Data’s darkest before the dawn
8 April 2015
As the data revolution gets underway, asset managers need to be armed to analyse, or risk missing the battle all together
Image: Shutterstock
In an age of increased reporting regulations and ever-changing financial technology, data and analytics are being shuffled to the top of the priority pile. State Street recently conducted a data and analytics survey of asset managers and owners, and found that about nine out of 10 respondents considered data and analytics to be a strategic priority.
As more and more data is created, compiled and filed away, firms are beginning to consider how they can build a better picture of their investors, assessing their needs and wants. According to Chris Collins, global director of regulatory response at Sapient Global Markets, having large volumes of data is not the new development.
He says: “Data is a hidden asset. Firms have had it for years, but haven’t been making use of it.”
According to Collins, collecting volumes of consumer data is an important part of improving customer service. Asset managers should be moving towards using their data for more commercial purposes, and they already have the data at their disposal to start doing this.
“You don’t want to have the best on-boarding system in the world, get clients on board, sell them their first product and then lose them,” he says.
The challenge will be balancing operational data, driven by regulation, against analytical data, or the larger-scale data in the background, creating the best service for the investor.
Collins says: “If firms just focus on operational data, they can do the cost-cutting and service the client, but they won’t be terribly pro-active in the business. If they only look at big data, their client service is probably going to be offering services that are out-dated, and that the client no longer wants. They need to focus on both and align.”
Getting to a stage to utilise the data is a challenge in itself for some. The State Street research revealed a correlation between firms’ confidence in their abilities and their progress in implementing data and analytics strategies.
Respondents fell in to three categories: starters, which were at the entry stage of their data and analytics journey; movers, which were actively moving towards better data capabilities; and innovators, those who boast an advanced data infrastructure and high-quality data governance. While starters made up 27 percent of respondents, movers and innovators where almost equal, making up 36 and 37 percent, respectively.
JR Lowry, head of Europe, the Middle East and Africa at State Street Global Exchange, points out the significant difference between the confidence levels in the starters category compared to the innovators category, saying: “The innovators were more confident across the board.”
For example, when asked their level of confidence in generating forward-looking insights from data, only 4 percent of starters answered that their confidence was high, compared to 44 percent of innovators.
When asked their confidence levels in evaluating risk and performance across the portfolio, again 4 percent of starters said their confidence was high, compared to 31 percent of innovators and 15 percent of movers.
Lowry says: “On top of that, the innovators say this is more important, they’re spending more time on it, and they’re spending more on it across the board.”
Those businesses that see the importance of investment in this area will continue to spend money on it, and will continue to pull away from those who don’t necessarily consider it a major priority.
Interestingly, 81 percent of respondents did say they consider data and analytics as either a high-level priority (47 percent), or even as their most important strategic priority (34 percent). Only 2 percent considered it low-level, although these numbers are not reflected in the percentages of starters, movers and innovators.
Lowry says: “The investments are getting tougher and tougher to make. This is an industry that has, historically, built a lot of things for itself, and it gets harder to do that as cost pressures in the industry get more significant.”
“Essentially, all the technologies that firms created for themselves have become largely redundant, and probably not efficient on a larger scale.”
He suggests that these firms are still struggling to tackle the regulatory requirements and legacy reporting aspects of data management, or what they consider the ‘must-do’ activities, but that they must adjust their priorities if they want to stand a chance of catching up.
“In this industry where the cost pressures are getting tougher, distribution is changing, the regulatory expectations are getting more significant and consolidation is taking place, you don’t really want to be at the back of the pack.”
The industry’s drive towards data analytics seems to have arrived in tandem with the increase in regulatory reporting, a mandate that ensures a certain level of data organisation.
According to both Collins and Lowry, that’s not the only reason it’s moving to the forefront. Lowry says: “It’s definitely a driver, but I wouldn’t say it’s the only driver.”
Collins adds: “Regulatory reporting has not led to an increase in data—there has always been a lot of it—but it has led to an increase in the desirability of data governance and quality.”
Collins says: “What you’ve got to be thinking about is how you segment your data in to areas that you can manage. That segmentation is part of the governance, and by doing that you can start to synchronise between the ‘big’ data and your operational data.”
If data can be separated neatly, labelled effectively and made searchable, that all leads towards a more transparent system. If a manager doesn’t have access to a certain set of data, they will know where to go to get it, and processes won’t be repeated.
While ideal for transparency reporting, this leads to concerns about data privacy—and this gets even more complex for multinational firms.
