Market Data Management special report

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Regulation's Impact on Data Management

Regulation is a double-edged sword. On the one hand, much of the new regulation introduced since the financial crisis is designed to prevent the kind of activities that could create another crisis. Yet it creates a compliance burden so great that it's hard to see the benefits through the forest of reporting requirements.

And in many cases, whether it be reporting risk exposure or demonstrating that a firm has sourced accurate data for portfolio valuations, these responsibilities often fall to market and reference data teams.

Many new data governance roles are designed to do exactly this─though often because it delivers value and competitive advantage, rather than because regulators demand it. And imeeting regulators' compliance often demands requires the kind of good data housekeeping that firms should find beneficial.

For example, "as collateral management becomes the next focus of regulators, any and every incorrect price will have a major impact on a financial institution's exposure with associated market risk," says Keiren
Harris, principal at data consultancy DataContent. Or, put another way, meeting regulatory requirements will not only keep you compliant and prevent penalties; it will actually help your business by reducing risk.
However, firms that depend on vendors to provide the accurate data to fulfill their regulatory obligations, enforced via strict service-level agreements, legal clauses and fines in the event that a firm is penalized, they should not confuse offloading that heavy lifting with offloading their responsibilities.

"Firms cannot outsource... their ultimate responsibility for understanding the new regulatory environment and ensuring that their data is fit for compliance," says Marion Leslie, managing director of Pricing
and Reference Services at Thomson Reuters.

That said, vendors are incentivized to address any issue surrounding non-compliance resulting from their service. "The biggest risk vendors face is reputational risk. If a financial institution has significant data hurdles and or internal control issues, it usually makes headlines─vendors do not want to be the known for causing such failures," says Medi Agami, partner in the Risk and Public Policy practice of research and consulting firm Opimas LLC.

Ultimately, as in any partnership, the parties must define their roles and fulfill them. As DataContent's Harris says, "Vendors and data sources must do their due diligence to ensure the accuracy of the data they are delivering, while clients must conduct continuous assessment to validate the data they are being provided with."

In short, oversight isn't just the responsibility of regulators; it's for everyone

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