If there's one thing most banks could do better from a data management perspective, it's managing their reference data. This is according to Robert Wilson, former Managing Director, Fixed Income Technology, at Bank of America Merrill Lynch. I had the distinct pleasure of sitting down with Robert, a recent MIT Sloan School of Management graduate, to hear what he had to say about this ongoing management challenge, and how banks can turn their reference data investment into a value proposition.
Julie: Where do you believe banks could do a better job with respect to improving data management best practices?
Robert: Reference data management in financial services is a foundational and critical function in order to support an array of banking activities. With multiple sources of data, internally derived and externally provided, banks work to ensure there is high level of accuracy where any issues can be lead to operational issues, a reduction in risk capabilities, as well as reputational risk.
Reference data may not sound like the cutting edge of the financial services world, but it is a technology backbone. With a large dependency in the current environment as it relates to data lineage, a best-in-class reference data service boosts productivity, reduces cost, increases capabilities, and opens up new opportunities for businesses.
Julie: Describe the source of these complexities?
Robert: Banks have changed dramatically over the last few decades, as have their technology platforms, to meet business needs. Over time, as new technology systems were implemented, security identifiers have changed, i.e., internal mainframe to external id’s used on distributed platforms for more real-time or near-real-time needs. Reference data also changes over time. There are internal dependencies between how banks use reference data for products, to be used across client accounts, and to support pricing. These dependencies need to be carefully understood in each segment, and stored over time for historical needs.
Julie: Are there specific reference data sets that are more problematic than others? For example, security vs. corporate actions, fixed income vs. equities?
Robert: Each bank would answer that question differently. On the surface, they may all look the same. However, it depends on the financial services segment. Any data set that is used in highly cross-referenced use cases is going to have more sensitivities to data inconsistencies.
Julie: How do banks solve these challenges today?
Robert: Depending on the organization, banks have built a variety of capabilities to manage this function, either through external vendors providing data feeds or internal teams. The function can be significant depending on where a bank is in its product development cycle, overall systems integration, etc.
Julie: Where do you see primary gaps in today’s reference data solutions that present an opportunity for banks?
Robert: Banks need solutions that solve issues of cost, complexity, and integration. Solutions that could address the problems of consistency and reconciling across trading partners would start to evolve the function.
There really isn’t a single solution out there that addresses the issues with inconsistent reference data across a bank’s activities. With an increasingly stringent regulatory reporting environment, the need for transparency, growing volumes of data, and the reduced margins made per trade, banks will start to feel more pressure to eliminate errors in processing and reporting. The more time and effort they spend on reconciling reference data, the less time they are spending on doing what they are in the business to do – providing services to their clients.
Banks need input from their technology partners and the competitive marketplace to seek innovative solutions that simplify the process of integrating, cleansing, monitoring, alerting and reporting on reference data. And they need to do it a much lower total cost of ownership than what exists today. This is the opportunity I see for data management technology vendors such as InterSystems.
To learn more about InterSystems’ work with financial services customers, please visit https://financial.intersystems.com.