Roots Of Data Management Rationales

Basel III is but one aspect of the direct line going from risk management imperatives driving regulation that affects data management

As Inside Reference Data regularly looks at regulations that impact data management, sometimes it's easy to lose sight of the purpose of those regulations that are having so much effect on data operations.

So in recent conversations, we've been looking at how effectively the intent of better risk management that is behind regulations, such as Solvency II, Fatca, Basel III, IFRS 13 and the LEI standard, is being implemented through data management changes.

Improving data quality and data hierarchies, one way or another, is necessary. Some point to a single comprehensive view of data as the means to achieve higher data quality. But verification and validation have to come first, before linking data into that single authoritative source.

Others say we will soon see demand for reference data in real time, or accelerated views of a significant-enough slice of the overall data available. But does this distort views of one's holdings or the market, especially if faster delivery of data makes mistakes more likely?

Speaking of Basel III, last week's column and the analysis by consultant and regulatory observer Mayra Rodríguez Valladares contained in it drew fire from the Basel Committee on Banking Supervision itself, in January 24 remarks by the committee's chairman, Stefan Ingves. He said the media's categorization of the committee's changes to the liquidity coverage ratio (LCR) as a "win for the industry over the regulators" was "simplistic." Valladares is steadfast that the LCR has been "watered down" and calls Ingves' remarks "a mild attempt to appease those who are trying to reform the financial sector."

Valladares does acknowledge that capital adequacy rules and limits cannot effectively be imposed from outside by a group such as the Basel Committee. Ingves said the original LCR was too strict, and traditional retail and commercial banking were being treated too harshly by that version of Basel III. This is in keeping with criticism of Basel III regulation as being likely to slow lending and hurt the economy. That criticism, however, is coming from the opposite flank of Valladares' point of view.

It may be impossible to know which side is right when it comes to Basel III—those cautioning that it is being loosened too much or those who say it shouldn't be too strict. Further adjustments to Basel III rules are still being considered, such as adjustments to its Net Stable Funding Ratio (NSFR). The end date for total Basel III compliance is now 2019, and adjustments like those to the LCR and possibly to the NSFR are still in progress. At very least, Basel III rules will have to be final before anyone can tell how effective it can be in preventing risk management disasters.

When Basel III implementation does start, will single sources of reference data and real-time reference data become even more important in data management operations? Or will there be new data management tasks to comply with and follow the through-line to better risk management.