A recent white paper from BNP Paribas has highlighted that financial market regulations are increasing the complexity of data management within buy-side firms. As a result, many are looking to outsource their data functions to managed data services providers.
This is a topic RIMES has been discussing for some time. Legislation such as the EU Benchmarks Regulation, MiFID II and MAD II are creating a perfect storm whereby buy-side firms have to aggregate, manage and report on a greater volume and complexity of data than at any time in the past.
According to BNP Paribas, the complexity of data management in buy-side firms is further exacerbated by the large number of possible dimensions of data, asset valuation, performance analytics and market status that asset managers are required to report on.
Put simply, buy-side firms are being asked to carry out a highly complex and time-consuming task, the scale of which is unprecedented, and for which most firms are unprepared.
If asset managers want to keep data management and governance in-house they will need to completely transform their enterprise IT systems. This will require significant capital expenditure in expensive new data management systems as well as new market surveillance tools. In addition, buy-side firms will have to retrain their data management teams; teams that will need to be upsized.
This is why the outsourced, managed data service model is proving so popular. It enables buy-side firms to leave the complex data management and compliance tasks to experts, freeing them to focus on their core investment activities. Moreover, managed data service providers can achieve efficiencies of scale, so the total cost of the firm’s data management capability can be dramatically reduced.
Finally, managed data service providers have experience of dealing with technologies, such as market surveillance tools, that buy-side firms have not traditionally been required to use. This reduces the risk of implementing such technologies and allows buy-side firms to benefit from them immediately; without having to retrain the in-house team.
Buy-side firms are operating in a market that has changed significantly. Over the next few years they’re going to be asked to report on an ever-wider range of activities and manage increasing qualities of data. Firms that want to meet this change in a cost effective, low-risk and efficient way will increasingly opt for managed data services.