“That’s the conflict,” says Collins. “You have data privacy on one side and regulatory transparency on the other. In the US, transparency is key, but in Europe, data privacy is more important.”
In this situation, he says, many firms resort to ‘masking’ where they will allow certain users access to accounts, but censor certain fields. But reporting regulations are only increasing.
The Commodity Futures Trading Commission recently fined the Intercontinental Exchange (ICE) $3 million for submitting incorrect data reports. As part of the ruling, it ordered ICE to comply with additional rules to improve regulatory reporting, including the appointment of a chief data officer to oversee and be held responsible for all systems and procedures relating to data reporting.
The Basel Committee on Banking Supervision has also released its principles for effective risk data aggregation and risk reporting, setting out governance procedures and outlining the importance of managing risks. While the principles only apply to the global systematically important financial institutions, Collins argues that all companies should aim to adopt them anyway.
“The principles are such common sense that any company should read them and realise that they are a good idea, then they can assess how they can use them proportionally in their organisation.”
This can be achieved by using segmentation and a horizontal trajectory: a scalable and consistent model that can be applied to firms of any size, of any systematic importance.
“Firms have to start with a bit of reason, build from the bottom up to international standards, and then spread horizontally across the organisation,” says Collins. “The biggest challenge will be agreeing those standards and the consistency of application.”
However they go about it, there seems to be an industry consensus that data and analytics are something worth investing in. The State Street survey revealed that a vast majority of firms are increasing their investment in this area.
More than half of the companies asked had, in the past year, increased their investment by 5 to 10 percent, while 21 percent had increased investment by 10 to 20 percent, and 17 percent had increased by less than 5 percent. At either end of the scale, 5 percent answered that their investment had remained flat or declined, and 5 percent had increased investment by 20 percent or more.
With regards to data regulations, while 90 percent believed that reporting regulations will increase, 50 percent thought that their data capabilities would struggle to cope. This statistic just proves Lowry’s stance on the importance of catching up for the starter companies.
Lowry says: “Data and analytics is a really important topic for institutional investors. There are big differences in terms of capability levels, and the research we’ve done suggests that the gap is going to widen unless those at the back of the pack take active steps to catch up.”
It’s also important to keep the investors in sight, says Collins, particularly where analysis is involved. Cost cutting should be a benefit for clients, too.
He says: “Suddenly we’re coming out of the financial crisis and the world has changed. Firms are trying to cut costs by squeezing every margin point that they can out of their existing business. This means being proactive in terms of how they treat their clients. It’s got to be a win-win situation.”
As more and more data is created, compiled and filed away, firms are beginning to consider how they can build a better picture of their investors, assessing their needs and wants. According to Chris Collins, global director of regulatory response at Sapient Global Markets, having large volumes of data is not the new development.
He says: “Data is a hidden asset. Firms have had it for years, but haven’t been making use of it.”
According to Collins, collecting volumes of consumer data is an important part of improving customer service. Asset managers should be moving towards using their data for more commercial purposes, and they already have the data at their disposal to start doing this.
“You don’t want to have the best on-boarding system in the world, get clients on board, sell them their first product and then lose them,” he says.
The challenge will be balancing operational data, driven by regulation, against analytical data, or the larger-scale data in the background, creating the best service for the investor.
Collins says: “If firms just focus on operational data, they can do the cost-cutting and service the client, but they won’t be terribly pro-active in the business. If they only look at big data, their client service is probably going to be offering services that are out-dated, and that the client no longer wants. They need to focus on both and align.”
Getting to a stage to utilise the data is a challenge in itself for some. The State Street research revealed a correlation between firms’ confidence in their abilities and their progress in implementing data and analytics strategies.
Respondents fell in to three categories: starters, which were at the entry stage of their data and analytics journey; movers, which were actively moving towards better data capabilities; and innovators, those who boast an advanced data infrastructure and high-quality data governance. While starters made up 27 percent of respondents, movers and innovators where almost equal, making up 36 and 37 percent, respectively.
JR Lowry, head of Europe, the Middle East and Africa at State Street Global Exchange, points out the significant difference between the confidence levels in the starters category compared to the innovators category, saying: “The innovators were more confident across the board.”
For example, when asked their level of confidence in generating forward-looking insights from data, only 4 percent of starters answered that their confidence was high, compared to 44 percent of innovators.
When asked their confidence levels in evaluating risk and performance across the portfolio, again 4 percent of starters said their confidence was high, compared to 31 percent of innovators and 15 percent of movers.
Lowry says: “On top of that, the innovators say this is more important, they’re spending more time on it, and they’re spending more on it across the board.”
