Concerns over regulations and manual processes 12 November 2014Boston Reporter: Stephanie Palmer
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Increased regulatory requirements and the risks of manual processing have emerged as the biggest concerns in management of client and legal entity data, according to a survey published by Aite Group.
Over-the-counter (OTC) derivatives regulation and the foreign account tax compliance act (FATCA) topped the list of concerns, with 80 percent naming this as their greatest operational challenges.
Many considered current data management strategies as fragmented and immature, and anticipated heavy investments in data management technologies in the next few years. They also expressed concern over the reliability of manual onboarding processes.
About 88 percent said they were considering investing in a new utility model to simplify and standardise the onboarding and lifecycle management process of funds.
Author of the Depository Trust and Clearing Corporation (DTCC)-backed study, Virginie O’Shea, said “It is worrying that 70 percent of firms are still using legacy manual processes to onboard clients, exposing themselves to increased costs and operational risk.”
“The tide is however changing with regulatory requirements and fear of penalties among the key drivers. There is an increasing focus on streamlining processes that can support legal entity data in a holistic way, from client onboarding all the way through to settlement processing.”
The importance of data quality was stressed, with 69 percent considering this and the need for defined governance processes an important aspect in meeting transparency and regulatory reporting requirements.
More than half of respondents said they plan to establish a single client file to prepare for the next wave of legislation.
Regulation was also given as the main driving force behind investing in improving legal entity data management, with 82 percent of respondents agreeing, while 62 percent said that risk management obligations were the second-strongest driver to invest.
Ron Jordan, chief data officer of DTCC, said: “Siloed and legacy data management systems have created challenges around data quality and governance which could prevent firms from meeting regulatory requirements and lead to penalties, loss of business and reputational damage.”
“Increasing costs related to poor data management continue to be a significant and growing concern for these firms.”
About 50 percent were concerned about their entity data management processes while planning for new directives, namely the Markets in Financial Infrastructure Directive (MiFID) and the Market Abuse Directive (MAD), which will require firms to store and report legal data underlying their trades.
Although 63 percent acknowledge the importance of creating accounts quickly in order to stay competitive, they do not see efficient onboarding processes as competitive differentiator. Instead, the common priority was compliance and risk mitigation.
These survey results echo those of the Northern Trust survey conducted in September, which found that the top concern about governance and oversight was data aggregation, with 45 percent of respondents citing this as their greatest hurdle.
The second largest concern found was costs and internal resources, with 29 percent naming this as their greatest challenge, while 21 percent were most concerned about investment transparency.
Aite surveyed 23 market participants from the onboarding, data management and settlement sectors from 16 financial institutions in North America throughout August.
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