Both the SEC and the Financial Stability Oversight Council have indicated their intent to extend regulatory reporting requirements within the asset management industry. These announcements follow a clear focus from regulators to make financial services firms — from banks to hedge funds to now traditional asset managers — to make the collection, analysis and reporting of data central to their operations.
BCBS 239, Dodd-Frank and Basel III all dictate some form of data governance that enables a higher level of transparency to the regulators about the risks being managed, and require reports based on ever more granular levels of detail. And if clients know that this information is being provided to the regulators, you can bet that they will expect and demand more in a parallel response. So what’s an asset management firm to do in preparation for these new regulations, and the further requirements that inevitably will follow?
The time has come to create the position of chief data officer to manage the tidal wave of data-based regulations and reporting and implement a concrete data strategy — both to meet requirements but also more effectively make investment decisions and streamline back-, middle- and front-office operations.
Given the importance of data to the industry, it could be viewed as surprising that data and its management has been taken for granted in asset management and more generally across the financial markets industry.
The legacy of past business acquisitions, combined with the historical bias towards siloed business units has meant that data is often not managed efficiently or effectively. Data, its costs and the resources needed to manage it are often duplicated.
Quality is variable across the firm. The terminology for data identification is ad-hoc and meaning of data is not documented. Data integration and systems development is not coordinated. Risk and regulatory requirements to aggregate data at an enterprise level have to be built on an ad-hoc basis, in response to both each reporting need and additionally to where the data can be found in each separate business unit.
This situation needs to change if an asset management firm wants to:
i) be able to respond quickly and efficiently to new regulatory, client and risk management reporting requirements;
ii) ensure that the data being paid for is the data being used;
iii) ensure that the same data is not being paid for more than once;
iv) reduce the time spent finding, validating and reconciling data between systems and service providers;
v) innovate more quickly through faster data access and analysis.
Put another way, data should not be left as a part-time activity for an overworked IT department, but instead should be considered as an asset of the firm, and one that truly should be owned by the business.
Depending upon size and style of organization, then the creation and assignment of the role of the chief data officer may be the logical next step.
Reporting into the chief operating officer or CEO, the chief data officer has a role that should sit between the business and IT, formulating, implementing and managing a strategic approach to management of data and information throughout the firm.
The chief data officer should work for the business, but be able to challenge it when its demands have wider implications for the firm as a whole. He should also work closely with IT and the chief technology officer, with technology being a key enabler of better data management.
However, the chief data officer needs to be able to challenge IT decision making when appropriate. The role demands individuals who are bilingual, speaking the language of the C-suite but also able to engage at a meaningful technical level with the chief technology officer.
I would also suggest they need to be diplomatic, patient but driven individuals, given the data spaghetti and vested interests they will need to understand and overcome.
In taking business responsibility for the data used in an organization, an initiative to catalogue what data you have and what processes it is used in would be a great start.
You need to compile a central repository of data about data, the “metadata” that documents what data you have, what it costs, where it is used and how. Once this resource has been built (and maintained!), you can find out what the current state of the world is, before you decide how to change it.
Once data usage has been catalogued, you can then decide upon priorities. What can you do to reduce data costs? What data isn’t being used? What data are you generating and then throwing away? All of these questions and many more will need answering.
But the key to success is to have a good understanding of where you are and where you want to go before embarking upon any major changes to your data and IT architecture.
So hire your chief data officer, get him or her to get a data strategy in place to grow your business, and find out just where you are on the data map.
Brian Sentance is CEO and co-founder of Xenomorph.