The RIMES Data Governance Forum, held in Amsterdam in November 2013 was a further opportunity for the industry to consider best practice and governance strategies individual organizations are adopting in order to meet the challenge of more penetrating regulation.
Consistent with other forums held on both sides of the Atlantic this year, participants shared a variety of strategies at different stages of maturity. Common to all was the complexity encountered when trying to manage benchmark and index data. Firms seem more ready to acknowledge the need for governance as an internally managed function, but fragmentation of the function challenged its integrity in some cases. Where governance councils or stewardship strategies have been successfully adopted, this is invariably driven by senior management.
Governance is not simply a reaction to regulatory pressures. Vendors are now more likely to audit compliance with license agreements. Fees have increased and firms need to be more keenly aware of who is using licensed data and whether its use is compliant. Equally, efficiency demands that costs are appropriately allocated and that the value of data is accurately assessed. Decommissioning, therefore, has itself become a more integral function within data management.
RIMES is keen to understand how firms are meeting these challenges and has invested considerably in research. Participants were introduced to the RIMES Data Governance Handbook. Participants were also invited to share their observations about best practice and consider the study commissioned by RIMES to further enhance those services and the management tools available to the industry.
As a data set, benchmarks are complex and costly, but a necessity nonetheless. With pressures on returns and from regulators, and vendors now more likely to audit compliance, users must now do more with less. Governance, therefore, has become an issue of real concern, whether as a function of cost control or a managed compliance strategy.
Research undertaken in 2011 by Investit and sponsored by RIMES was the catalyst for a study into the ways firms manage index data and benchmarks. This next study provided a theoretical framework for best practice published by Investit in 2012. Published in September 2013, the RIMES Data Governance Handbook has provided a more practical schema for benchmark and index data best practice. During this same period, a Deloitte White Paper highlighted not only the up-front costs associated with benchmarks but also the hidden manpower costs. The concerns that predicated these studies are now reflected in the number of people participating in RIMES’ global forums who raise governance as an issue of particular and immediate importance.
The Amsterdam forum was an opportunity for the industry to explore practical and demonstrable steps towards implementing an integral governance structure. An astute participant wondered how, given the number and complexity of activities involved in the processing and use of index data and benchmarks, the ‘good’ in good governance could be prescribed. RIMES and Investit, in building the handbook, have approached 16 investment management firms in Europe and the United States who identified problems that required processes and procedures to resolve them. It is those processes that have been demonstrably successful that are included in the handbook and, together, provide a representative model of best practice.
The Investit research shows that while firms are good at processing data, they tend to be weak when it comes to governance, largely because there is a lack of control of the data once it is acquired and an absence of written protocols as to its use. This is reflected in the numbers of FTEs allocated across firms to processing and governance, a ratio of 2:1, and a similar ratio in FTE count within governance between acquisition and control, monitoring and compliance. In other words, how data is used and by whom with respect to the underpinning license agreements or regulatory controls commands the least attention. RIMES has also carried out its own coal-face research among participants at its conferences. Of the 120 respondents, 86 per cent indicated that, in terms of maturity, governance was a work in progress or ‘emerging’ and 54 per cent indicated that their focus on data governance was driven by cost management and efforts to reduce vendor fees.
Central to good governance in this industry is the management of the life-cycle of data – its acquisition, use and redundancy. The costs associated with index data and benchmarks are, as these studies have shown, often hidden and go hand in hand with the degree of transparency with respect to the use of data and its intrinsic value to the organization as a whole. The decommissioning of data, therefore, becomes a crucial factor in any cost model, although it has typically been an unidentified inefficiency or an unmanaged and un-attributable one. Regulatory pressures are perhaps the most immediate drivers for good governance because they impact so publicly upon reputation and have encouraged vendors to become even more vigilant about compliance.
The pressures on firms are now intense, and the forums hosted by RIMES throughout the world have seen a growing interest in governance as a major topic of concern. Without managed infrastructures able to react quickly and appropriately to perceived threats, firms are looking for guidance in order to meet these challenges.
‘. . we’re making baby steps. Before, it was operations [who would] pick up all the costs for all the benchmarks. Nobody knows which data has been used, which benchmark. But we’re trying to allocate responsibility when we get a benchmark request, allocating costs accordingly. But it’s not a smooth transition. It’s a work in progress.’
