisis era, having a consistent enterprise data architecture for regulatory reporting was not a primary concern,” said Sentance. “Financial firms need to better understand, and capitalize on the fact, that data is one of their major assets and worthy of appointing someone with specific responsibility for data, such as a CDO. Data should be left as a secondary consideration for an already over-worked IT department.”
Earlier this month, the CFTC announced that it was filing and simultaneously settling charges against ICE Futures U.S. for submitting inaccurate and incomplete reports and data to the CFTC over at least a 20-month period. According to the CFTC order, on every reporting day during the period, ICE submitted reports and data containing errors and omissions, with cumulative inaccuracies totaling in the thousands. The CFTC imposed a fine of $3 million and ordered ICE to comply with undertakings to improve its regulatory reporting.
“The $3 million fine imposed by the CFTC on ICE Futures underscores the industry wide need for more stringent data management and reporting measures,” Sentance said. “We will continue to see cases such as these as long as regulators remain aggressive in wanting to enforce fines.”
This will be an ongoing pain point for the industry that firms are still trying to address through the application of data governance and the mapping out of their usage of data. Even with such policies and maps in place, challenges remain as firms are often slow to obtain clean data, utilize unique trade identification tools, and reconcile the reported data.
Regulators and regulated entities often play a game of cat and mouse, with regulators keeping regulation deliberately vague to see what the regulated do and learn from it, and the regulated being frustrated by the lack of specifics and waiting until the regulator tells them what to do.
“As regulators are now more serious than ever about applying fines for errors and non-compliance, from banks to hedge funds to now traditional asset managers, there is likely to be more trouble on the horizon,” said Sentance. “In order to succeed in this murky landscape, financial firms must have a good understanding of where they are where they want to go before embarking upon any major changes to their data and IT architecture.”
Featured image via Dollar Photo Club
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