Over the past few years, financial services firms have been under increasing pressure to comply with complex regulations such as BCBS 239, CCAR, DFAST, and more. Many of these firms were caught unprepared to comply with such regulations. They ended up scrambling to find the data they needed, to understand its lineage, usage, meaning, and ultimately to trust it so they could report on – and comply with – these regulations. This led to endless meetings, cobbling together excel spreadsheets, Visio diagrams, emails, etc. In other words, a bubble gum and duct tape interim solution. They learned a tough lesson: without data governance, reporting on and complying with new regulations was a major headache. Although asset management firms are not yet subject to the stringent regulations that financial services organizations face, they too, can learn a valuable lesson from the sell side: put data governance in place now, so you’re not caught unprepared when the regulators come around (and trust me, they will!)
As asset management firms start thinking about data governance, they may be able to learn from the sell side. A big component of regulations such as BCBS 239, CCAR, and others is the higher level of scrutiny on existing regulations. Today, asset management firms are reporting on various regulations including Solvency II, AIFMD and MIFID in the EU, Basel, and the MF regulation. You can expect regulators will place a higher level of scrutiny on these reports in the coming years. And, in order to prove that the data you’re using is trustworthy, that its lineage is traceable, and that it’s properly secured, you’ll need to have a true data governance program in place.
As well, asset management companies will be required to turn written compliance policies into actionable metrics. Additional policies and guidelines, similar to those enforced by BCBS 239 and Dodd-Frank, will enforce governance, accuracy, ownership, and lineage of the data submitted in these reports. Regulations for asset management companies will not use BCBS 239 per se, but rather would be tailored specifically to the buy side. By establishing a data governance program now, asset management firms can ensure that internal and external data sets are accurate and that the origin of the data set is known, what the quality level is and lastly who owns that data in the organization. And they can do all this BEFORE the regulators come knocking at their door and be in a better position to effectively leverage the data within the organization. This proactive approach will enable asset management firms to react quickly when regulators introduce new regulations and tighter guidelines.
In addition, FINRA is starting to look at data security and data protection, including cybersecurity, data leakage, and more. Once again, data governance is the answer. It will help asset management firms stay one step ahead of the regulators when it comes to proving the trustworthiness of their data and reducing the potential liabilities that can arise form data leakage.
In the meetings I’ve been having with customers and prospective customers, I’m seeing many asset management firms taking steps towards implementing data governance. For example, one of our asset management customers is currently bringing metadata information from MarkitEDM into Collibra Data Governance Center. Doing so helps them not only find the data they need much quicker than before, but also helps them to understand it’s meaning and lineage, and to know that it’s right. And if a new regulation goes into effect, they’ll be ready to address it from day one.
Until now, regulatory compliance has not been a priority for asset management firms. But buy side beware. The regulators have their eye on you, too, and will eventually come your way. By starting a data governance program now, you can save yourself some of the inevitable pain that regulatory compliance causes.
Sam has 15+ years experience in data management and data governance initiatives in the financial services businesses. Sam also worked in fixed income operations and liquidity management for an investment bank.