Revamping data quality to satisfy regulatory requirements like Basel II and MiFID are driving investments in IT, prompting an 8% growth in this sector during the past year, a survey of financial institutions across Europe, America, Asia and the Middle-East found.
AIM Software, the Vienna University of Economics and Reuters led the survey, “AIM Global Data & Risk Management Survey 2005.” It was based the results on 1,070 phone interviews with financial institutions in 88 countries.
“The results show that companies see the close connection between reference data management and efficient risk management,” explains Martin Buchberger, head of marketing at AIM Software. The fact that the percentage of companies planning to improve the automation in this area grew from 64% in 2004 to 72% in 2005 underlines this finding.
The focus lies on the automation of reference data and the processing of corporate actions data, the areas from which the largest costs traditionally originate. The survey found that 45% of the respondents plan to increase the level of automation for corporate actions.
Developments in the Commonwealth of Independent States and in the Middle-East & Africa are remarkable: 89% in the Middle-East & Africa and 72% in the Commonwealth of Independent States intend to improve the automation of their financial data management. Straight Through Processing tends to be at the forefront in these markets. On a global scale, 44% of the respondents plan to increase the degree of automation for reference data and 40% for pricing data.
More attention has been focused toward the challenges of Basel II and risk management. “Financial institutions intend to manage their allocation of regulatory capital more rigorously and to align this with risk exposures,” said Buchberger. “This effort is targeted towards improving the understanding of risk management, so establishing higher internal standards and better management of capital.”
The predominance of proprietary data management solutions has reduced significantly since this was still regarded as an internal core competency. Although in 2005, 36% of companies still rely on proprietary development, 45% of the interviewed companies prefer to buy and/or to extend a solution, whereas in 2004 only 42% intended to do so, the survey found.
The interdependence of quality of data and efficient risk management is reflected by the fact that 64% of the respondents claimed to already have a data management strategy in place for market risk, while both credit risk and operational risk were named by 63% of addressed companies. A majority of 63% of the companies rely on in-house solutions for their risk data strategy. The companies’ internal knowledge of specific risk structures has proved to be important for achieving a successful solution.