From transactional to point-in-time data requirements, global asset managers are increasingly weighed down by the ever-changing regulatory requirements. The continuing need to source, store, and protect data is abundant. And the volumes, frequency, and detail levels required are unprecedented.
It is no secret that regulators want filings in a machine-readable format. Like asset managers, they too have a data strategy. Previously that strategy was to use historical data to understand market events after they’ve occurred. This is changing. Focus has turned to identifying emerging industry trends, highlighting risks before they escalate, and driving enforcement investigations or actions.
For example, the Securities Exchange Commission (SEC) established the Division of Economic and Risk Analysis almost ten years ago. Their primary responsibilities include developing analytical approaches, methods, and models to identify trends, risks, or potential securities law violations in the capital markets, and managing and analyzing data. However, the biggest challenge to this division and ones like it is the lack of structured data. That is all quickly shifting with the most recent regulatory changes defining the delivery of data in a machine-readable format (Does SEC Modernization sound familiar here?)
As regulators become more technologically advanced, they will be able to more quickly digest, analyze, and compare the information provided by asset managers. If asset managers are focused only on providing required data points without doing their own interpretation and analysis, they will fall behind regulators in understanding what their data actually means. How does the data correlate to information used in other areas of regulatory or financial reporting? Where does it benchmark you against your peers with respect to risk, liquidity, exposure? Knowing this information ahead of time could provide unexpected insights and trends that give an asset manager a competitive edge and allow for faster response when regulators do ask questions.
Asset managers that employ a data strategy designed to both meet compliance requirements and emphasize analytical output are most likely to achieve economic success. While each company’s response will be different, three evolving best practices used by those preparing for the future are developing a data warehouse, capitalizing on cross-functional collaborations, and expanding resource pools.
By leveraging innovative technologies, asset managers can develop a streamlined and linear approach to data usage that can cut down on resource needs and manual intervention within the data management and reporting cycle. While making this change can be a significant upfront expense, having the right data ownership structure is a foundation for more efficient, economical data management.
Teaming with the right partners — including administrators, market data providers, or technology providers — can allow asset managers to develop the right balance of automation and customization at a significantly lower cost. One streamlined platform can replace old-school bespoke processes, decrease manual intervention, and limit headcount expansion. Eliminating data silos and ensuring all information required can be accessed and shared across teams and departments within a firm will promote the use of golden source information as frequently as possible and help to ensure a succinct data lineage for regulatory reporting and beyond.
The creation or expansion of a regulatory reporting group usually enhances an organization’s subject matter expertise, but comes with high human capital costs. After regulatory reporting requirements are met, asset managers must quickly set their sights on putting to use the data that was so costly to procure. How well companies can turn the data obligation into a value add will be a true differentiator, not just for regulatory groups, but across the organization. Real-time access and analysis of the information, comparison to peer sets, and implementation of best practices will be game changers. Given the regulatory climate ahead, it’s critical for asset managers to define their data problems, and then define a roadmap for data collection that meets their own needs and addresses the growing need for reporting data to regulators. While specific solutions will vary from company to company, it’s clear the status quo must evolve to keep up with the regulatory changes that are guaranteed to come — and derive internal value in the process.
- Can you help me develop or access a data warehouse?
- How can I capitalize on cross-functional collaboration?
- How can you help me expand resource pools?
This article was originally published in the 2018 Regulatory Field Guide. The guide features insights from a number of our experts on key regulatory developments that will have the greatest impact for asset managers in the year ahead – and beyond. Visit bbh.com/regulatoryfieldguide to explore the guide.
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