We’ve all heard about data governance but what does it actually mean and how can establishing best practice in data governance help your business. RIMES Technologies, a leading provider of managed data solutions for the buy-side, has the answers.
Information makes the business world turn. It drives a firm’s strategy, decision making, operating and business relationships. Where would any of our businesses be without information?
And in this digital age, the capacity to create, disseminate and distribute information or data is staggering, and growing all the time. But, with the capability of creating data comes the responsibility of dealing with it. Data rarely comes without strings. The right people and processes need to be in place to manage data, determine how it is gathered, how much it costs, how it’s used, and what happens to it when it’s no longer needed. In other words, data needs to be controlled and governed. This is particularly relevant for knowledge-based industries, such as investment management, where the product is based on data or information rather than a tangible commodity.
Data governance and investment management
Data governance – what does it actually mean?
Data governance has become a bit of an industry buzz word in recent times, but it’s been around for as long as data sets have been exchanged. Data governance is essentially a set of processes that ensures important data assets are accounted for and formally managed throughout your firm. This process means controlling who uses what data, why and where, and for what purpose.
Why is it important?
For most firms, data governance is still a relatively underdeveloped discipline. According to a RIMES survey*, 82% of respondents selected ‘emerging’ or ‘work in progress’ when describing their organizations’ level of maturity for data governance, indicating that much work remains to be done in this area for a large majority of buy-side firms.
One of the reasons why best practice in index and benchmark data governance is lagging behind where it should be is that it’s seen to cost money, without senior managers understanding how it benefits the business.
Our argument would be that applying good index and benchmark data governance is vital for your business to succeed. After all, you’re only as good as the data you get and provide. If it’s inaccurate, or duplicated, or obsolete, it’s going to cost – whether in financial terms or in man hours to correct or cleanse. The bottom line is that firms want to be profitable. Good data governance processes lead to efficient resource management resulting in a more cost effective business. Also, if you can demonstrate good data governance, your firm is more likely to operate within the license limitations of the data provided. Many firms make the mistake of viewing data as an owned commodity, rather rented. If you have good data governance practices in place, you’re less likely to fail vendor audits, which will inevitably save you money.
In fact, implementing good data governance practices will even help you generate revenue as greater efficiency will mean you’ll be able to respond to client demands better and faster while developing new and accelerated strategies. Instead of playing data catch-up, your firm will be able to set the pace.
Aside from the cost implications of implementing good data governance, firms also must consider the many regulatory requirements that have been enacted worldwide and those being prepared for the statute books. Prompted by a general industry-wide shortfall in proper data governance practice, regulation has become a mine-field that must be successfully negotiated. Although different legislation tackles different compliance issues and regions, the global nature of business these days means that whether it’s European directives (such as Solvency II, EMIR), US federal laws (Dodd-Frank, Sarbanes-Oxley) or global banking accords (such as Basel I, II and the incoming III), you will find common themes that your firms will have to abide by, such as managing risk and proper accountability.
Failure to comply with these business and financial regulations leave firms exposed to the risk of censure and costly legal action as well as fines and sanctions that have already reached $billions worldwide. Unsurprisingly, the prospect of financial penalties has encouraged an upsurge of interest in implementing good data governance!
On the positive side, by dealing with increased regulatory obligations, by default your firm will begin to build a strong accountability chain, which will help when you need to fulfill your stakeholder reporting and analytical requirements.
While regulatory obligations, cost and accountability are all powerful business motivators, the best reasons to implement a strong governance structure is because it will give your firm and senior management:
- Confidence in the quality of your data
- Assurance that it is fit for purpose, and
- Support to your informational and operational needs.
The pre-requisites for creating a strong data governance structure
The case for best practice in index and benchmark data governance is clear enough, as well as the benefits it brings in terms of efficiency, cost control, client servicing, compliance, risk control and sales opportunities.
So what are the pre-requisites for good data governance?
The answer lies in having an effective business operating model, where data management is sponsored by senior managers, supported by a good IT infrastructure and where there is data processing architecture in place to support good data management.
Data management and governance
Data management is obviously a key area.
Generally speaking, your data management team will be the main focus for both data processing and data governance. The problems this team faces center around keeping hold of costs, making sure they have the right benchmark subject matter expertise, supporting client deadlines, and keeping track of licenses and regulatory demands.
Out of all these issues, it’s costs that are proving the most difficult to control. As mentioned previously, the volume and complexity of index and benchmark requests are ever increasing alongside the costs. And it’s not just the costs of acquiring the index and benchmark data in the first place. It’s reckoned that for every $1 spent on data, around $3 is spent on associated internal data management costs and activities#. The greater the number and complexity of benchmarks, the greater the internal costs. Currently, few firms grasp just how these costs can spiral out of control. The only way to account for the total cost is through a proper governance structure.
Data management and processing
Couple this with good data processing principles based around the collection, validation, transformation, storage and distribution of data, and you have a solid platform to add onto your processes.From there you’re in a position to take stock of your firm’s current standing, get control of your data and processes and move forward to build governance into everyday procedures.
Healthy data and processes to manage it are vital to business success. To install good data governance, you need to start with a firm-wide approach through your data management team and IT infrastructure with support all the way up to the C-suite. If you can foster a firm-wide culture to support the principles of governance and also show good technical, data processing and management skills, then your firm will be on the path to good data governance and all the benefits this will bring to your business.
* RIMES survey dated October 2013 of 80 C-Level individuals and heads of department at 42 asset management firms, custodians and other asset owners across the US and UK
# Source Benchmark Data Management: The road to best practice – Investit February 2012
- What will Replace Libor and Eonia?
- The FCA Turns Up the Heat on Market Abuse
- Service Spotlight: New ESG Indices, A Series of Fund Launches and Seemingly Impossible Deadlines
- [INFOGRAPHIC] The Trends, Challenges & Solutions to Maintaining Market Integrity
- European Commission Adopts BMR Technical Standards