Firms Adopt Control First and Mutualize Later Approach to Data Management

In the same way as the manufacturing industry uses widgets to measure costs, the financial services industry is increasingly relying on legal entities and applying engineering concepts to IT to ensure it is safe and its costs are controlled.
By Janet Du Chenne(59204)
In the same way as the manufacturing industry uses widgets to measure costs, the financial services industry is increasingly relying on legal entities and applying engineering concepts to IT to ensure it is safe and its costs are controlled.

GoldenSource’s Neill Vanlint says that given the number of legal entities a utility concept is becoming more popular in managing the vast quantities of that data in financial services. “You have an enterprise service bus flowing around an organization and a supply of data moving through that enterprise bus service. We are seeing a central utility for that enterprise level data in the same way as electricity utilities are used to power many households,” he says.

This industrialization of data is becoming more evident with GoldenSource noting similarities with supply chain management: in this case LEIs and UTIs are “barcodes” or standard identification tools. This, explains Vanlint, is risk avoidance by standardization.

“You’re dealing with one entity but if you have the LEI at the entity level you need to view the whole hierarchy together to understand how the pieces relate to each other. As a result of regulation, you need to know each part of the business. At the institutional level there are underlying factors, which can change and affect the risk. The entity you think you are safe with is related to another entity, which you may know nothing about. For a credit institution, all legal entities are fragmented all over the place. You need a central entity in a central complex hierarchy. There is global regulation for banks to better manage systemic risks and its complicated by a centralized managed layer.” 

In managing their entity data, says Vanlit, LEIs are gathered manually and institutions are trying to standardize the process. “Perhaps if something is shared as a service that service can take the manual entity management and manage it as a service,” he says.

It’s about standardizing an entity or looking at a service to do that, he says. “The large bracket players have a big appetite for this type of data. They are trying to mutualize it. There is an interest in sharing costs but more interest in taking an internal utility and running that first.

“These firms have a control first and then mutualize later approach. Some investment managers have collaborated with the DTCC (Depository Trust & Clearing Corporation) on document exchange as managing money is a constant bilateral process for them.”

Centralized data management is a small part of overall picture that will add value, says Vanlint. Broker-dealers are investing in this space and asset managers have a number of businesses, with Know Your Customer (KYC) entity data management becoming more important to them, he adds. “There are similarities and processes are becoming more mutualized, with these firms looking for a central manager and a good audit. Infrastructure helps you onboard and centrally manage the data, followed by compliance and mutualization. It comes back to value of the data model, which links the perspective of the legal entity to the central entity. Regulation has driven this requirement.”

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