I know that adhering to regulatory requirements is not considered exciting, sexy or exhilarating. I don’t know of anyone that wakes up in the morning thrilled about changes in the regulatory framework — and if I did I would be quite concerned for their well-being.
The regulatory framework has grown as the interest in financial safety and soundness has become an elevated priority — but most of this growth has been as a “horizontal sprawl” of regulatory bodies and requirements where the sole point of co-ordination is at the bank. Federal and local regulators, agencies, research bodies, overseers, authorities and councils all have sound and reasonable mandates but as each has the authority to request information from the financial institution the resulting impact on the bank can be a barrage of requests coming from many different directions.
While most regulators are interested in the same base information but from slightly different perspectives, banks have developed separate systems to respond to different regulatory groups. Generally what has been developed is a proliferation of data silos where data has been housed in anticipation of the requests from each different group. These data repositories have been prepared to answer a different type of question and are composed of multiple layers of data movement, interim storage (or staging), transformation (to align to a specific format or standard), and often reconciliation to a General Ledger (or sub ledger). Silos are built with different technologies and have defined the contents slightly differently.
The impact of this complexity is that when a new request comes in the changes will need to ripple back to the operational system, through the entire chain of data movement and into the data silo. The process is slow, expensive and not reconcilable. This can further irritate both the bank and regulators.
The goal in regulatory response is efficiency in delivering information to stakeholders and flexibility and agility in adjusting and evolving information reported.
The cure for regulatory inflexibility is simplicity and clarity – reducing the information sprawl and centralizing master data related to the most important business entities that the bank deals with: customers or counter-parties and their holdings or positions, products or instruments, transactions or trades, and rates and market data. Getting this fundamental data right in the operational systems greatly reduces the amount of time and effort required to consolidate and align the data after the fact.
Be centralizing these key elements and defining them in a way that is adequately robust to suit the needs of the entire bank, the master data is a solid foundation from which analytics, reports and information can be derived. If a new element is needed, this is change is made centrally (and once), and the information is available to other systems and groups.
The Enterprise Data Management (EDM) Council is working towards creating a global standard to help banks establish a common language for these key elements. The EDM Council also has a list of global regulatory activity which helps the collaborative community of banks evolve the standard to adapt to the regulatory changes. While this is focused on the capital markets and trading space, it or a similar effort could be established to look holistically at all aspects of data in the bank.
Even though regulatory agility is not a topic that gets adrenaline flowing, it is an increasing source of importance and expense – and getting the basics right is key to making regulatory reporting as efficient and flexible as possible.