Moving from regulation-based risk management to strategic, single-view of the truth data architectures.

This was one of the key conclusions reached at the quarterly meeting of the European Risk Management Council on December 10, 2018, in London.

It’s been a busy year for Digiterre and CEO Ian Murrin was invited to present a case study on the deployment of “Single View of the truth” real-time data architectures to solve regulatory-driven reporting and analytics challenges in large financial institutions at the European Risk Management Council’s Fintech think-tank meeting. This invitation-only event encompassed discussions around Data & Regulation, Cyber-Security and Data Privacy together with the more usual fare of market and Liquidity Risk concerns. This meeting had 25 CROs, C-level executives, board directors and other senior executives from banks and other financial institutions. The event is held under Chatham House rules.

Here are some of the key topics that were discussed by the Group at this meeting.

How prepared are you for when the Regulator comes knocking?

Imagine this scenario: You wake up to a letter stating a fire drill exercise will be conducted for the next 6 days to test your organisational readiness and reporting capabilities. The exercise is part of the Regulator’s effort to assess your organisation’s compliance around the management of liquidity levels – however, it could have encompassed any number of different risk-based scenarios from Liquidity to operational to market risk factors.

You are expected to submit information by 11 pm every day. A check-up call will be made every morning with the Regulator and you are expected to give a comprehensive explanation of every recent transaction, large movements from day to day including information on minor adjustments, and why data hasn’t changed overnight.

A Single Version of the Truth: do you have one?

Perhaps most concerning of all, is the fact that the Regulator could ask you to populate several different template formats – using similar but not identical datasets – across the week, or order to see if you can yield the same quantitative outcomes when the data is sliced in several different ways. This is a true test of whether your organisation’s data architecture can produce a “single view of the truth” at the touch of a button, rather than by throwing people at the problem to hand-craft each report.

This is NOT a Drill.

In the case of one member organisation, this was anything but a “drill”. It was the real deal with the Regulator breathing fire down the CRO’s neck throughout the assessment period.

An isolated incident you may wonder? Well, actually not. It’s no news that regulators are becoming increasingly dissatisfied with the state of data management in the financial sector and the rate of improvement has been quite slow. This so-called “isolated incident” is becoming more like common practice for regulators and similar situations have arisen in other organisations, large and small.

So as one member pointed out, “we no longer have a risk-based regulation. What we have is regulation based risk management and that’s why you see more focus on regulation.”

Regulatory-driven risk management has become the main concern for financial service providers and Regulators are becoming increasingly demanding. Organisations are hampered by ever-increasing rules and overlapping regulations, complicated by conflicting requirements and the need to supply ever more granular data. In reaction to this, operational resilience has become a key area of focus and this seems to be the way banking and the board agree and identify data gaps. Senior level meetings are now more driven by the regulatory agenda as there’s a need to be compliant – that has become evident to us all.

Data is gold. A fundamental problem in the financial sector is that many organisations struggle to understand the real nature, location and even volumes of data that they have within the enterprise. The implementation of GDPR in many organisations has made that fact painfully clear.  However, the data you have – be that related to the trade lifecycle, to customers and clients or to counter-parties – is the lifeblood of any complex business and is likely to be one of the key sources of competitive advantage well into the future and the smartest of organisations realised this a long time ago.  So merely “ticking the regulatory boxes” with ad-hoc reporting and a high degree of manual intervention may not generate the greatest value for your organisation or indeed, may not satisfy the regulator if the aforementioned scenario should arise.  However, addressing the challenge of creating a “single view of the truth” data architectures which do support the aggregation, cleansing, enrichment and analysis of data in real time and which will support the business and regulatory reporting and analytics needs of multiple business functions from Trading and Risk through to finance and operations, could be the smartest strategy of all.

Regulatory-driven change is the new normal so it’s time we built data architectures to support this zeitgeist efficiency and effectively while also helping to address future questions using today’s data.

Digiterre’s Mission

Digiterre has been solving tough data and software engineering challenges for large trading enterprises for nearly two decades. Most recently we worked closely with Man Investments to develop and implement ground-breaking trade data listening and reporting solution to address their MiFID II Trade, Transaction and Best Execution needs.  The Man Order Listening Engine (MOLE) provides a scalable real-time data platform from which to address the Group’s current and future regulatory reporting and trade analytics needs, with a single view of the truth throughout the trading lifecycle.

The data architecture further strengthens Man Group’s competitive advantage by creating an extremely high-quality data stream, from which real-time analytics can be performed, to further enhance the trading and operational effectiveness of the firm.   With this data architecture, data flows are now easily analysed in real-time with a central view across multiple trading entities, to satisfy both current and potential future regulatory requirements. The design and architecture of MOLE have the built-in flexibility to handle trade data collection and analysis needs that are likely to be important in future. Data-related strategic opportunities have opened-up for the Group as a result, thereby supporting its trading activities across all its markets.  This is a great example of using the demands of regulatory compliance as a catalyst to build an even better, stronger and more responsive business.