Study Reveals Top Concerns for Management of Client and LEI Data

Increased regulatory requirements and related penalties, along with immature and fragmented data management processes were ranked by financial firms in a study as the top concerns for the management of client and legal entity data.

The Aite Group, commissioned by The Depository Trust & Clearing Corporation (DTCC), surveyed 23 market participants from the on boarding, data management, and settlement operations functions across 16 financial institutions based in North America and Europe.

According to the study, 80% of respondents believe global over-the-counter (OTC) derivatives regulation and the Foreign Account Tax Compliance Act (FATCA) pose the greatest operational challenges for entity data management processes due to the numerous checks and classifications that need to be applied to legal entity data. With data management processes fragmented and immature, and over-reliance on manual on-boarding processes, most firms anticipate investment in data management to be one of the highest technology investments they will have to make in the coming years.

“For the buy side and sell side the anticipated investment will be driven largely by the regulatory environment. Firms need to ensure they not only understand the regulations but also understand what client information they need to collect, maintain, and report – information that changes over time,” says Ron Jordan, DTCC chief data officer.

“Just as important are the governance procedures around data. As firms start to identify their data requirements, they need to also establish the governance which will oversee the policies and procedures needed to ensure on-going data quality, something many of the regulations are requiring.”

Over two thirds (69%) of firms indicated that data quality and the need for defined governance processes for entity data management were of greatest importance when meeting investor transparency and regulatory reporting obligations. Furthermore, 56% of respondents said they plan to establish a single client masterfile as a means of staying ahead of the next wave of regulations. Additionally, over 88% of respondents are considering a utility model to simplify and standardize the client on boarding and lifecycle management process.

Jordan describes the data challenge as a many to many problem. “For buy-side firms providing the same data to many sell side firms, the question is whether they can trust a single, mutualized facility that can store and distribute their information on demand. For the sell-side, the question is whether they can trust a central repository of client information as the data and document source for the sell-side to perform their required client due diligence. The centralized, mutualized concept is particularly interesting given that the vast majority of firms do not consider this type of client data to be a competitive differentiator.”

Jordan describes the centralized data repository as in its very early stages, adding that it is not limited to data but also includes company documents (e.g. tax documentation). This initiative, called Clarient, is a joint venture between DTCC and several large banks, is supported by Avox, DTCC’s wholly-owned subsidiary, and builds on DTCC’s success with its legal entity identifier (LEI) offering called the Global Markets Entity Identifier (GMEI) utility.

A further finding was that 50% of firms are concerned about their entity data management processes when planning for the Markets in Financial Markets Infrastructure Directive (MiFID) II and the Market Abuse Directive (MAD) II which will require firms to store and report the legal entity data underlying their trades.