The maturity levels identified by recent studies also highlighted differences in approach among firms. Cost control as a driver for good governance is an understandable approach but can be inhibited by vested interests and tribalism that often relegates issues like compliance and broader executive control down the list of priorities. Governance as a function of particular managers or departments can be a painstaking process. Getting buy-in across departments, functions and responsibilities can take time and create unsustainable compromises that can only delay actions that are then invariably reactive rather than proactive. Leadership and ownership are, therefore, quintessential components of effective governance:
‘. . so they feel that whatever decision they make has an impact on the rest of the organization. In the past it was, ‘We make the decision and the rest of the organization is there to support that decision, no matter what cost. It is difficult.’
For participants at the Amsterdam forum, the problems encountered in attempts to institute governance procedures and controls are largely rooted in a reluctance to change. Individuals and departments who use the data do not want the cost burdens of ownership, or the responsibilities demanded by license limitations and regulation. Tracking the use of index data and benchmarks is, therefore, complicated and makes compliance audits and cost analysis time-consuming, even where FTEs are allocated to these tasks.
The RIMES Data Governance Handbook is, therefore, based on evidence of best practice within the 16 firms on both sides of the Atlantic that have shared their governance strategies. In order to track the use of benchmarks, it is necessary to maintain a directory that allows the information to be audited and reported on. In this way, the costs are more immediately identifiable and more accurately attributable. At the same time, benchmarks no longer used can be decommissioned while those whose value is marginal can be assessed at a strategic level that takes into account the particular business need and the needs of the organization as a whole. Where cost is assessed at a strategic rather than simply at a functional level, it reinforces a sense of ownership among those using the benchmark and focuses responsibility on a centralized governance council or leadership within an organization.
‘If you know who’s accountable for the book and who should look at what and the value also, it immediately raises the question of cost down the line.’
Having greater control over the procurement of data and closer monitoring of its use and whereabouts within a firm significantly relieves pressure on compliance. The ability to interrogate and report on the information held means that all those using the data can be seen to comply with license agreements. Vendors can have greater confidence that data is being used in accordance with agreements, and firms, potentially, are not only less burdened by compliance audits but have more opportunity to negotiate vendor licenses. The same is true of regulation. The magnitude of regulatory interference will only increase. Reacting after the event can be costly and leads to uncertainty and disruption. Preparing for an eventuality is not only prudent; it means that firms are not relinquishing control when it is most needed.
At every stage in the life-cycle of data there has to be agreement about those protocols that control and monitor its journey. Justification by consensus when data is acquired, by whom it is used and when it becomes redundant is fundamental to governance. However, building that consensus without inculcating responsibility or without buy-in at the head is demonstrably difficult. It can become, as one participant put it, ‘spaghetti architecture’. Good governance is a function of leadership. It is driven by an executive mandate through a governance council informed by an office or officials through whom all aspects of data management are overseen and monitored against defined operational and compliance objectives.
‘[The governance council gives us] clear accountability, so we know where to go [for] some authority on those issues. . it gives you clarity.’
It has become increasingly apparent at recent forums hosted by RIMES in all parts of the world that data governance is now an issue of real concern. In partnership with Investit, RIMES has carried out considerable research and sought to provide firms with realistic guidelines to assist them in laying the foundations for governance architecture. Whatever the differences between firms, whether size, geography or structure, there are activities and protocols common to all. Index data and benchmarks are common commodities, but their use has become the subject of extraordinary scrutiny by regulators and vendors alike. Their complexity and cost demands that users understand the constraints imposed externally and the real costs borne internally. There is often ambivalence when it comes to modelling governance. Should it be driven by cost alone or should it be informed by ‘culture’, the way a firm has been managed and has managed data over time? The fact is, data governance demands change. It has to recognize the external challenges of regulation and compliance and a new internal dialogue about usage, cost allocation and transparency. Communication is at its heart and has to emanate from the top as a central, coherent strategy that is proactive, responsive and sustainable.
- RIMES Appoints Andrew Barnett as New Global Head of Product Strategy
- EU Announces Delay to BMR for Critical and Third-Country Benchmarks
- Three Key Compliance Challenges for Asset Managers
- FCA Questions Effectiveness of Firms’ Market Surveillance Capabilities
- Financial Sector Firms Needs More Data Than Ever – Here’s How RIMES Can Help