Out of the Crisis

Some industry participants say the financial crisis is now giving way to some green shoots of recovery. What trends are you seeing in your day-to-day job?

Bob Schork, metadata architect at TEKsystems at Bank of America: I think now, finally, some financial institutions are realizing they have a big data problem, and that it is multiplying. But only some of these corporations are implementing consolidation efforts. The institutions that do will be ahead of their competition.

Mike Atkin, managing director, EDM Council: People understand better the importance of data management and the concept has been further enhanced by the financial crisis. And while the recession is hampering investment, we do see financial institutions investing in data management and hiring staff.

David Goldberg, managing director, head of the enterprise client data management program, BNY Mellon: For all financial institutions there are many financial constraints. But I do think the need for effective data management programs and enhanced data quality has become more transparent to senior management than ever before.

Karla McKenna, director of global transaction services at Citi and chair of the SMPG: Focusing on industry leadership and development for standards, I am seeing a shift from a combination of development and actual implementation to preparation and development and a postponement of the actual implementation. We are seeing a lot of industry initiatives and preparation, especially for the ISO 20022 standard going forward. People are spending time on the preparation, in human capital, to be able to get things ready for when the economy comes back, and we can actually schedule and prioritize implementations. Meanwhile, implementation time frames do vary depending on the kind of standards projects. The 20022 projects, to some extent, vary depending on their scope and take some measure of time that is in proportion to what the submitter can spend and devote to the development of that particular project. The time frames can be long if the topic requires a development effort that is huge, and sometimes because the submitter has other priorities they must balance as well.

At the start of the credit crunch some data management professionals said the need to act fast and pay closer attention to data could eventually benefit data management. In what way has the financial crisis changed the approach towards data quality and what are the key areas of focus now?

Schork: The absolute best approach to good data quality is to define what your data means (part of metadata). Corporations are now willing to spend resources on defining what data they have and where it is used. For many years institutions have taken the 'play now, pay later approach', well, it is time to pay later, and it will be costly.

Atkin: The crisis has been fantastic for reference data management. It has focused attention on the importance of data as a critical factor of input into both business processes and for regulatory oversight. But many firms, because they are facing very real short-term challenges, are approaching reference data problems tactically, which in many cases do not fix the underlying problems.

Goldberg: The positive factor is that the crisis, in particular around risk management and compliance, has placed much greater focus on data management. Senior management at banks are really not focused on data issues on a daily basis. However, they are very well aware of how important effective data management is to a firm with the downside risk being regulatory scrutiny or potential compliance issues. But clearly spending is constrained in the current environment. At BNY Mellon we have established an enterprise client data program, have funded it and are now moving forward with full senior management support - so it's another sign of the recognition of the importance and significance of what we are doing. Financial institutions need to spend money in so many different areas, but during the current financial crisis counterparty data management, especially as it relates to risk management, has an elevated profile in terms of importance to the firm.

McKenna: I think data management and data quality initiatives have always suffered in terms of prioritization. I think this is because the topic has such a wide reach within organizations. As a result, these projects tend to be long-term in nature. There is a renewed interest in this space, especially since regulators are asking for transparency. We have seen the beginning of having to look underneath some of the financial instruments that we have been tracking, and so data management and the consistency of the information that is being compared is going to become more important in the future.

Costs continue to be a major concern, and 2009 saw many long-term projects being postponed. Should firms continue to focus on short-term benefits, and how do you think the cost-awareness will affect data programs?

Schork: This depends - what does the long-term project accomplish? If it leads to consolidation and real dollar savings, then yes, it will be worthwhile. Otherwise, keep with the quick short-term projects, but have some tight controls over the data management.

Atkin: Of course firms should focus on the short-term projects. An incremental approach measured against real business requirements is the only reasonable way to proceed. The problem is when the short-term (workaround) approach is the extent of their strategy. The goal is to gain sustainable value from the investment in data management. Costs containment is a reasonable goal but it shouldn't be the primary objective. And stopping data management projects that are well on their way to delivering sustainable value just to save money can only be detrimental in the long run.

Goldberg: When it comes to spending it depends on which firm you are working for. Firms doing relatively well in this environment can focus their spending on longer-term programs. Whereas firms in crisis mode need to fully focus their efforts on short-term issue resolution, which will dominate their time and spend. However, firms doing better on a relative basis still need and want near-term deliverables. In our project, we are seeing the same thing. We have multi-year funding in place, but we recognize the significant need and high expectations for near-term deliverables, and we are committed to that. In this environment, the days of five-year programs, with results coming in years three, four and five, are gone. The word is immediacy. Firms have to move faster and more aggressively with early wins and near-term deliverables.

