JWG-IT a financial services industry think-tank that facilitates collaborative work to resolve industry issues created by regulatory change recently published a set of observations (See http://www.jwg-it.eu/node/403 )
“G20 set to endorse global regulatory rewrite. Aggressive battle plan expected this week”
Among the interesting nuggets, they mention that Secretary Geithner told congress that “supervisors should apply more demanding liquidity constraints; and require that these firms are able to aggregate counterparty risk exposures on an enterprise basis within a matter of hours.”
The article goes on to say “When JWG-IT talk to banks, we typically find the trader doesn't have a detailed view of the stress tests, the CFO doesn't know the reliability of the reference data and nobody knows who owns the records. Key information needed for integrated risk management and regulatory compliance is locked in isolated silos and no single individual, or even a single operating committee, has an overall view. These regulations are raising the bar on the firms’ infrastructure quickly. Incomplete views of the risk landscape are no longer affordable.”
If this isn’t a screaming call for deploying MDM within the financial services industry I don’t know what is. Fortunately we’ve had quite a bit of experience with companies proactively looking to address just this issue. As far back as 2006, one of Siperian’s early financial services customers rolled out a counterparty hub to gain a new level of visibility and to exceed the regulatory compliance requirements for Basel II. Even back then Basel II, MiFID, Reg NMS and client privacy rules were being put into effect, which made centralizing reference data management a key initiative.
So why the resulting financial crisis? The reality however was that lack of enforcement allowed a lot of companies to simply ignore the regulations as no one was knocking at the door asking to see if the data was in compliance. Unfortunately not enough major institutions moved quickly enough to implement an MDM Hub that could have help in some way to prevent this global crisis. The single consolidated view of a complete counterparty hierarchy aggregated from disparate sources was never put in place so when things started to snowball, everyone was clueless as what products are affected, how large risks or losses were, who was responsible, and more importantly how and where to stem the tide.
In fact it turns out, had they implemented the MDM Hub for risk management, other benefits such as securities rationalization, client on-boarding, compliance, straight through processing or wealth management could have followed and allowed the financial services firms to really expand their businesses rather than becoming unfortunate “historical footnotes”.
If you are reading this as a business owner or IT professional considering if MDM might be right for your organization and whether it can have a major impact, just think about this major global financial services use case, that has impacted us all.