The rampant growth of data thanks to new technologies, more onerous regulatory reporting and increased electronic trading needs to be better balanced with a more effective data governance framework and centralised strategy, according to the FMSB’s (FICC Markets Standards Board) second Spotlight Review
The report, which examines the role of data management in the financial ecosystem, warns that the greater volumes and sophistication in the way data is handled, manipulated and acted on by financial markets participants has introduced “high degrees of complexity and inconsistency.” This not only increases the risks of market misconduct and market instability but could also lead to the improper access to, or use of, data.
The report acknowledges that different industry initiatives such as the Financial Information eXchange (FIX) Protocol and Legal Entity Identifiers (LEIs) have made progress in standardising data and mitigating problems. However more work is needed and to that end it explores eight key components to promote effective data governance, covering the data lifecycle, policies, taxonomy, source mapping, movement and lineage as well as data classification, leakage detection and quality.
The Spotlight Review also highlights the advantages of moving to a more centralised approach to enterprise data architecture, depending on a firm’s size, complexity and business models. For large firms, an alternative ‘hybrid’ approach may be preferable as full centralisation can be expensive and unnecessarily cumbersome.
Martin Pluves, CEO of FMSB, said, “Data drives today’s FICC markets. Ensuring confidence in data is vital to stability and resilience of the financial system. With exponential growth in the volume and sophistication of data, there are opportunities for increased transparency and improved overall efficiency of FICC markets. There are also great challenges and significant risks, explored in this paper. Given the growing importance of data there is an increasing interest in developing standards in this area and on strengthening data governance, areas FMSB and its diverse members are well placed to address.”
Gareth Ramsay, Executive Director of Data at the Bank of England, added, “The rapid pace of systems development and the increasing dependence of the financial system on data is a key strategic focus for the Bank. The key themes in the review, particularly the importance of data governance and standardisation, complement the Bank’s ongoing data collection review, which aims to make data collection more efficient for the Bank and for firms, and to improve our ability to use that data effectively.”