Those businesses that see the importance of investment in this area will continue to spend money on it, and will continue to pull away from those who don’t necessarily consider it a major priority.
Interestingly, 81 percent of respondents did say they consider data and analytics as either a high-level priority (47 percent), or even as their most important strategic priority (34 percent). Only 2 percent considered it low-level, although these numbers are not reflected in the percentages of starters, movers and innovators.
Lowry says: “The investments are getting tougher and tougher to make. This is an industry that has, historically, built a lot of things for itself, and it gets harder to do that as cost pressures in the industry get more significant.”
“Essentially, all the technologies that firms created for themselves have become largely redundant, and probably not efficient on a larger scale.”
He suggests that these firms are still struggling to tackle the regulatory requirements and legacy reporting aspects of data management, or what they consider the ‘must-do’ activities, but that they must adjust their priorities if they want to stand a chance of catching up.
“In this industry where the cost pressures are getting tougher, distribution is changing, the regulatory expectations are getting more significant and consolidation is taking place, you don’t really want to be at the back of the pack.”
The industry’s drive towards data analytics seems to have arrived in tandem with the increase in regulatory reporting, a mandate that ensures a certain level of data organisation.
According to both Collins and Lowry, that’s not the only reason it’s moving to the forefront. Lowry says: “It’s definitely a driver, but I wouldn’t say it’s the only driver.”
Collins adds: “Regulatory reporting has not led to an increase in data—there has always been a lot of it—but it has led to an increase in the desirability of data governance and quality.”
Collins says: “What you’ve got to be thinking about is how you segment your data in to areas that you can manage. That segmentation is part of the governance, and by doing that you can start to synchronise between the ‘big’ data and your operational data.”
If data can be separated neatly, labelled effectively and made searchable, that all leads towards a more transparent system. If a manager doesn’t have access to a certain set of data, they will know where to go to get it, and processes won’t be repeated.
While ideal for transparency reporting, this leads to concerns about data privacy—and this gets even more complex for multinational firms.
“That’s the conflict,” says Collins. “You have data privacy on one side and regulatory transparency on the other. In the US, transparency is key, but in Europe, data privacy is more important.”
In this situation, he says, many firms resort to ‘masking’ where they will allow certain users access to accounts, but censor certain fields. But reporting regulations are only increasing.
The Commodity Futures Trading Commission recently fined the Intercontinental Exchange (ICE) $3 million for submitting incorrect data reports. As part of the ruling, it ordered ICE to comply with additional rules to improve regulatory reporting, including the appointment of a chief data officer to oversee and be held responsible for all systems and procedures relating to data reporting.
The Basel Committee on Banking Supervision has also released its principles for effective risk data aggregation and risk reporting, setting out governance procedures and outlining the importance of managing risks. While the principles only apply to the global systematically important financial institutions, Collins argues that all companies should aim to adopt them anyway.
“The principles are such common sense that any company should read them and realise that they are a good idea, then they can assess how they can use them proportionally in their organisation.”
This can be achieved by using segmentation and a horizontal trajectory: a scalable and consistent model that can be applied to firms of any size, of any systematic importance.
“Firms have to start with a bit of reason, build from the bottom up to international standards, and then spread horizontally across the organisation,” says Collins. “The biggest challenge will be agreeing those standards and the consistency of application.”
However they go about it, there seems to be an industry consensus that data and analytics are something worth investing in. The State Street survey revealed that a vast majority of firms are increasing their investment in this area.
More than half of the companies asked had, in the past year, increased their investment by 5 to 10 percent, while 21 percent had increased investment by 10 to 20 percent, and 17 percent had increased by less than 5 percent. At either end of the scale, 5 percent answered that their investment had remained flat or declined, and 5 percent had increased investment by 20 percent or more.
With regards to data regulations, while 90 percent believed that reporting regulations will increase, 50 percent thought that their data capabilities would struggle to cope. This statistic just proves Lowry’s stance on the importance of catching up for the starter companies.
Lowry says: “Data and analytics is a really important topic for institutional investors. There are big differences in terms of capability levels, and the research we’ve done suggests that the gap is going to widen unless those at the back of the pack take active steps to catch up.”
It’s also important to keep the investors in sight, says Collins, particularly where analysis is involved. Cost cutting should be a benefit for clients, too.
He says: “Suddenly we’re coming out of the financial crisis and the world has changed. Firms are trying to cut costs by squeezing every margin point that they can out of their existing business. This means being proactive in terms of how they treat their clients. It’s got to be a win-win situation.”
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