Michael Shashoua: Playing By the Rules

Even as firms say they are struggling to follow capital adequacy and risk data aggregation testing regimes, changes in regulation that have affected evaluated pricing standards are making a difference for their data management capabilities, Michael finds.

Even though the US Comprehensive Capital Analysis Review (CCAR) has been in place as an annual requirement for nearly five years, and the BCBS 239 data aggregation principles intended for global compliance have now been known for more than a year, we continue to hear stories about the difficulty of complying with these rules.

With BCBS 239, global systemically important banks (G-Sibs) are having trouble following the principles, according to a report by the organization that drafted the principles, the Basel Committee on Banking Supervision. CCAR keeps seeing changes in its requirements, said Jon Hill, a risk model validation executive at Morgan Stanley, at an event organized by sister publication Risk last month.

Getting a better handle on risk data to comply with CCAR and BCBS 239 requires data management and governance planning. Often, we also hear that data governance plans must be business driven.

"The business will tell you what needs to be fixed," said Peter McGuinness, an enterprise process management executive at CIBC, at the Toronto Financial Information Summit held on June 23. "The business will tell you what it uses, how much is needed to fix it, and how it may actually fund that. If it's driven by technology and operations, or from a bottom-up perspective, it's doomed to failure."

That statement may not preclude data management that is driven by regulation, but does not necessarily affirm that approach. Data quality can be a driver, but the key to data governance planning could be collaboration, as Paul Childerhose, director of data governance for exposure analysis, at Scotiabank, described at the Toronto event. "Everyone is looking at the data and they really take offense at someone coming in and telling them how to do things differently," he said. "Immerse yourself in the operations. Come at it from a pure level."

Everyone is looking at the data and they really take offense at someone coming in and telling them how to do things differently.

Evaluated Pricing Drivers
On a different tack, in the realm of evaluated pricing, rules and standards changes do appear to be making a positive difference for the industry, getting firms that consume that pricing data to seek out and obtain intra-day updates, as well as more transparent views into the souring of that data.

The European Union's Alternative Investment Fund Managers Directive (AIFMD) has helped bankers and asset managers focus on sourcing of data, according to Daniel Johnson, head of valuation at Wells Fargo Global Fund Services in London. Johnson, speaking in an Inside Reference Data webcast last month, added that it's the service providers who are supplying the data, not the regulators or the regulation, but these providers have now been driven to offer data covering more asset classes, and prices that are the result of comparisons of multiple suppliers' information.

Carrying Value
Intra-day pricing carries value, as S&P security evaluations executive Greg Carlin explained in the same webcast, because it supports price discovery when there is not a wide range of quotes for security in a market. Risk is a concern on a real-time basis, also, not just for a single review once a year, as with BCBS 239 and CCAR.

If intra-day capabilities and better and deeper sourcing for evaluated pricing is on the rise-whether that is driven by AIFMD or user demand-that is a positive development for data offerings. In Europe, obtaining actual trade data is more difficult than in the US, according to Jayme Fagas, global head of valuations and transparency at Thomson Reuters Pricing Services. As a result, overall the industry is in a "far better position" than it had been years ago, she said.

"We're trying to keep that engagement going so we can really understand requirements and deliver in the best way we can," Faygas said.

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• Topics
• Alternative Investment Fund Managers Directive (AIFMD)
• S&P
• Scotiabank Group
• Thomson Reuters
• Waters Premium
• Wells Fargo Global Fund Services
• Regulation
• BCBS 239 risk data aggregation principles
• CCAR
• CIBC Fund Services