McKenna: From a corporate actions issuer-investor communications initiative-perspective, cost is a consideration at the event creation stage, especially for some events that are very important to a company - where they need to hire an information agent to be able to take questions from the investors on a particularly complex event. Perhaps those questions would be lessened if the event could be interpreted in a more straightforward manner up the chain. So the company either pays for it now or later. But the issuer is not always in a position to be aware of the effect of the decision that is made in the corporate event scenarios, or on the processing that impacts the investors and the intermediaries down the chain. There is a lack of awareness, not trying to attribute fault, but trying to get the industry together from start to end to be able to educate everybody about the concerns and requirements everybody in the chain has, and that is what the group is doing now, working on the business case. We saw some of that in the conference document - there wasn't an entity in the chain for which we couldn't come up with tangible benefits.

Data governance initiatives have remained on the agenda in the past year, with firms realizing that improved governance can result in greater efficiencies. To what extent has the focus on governance changed? Are you seeing new data committees or data stewardship roles being created?

Schork: Yes, I am. For years we had great data governance and quickly drifted away from that in the 90s. Now we are realizing that we should have had tighter controls over our data. The problem is that now you are dealing with a "give it to me by Tuesday"-mentality in upper management that is hard to combat. The culture must change to give governance and stewardship a chance.

Atkin: Data management is a governance problem. But data governance is a broad term and frequently misunderstood. To succeed, firms need to have alignment across their stakeholders, sustainable funding and rigorous policies and procedures in place. We've seen some firms make the mistake of focusing on data governance too early in the process. Once there is clarity around what you are trying to govern, then firms should implement their formal governance structures. Remember, data governance is not a single challenge. It is a concept that tends to affect a lot of people and is therefore political. It's better to avoid the politics whenever possible, so it's often wiser to focus on delivering measurable value against internal SLAs before you focus on upsetting the organizational apple cart.

Goldberg: In our case, as part of our data program, governance is a priority. We are working on a governance model, but I have not seen dramatic changes in how we are approaching the topic. In general, most firms need enhanced data governance, which has been a consistent theme for the last five or so years. I do not think that has changed as a result of the financial crisis. Improved data governance, policies, standards, who owns the data and so on, are all things we have strived for in the past and will continue to do so in the future, regardless of the current business environment. The issues are the same with or without a financial crisis.

McKenna: Initiatives such as the corporate actions issuer investor communications model, where we are all looking for ways to be able to understand the event that is happening by the issuer and the market-place, is an example. And we all want to understand the event in the same way. So by creating that golden source and having it as the initiation of the event from the processing perspective in the market-place, I think it will bring us closer to having a more predictable governance model within the corporate actions space. The initiative is beginning at this particular point. I think we are getting a lot of backing in the idea itself and the direction the idea is going in order to source the corporate action event from the issuer and entity and financial instrument that made it happen, and then have the market and participants rely on that data throughout the chain. This initiative is organized by Swift, DTCC, XBRL and supported by ISO, and I think this is truly accepted in the US market as an industry initiative.

During 2008 and 2009 there has been a growing awareness of the importance of metrics. Have you seen an uptake in use of metrics within your business area? If so, how mature are these projects?

Schork: Metrics are very important, but unfortunately they are also hard to capture without controls behind them. That is why you see an increase in the CMMI standards of grading where systems are in your organization. These standards will force the system owners and stewards to create the kind of controls that are needed.

Atkin: Firms do need to have tools in place to measure progress and facilitate effective data management. And when it comes to getting projects or several phases of the projects funded, having this in place is essential. Firms must be able to know at what stage they are at, as well as whether they have reached their goals. It's true that it's hard to manage what you can't measure. But metrics are a broad concept, and firms need to be clear on what they are trying to measure with their metrics program. Are the metrics designed to measure data quality and variance in order to prove the business case? Are metrics designed to measure progress against operational objectives to build credibility with stakeholders? Are the metrics designed to show the impact of data errors on performance objectives such as STP rates? Metrics are essential, and the key is for firms to be clear about what they are trying to measure and how they will be used.

Goldberg: Metrics are a high priority for our program, and we are striving for better and more comprehensive metrics as a matter of course - but I would say again that the current financial crisis has not changed our objectives nor altered the need for metrics as a cornerstone of any successful data program.

