Accuracy in the Financial Data Supply Chain
Financial firms are looking to data standards for cost savings and efficiency in meeting regulatory compliance, says GoldenSource, provider of open enterprise data management (EDM) for financial institutions.
Improving standardization across the industry can be as simple making sure a bond yield communicated by one institution is interpreted the same way by another.
To convey how big the problems of communication are within financial services today, European repositories recently reported that up to 60 percent of the derivative trades reported under the European Market Infrastructure Regulation (EMIR) cannot be matched with their counterparts' reports of the same transactions.
This astoundingly low match rate is largely credited to the room for interpretation of the technical standards and protocols. Risk Magazine reports slow adoption of legal entity identifiers (LEIs), misuse of unique trade identifiers (UTIs), or simply using an ampersand in one report and “and” in another can cause a headache for the repositories.
That's a bad sign for the US SWAP data repository, which requires only one party to report the transaction on behalf of both parties -- how can the reports be trusted? Truly, repositories are facing the largest data challenge, dealing with different companies speaking in different languages, but the inefficiency from different formats is a problem throughout financial services.
The FIBO (Financial Industry Business Ontology) standard is helping to address miscommunication and maximize efficiency across the industry. FIBO is an industry initiative facilitated by the EDM council, a trade association of more than 100 global banks and other industry participants, working to establish a common language, including defining industry terms and a reference point for data alignment.
GoldenSource is a founder of the EDM council and has mapped its platform to FIBO. This allows any information a firm is using within its organization to be extracted with a FIBO tag attached for communication between different departments or outside the firm. This includes transaction, risk exposure, security, front office to back office communications, or OTC swaps where one party needs to report the transaction on behalf of both parties.
A lesson from retailers
According to Stephen Engdahl, senior VP of product strategy at GoldenSource, when it comes to counterparty reporting and building standards there are many best-practices from other industries that financials can draw on, particularly from retail:
"Consider the retailer’s supply chain. They’ve managed to gain agreement on communication protocol, standards, things we also talk about in financial services, but they've been able to automate across institutions to a very high degree to a point where retailers and distributors and manufacturers can communicate. They don't just optimize within their piece of the process, but rather they’ve really gotten things so tightly wired that they can prevent stacks of inventory in physical warehouses."
He adds that many suppliers have developed “just in time” manufacturing and shipment to the retail point of presence, whereas as soon as an item is purchased or ordered it sets in motion a sequence of automated events that transmits right back to the supplier about inventory in each shop. “That’s giving a lot of visibility to the supplier and downstream visibility into the internal operations of the retailer. You couldn't optimize for it if they kept that information private. There’s a lot more openness.”
“The time is right for this.”
Like the retail model, the view that information must be kept proprietary is rapidly fading away in exchange for this industry efficiency. Growing interest in extracting more value from quality data used for compliance is furthering interest in data standards.
Engdahl says he’s seeing lot of service providers looking to launch shared service for data, and has noticed a significant jump over the last year in the RFIs and RFPs for FIBO mapped platforms. “This type of thing was once every two years or so, usually somebody just putting their toes in the water to explore what's going on in the industry and what services are available -- now it’s become a couple each month. This is still very early stage of this being put into practice, so the interest is there and the exploration is there…
“The industry has not been ready to look at how we can make systems better across institutions until now,” says Engdahl. “The time is right for this.”
Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio
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