This insight was originally published as a guest article in Data Management Insights, A-Team Insights. Click here to view.
In a digital world where the volume, velocity and granularity of data continues to increase, there is even more potential to leverage the data created. In the financial services industry, firms have recognized the power of data for oversight, compliance and policy development. Regulators across financial markets are also recognizing the role that such data can play in supporting their objectives. High quality data enables regulators to identify risks, design effective policies and take targeted action.
Against this backdrop, regulatory data collection initiatives are proliferating, with regulators and industry bodies driving adoption of data interchange measures. The question that we’re increasingly seeing at Lab49 is: how can firms balance the increased costs and efforts associated with responding to these initiatives whilst thriving in a highly competitive environment?
Moving markets
The necessity of responding strategically to regulatory data collection initiatives is clear for firms wishing to maintain a competitive advantage. The recent unrest in US financial markets highlighted this for many across the industry. The benefits from analysing comprehensive, high quality, interoperable data are progressively more obvious for financial stability analysis, market monitoring and policy making (OFR) to ensure the smooth running of today’s financial institutions.
Elsewhere, we’ve seen the FCA and Bank of England collaborate to transform data collection in the UK financial sector. It will be interesting to examine whether the goal of regulators receiving the data they need while at the lowest possible cost to the industry is achieved with this specific project under such public scrutiny.
Firms that use the data they generate to enhance decision making – through greater analytical insights, improved risk management, cost optimization and automation – will be able to weather today’s increasingly unpredictable industry.
A balancing act
For firms facing collections of data, implementing a robust strategy for responding to regulatory data collections is essential if they wish to effectively utilize the vast amounts of data collected. Firms that use the data they generate to enhance decision making – through greater analytical insights, improved risk management, cost optimization and automation – will be able to weather today’s increasingly unpredictable industry.
To achieve this, firms face a tightrope of sorts between balancing the increased costs that can be associated with responding to each and every data collection initiative and maintaining a competitive advantage in the industry.
Data collection is a significant challenge for firms. Responding is costly, particularly without an established common standard. If firms are not implementing and following best practices in data collection initiatives, they can expect these processes to require time, effort and resources.
Afterall, if they want to balance ensuring data is suitable for each collection whilst reaping the benefits of high volumes of data, they will have to be thorough. Furthermore, mapping, aggregating and cleaning data, which may also be fragmented and siloed, will only worsen the mountain they face. It is a costly and time intensive position to be in.
Firms must respond to regulatory data collection initiatives strategically, with each step forward only taken in the context of a data-led vision.
Is standardization key to success?
While work by the FCA and Bank of England to transform data collection is underway, there is no commonly agreed standard or format in practice. In comparison, the globally agreed principles for financial data exchange focus on control, access, transparency and security. These principles have already encouraged greater data transparency.
What’s more, the embraced open banking and open data approaches have positioned the UK and Europe as leaders when it comes to regulatory and legal frameworks for data governance, interchange, security, and management. In turn, this encourages competition, attracts more organisations and prompts other markets to follow suit.
For regulatory data collections, the benefits to be had from a common standard are just as numerous and important. While implementing a common standard for regulatory data collection initiatives would be the optimal outcome to help overcome these issues, these changes will not be achieved easily or quickly (Bank of England).
A common standard for regulatory data collections will not only require major technical change, including updating legacy systems, but also cultural shifts. The natural instinct within the financial sector is to keep your data and insights to yourself in the hopes of gaining an advantage over your competitors. In fact, the European Commission believes only 10% to 20% of the potential value of data generated in the financial sector is currently accessible.
By establishing more mature data capabilities, firms can drive increases in data utilization and unlock opportunities for growth.
Best practice
In the absence of officially agreed global principles, it is essential for firms to implement their own strategy and follow best practice. This will allow them to successfully use the high volumes of data collected. As the industry faces constant change, best practice data production and management is much more than a single project or initiative. It requires an ongoing operating model and management.
Best practice data projects are those that plan in alignment with strategy and goals; define data transmission, data contracts and controls; assure data through validation and quality routines; assume change and make clear decisions. Strategies with these key foundational blocks will ensure data ownership and control. From our experience, no firm wishes to wait and react to initiatives.
In the face of increased regulatory data collection initiatives, top class data production and management can have multiple advantages. Verified, reliable and available data, which is a result of the best practice outlined, enables firms to drive insights, opportunities and increase value. What’s more, it allows them to share data with regulators and clients with the confidence that it is correct.
Unlocked advantages
Firms must respond to regulatory data collection initiatives strategically, with each step forward only taken in the context of a data-led vision. By establishing more mature data capabilities, firms can drive increases in data utilization and unlock opportunities for growth. Greater insights, analysis and predictions will provide a competitive advantage in our complicated and fast-paced financial environment. This will ensure that firms can balance responding to increased regulatory data collections while maintaining their competitiveness in the financial system.