McKenna: I have been hearing about a new resurgence in metrics, but understanding metrics, not just producing the data. The emphasis now is on collecting the data in such a way that is useful to you, so you can analyze and interpret it and not just have it exist for its own benefit. I think this is the difference I am hearing with the rise of the global financial crisis. That is where some of the projects we see or anticipate for 20022 come in, because one of the first things to do within 20022 is to model the business process you're trying to tackle, and part of that process is to agree the information the various parties within that space need to exchange with one another and to agree terms and definitions.

Those of us who are standardizers have a unique opportunity here to make a point in a way that has never been made before. Standards don't exist or at least shouldn't exist on their own. They exist as a solution to an issue or a problem and to support the business processes they are meant to address. We have seen very little so far of what kinds of solutions the regulators are putting out there in order to be able to prevent a crisis like this again, but those of us in the standards world already know things like securities identifiers, entity, counterparty identifiers, all those types of standards will play a role in the kinds of solutions that should be brought forward.

Our challenge now is making sure those standards are robust and complete enough in order to be able to assign that level of identification when needed.

As TC68 chair, I am also very active on the national side of things with X9. We would like to be able to put in industry standard solutions where we can, where its practical and where it makes sense, and at this point in time we are beginning discussions as to where we can provide that level of standardization. Standardization professionals also have their own day-to-day jobs - that is something that has been highlighted. Very few people in the industry devote the large percentage of their regular jobs to industry groups and standardization. Many more people are balancing the day job with volunteering for standards, being on multiple committees, and very few have the opportunity to be able to look at the total landscape affecting standards and standardization efforts, especially in terms of co-ordination.

The need for greater regulatory involvement has been a recurring topic in the market since the start of the credit crunch. How could a regulatory push make a difference within your area of expertise and what do you see happening in the next couple of years?

Schork: Regulations are great, if you follow them. More regulation is not the answer, because you cannot regulate everything. Longer incarcerations for those who break the rules are needed. Those responsible for this current crunch knew that what they were packaging were risky, yet chose to do it for a bigger bonus. My dad had a saying: "If you want to play, you had better be willing to pay." Instead of punishing those responsible, they were able to walk away with millions of dollars in golden parachute money. This has got to stop. You do not need regulations to have good data management, and you need good data managers. These are people who understand governance, metadata management, as well as having a full-rounded career (data modeling, data warehouse, ETL and BI tool knowledge). Those are people that will be truly successful in data management.

Atkin: Systemic risk is one of the main topics of conversation at the moment. Regulators recognize the need to look at the financial market holistically and to make sure they have a handle on the nature of the complex interrelationships that exist in our business. Systemic oversight is the name of the game, and a critical piece of the puzzle to restore confidence in our financial system.

The fundamental regulatory restructure is all about how to provide better oversight over complexity without destroying economic innovation. The good news from our perspective is that regulators and market authorities are beginning to truly understand the relationship between data and systemic oversight. And while this crisis was not caused by poor data, it is hard to assess systemic impact without the accurate and comparable data. This is critical. Understanding complex systems starts with consistent data - it's at the foundation of the new regulatory mandate.

Goldberg: Everyone agrees there is going to be more regulatory scrutiny due to the financial crisis. But I do not believe we as industry participants should be trying to create regulations for ourselves. Our role as an industry should be to work with regulatory bodies, help them understand our issues, but not necessarily shape the solutions. The environment in general makes for a higher visibility. Once a regulator says you "must" do something in a specific period of time, which often times is too short, it can turn into an implementation crisis, which is not desirable or helpful. Having a longer-term view of what issues and challenges we face, and a clear awareness of how regulators want firms to respond over time, is the best way forward. This approach would involve more collaborative regulations as opposed to a series of one-off dictates by different regulatory bodies.

McKenna: I think there are a number of forces going on. A very active example is the XBRL initiative. We had the kick-off in the US market on May 28 at the XBRL US event, which was attended by representatives of the SEC. So focusing on the pilot in the US market, the biggest question is how to be able to bring the issuers into the life cycle, and that has always been the biggest challenge. Some question whether the initiative will gain the traction it needs without regulatory intervention, to have the SEC actually mandate that a certain amount of companies have to tag their documents in machine-readable format and to do that interpretation right at the beginning.

The industry, including the issuers, agents, and everyone throughout the chain, is considering whether we can move together in a collaborative spirit without regulation making the adoption deep enough in the market, or whether some regulatory mandate will be needed in order to be able to derive the benefits we want.