By Gary Wright
Oct 19, 2015
Banks have always been protective of their data and despite the growing instances of data failures and the resulting fines all data is treated as their most prized possession. This shows that Banks need to understand their data much better than today. For example not all data is precious and a good deal is more valuable as an industry commodity, an example of which could be settlement data.
The value in settlement data is just to be able to settle efficiently on the contracted date and ensure the funds and security are in client account ready for use. Bad settlement data causes industry wide settlement failures and increased costs and risks for all concerned. So no one wins.
With T+2 settlement becoming the global industry norm the need to ensure high quality and shared settlement data is increased. T+1 might be soon with us and will further ratchet up the need for high quality and performance of settlement data.
None of this will be a surprise to many settlement industry professionals where various industry initiatives has been attempted in the past to create a industry wide utility. All attempts to get such a utility off the ground have failed, leaving OMGEO as the main commercial supplier of matched settlement information. Others all have good enough systems, but the fragmentation and lack of standards and interoperability leaves the settlement data problem on going.
The Banks could start to resolve the data problems if they agreed and implemented a shared data utility that could attract investing firms to give up and manage their data. If this was at no cost to investors with running costs picked up by the Banks this would potentially create a sound data utility with almost a viral growth capability. This might be linked with the LEI initiative that is currently stalling. The combined introduction of high quality settlement data linked to LEIs would provide the framework for a universal settlement data big bang and the energy to see it expand across continents and asset classes.
Having looked at data problems over many years and through research with Block Asset Technologies I am convinced that the data solution is almost with us. The main problems are:
– Internal banking politics that prevents collaboration
– Banking legacy systems
– Lack of motivation at Board level to assign budgets
– Lack of settlement knowledge at Board level to initiate innovation
– Lack of direction at internal and industry wide level
– No regulatory push
– No joined up thinking between Banking and Investing Institutions
You will notice that technology is not listed as a barrier and this is because their is existing technology available to form a solution. Settle and a Blockchain based solution could be a industry wide utility and I am sure that this initiative will move the debate forward and the end settlement data game nearer to completion. But it’s not the only potential game in town!
Data within Banks is at the heart of the industry data problems, but the Banks are apparently stuck in a mind set of yesteryear, still running around trying to make work what has failed in the past. Throwing human resources or trying to solve the industry problems by introducing standard processes and procedures has been time consuming and expensive, and after decades, we are still far away from an accepted industry wide settlement solution.
What is required is for the Banks to think about the data problems from a different perspective and from a broader view of client services. Focussing more on the client might also gain the support of regulators. They would I am sure support initiatives that reduce client and industry risks and overall post trade costs.
So the Banks need to:
- Understand their data, what is precious and what is an industry utility
- Build a collaboration between Banks to publish the industry data problems they want to solve and specify the industry solution
- Lobby regulators to gain support for the solution
- Curtail on going internal data projects and focus on a industry wide solution
- Undertake LEIs and promote them to their clients and counterparties
- Build a data ontology project in combination with other Banks and counterparties.
- Focus their attention on client services
The need today is for Banks to take charge and to invest in a data solution that has well defined and measurable benefits to investing clients, and the overall efficiency of the financial markets. What they have been doing and what they are doing today is not working and is very unlikely to work in the future. So they need to stop, revaluate and plan to take a new direction.