At the recent Sydney and Melbourne forums, buy-side representatives provided their input on existing data challenges. Staff members of custodian banks and investment managers took part in the events.
Both of these events focused on the findings of the RIMES 2013 Forums Summary and the RIMES 2014 Buy-Side Survey, which helped provide insight on broader market trends.
The RIMES 2013 Forums Summary, which culled information from the 32 forums RIMES held during the year, found that data governance has grown even more crucial for buy-side firms. While having the proper information policies and procedures was identified as important in 2012, it became a major concern for institutions in 2013.
Without the proper data governance infrastructure in place, companies will have inadequate tools to manage operational and reputational risk. In addition, they could face rising data management costs. Buy-side institutions are already struggling with a challenging regulatory environment.
Participants speak to Australian regulatory environment
At the Sydney forum, participants got a chance to speak to the Australian regulatory environment. One buy-side representative gave some insight into the difficulties insurance firms in the Asian Pacific nation face.
Companies are definitely seeing an impact on their reporting, the individual stated when the moderator asked custodians to weigh in on the effect of regulatory change in the country. “Especially those insurance companies that are based in Australia that run global operations.”
“Those insurance companies are really struggling at the moment with how they can keep up with the regulations across each of the countries that they operate in,” the person continued. “And also it’s not just data, it’s the supplier as well so we’re finding an increase in queries of how we can actually support clients. Not necessarily in Australia but helping them, you know, meet their regulatory requirements such as Solvency II.”
Attendants of the Sydney forum also got a chance to chime in on their difficulties meeting European regulations.
For “some of the people that I work with, the asset owners, I think the understanding of the compliance licensing costs and the implications of sourcing data for asset owners is relatively new,” the individual stated. “And I think that they are starting to understand the complications a little bit better than they did five years ago, I reckon.”
The person added that The Australian Prudential Regulation Authority, various regulatory regimes and also the demand for new smart beta strategies are helping drive this particular development. To develop these strategies, and also more passive approaches, buy-side professionals need access to benchmark data.
In addition to covering regulatory concerns, the Sydney forum participants talked about the growing need the investment management industry has for index and benchmark data. To illustrate this point, the forum provided statistics culled from the Buy-side Survey.
One major focus was the costs associated with financial data. While many have emphasized that these expenses have already risen notably, the survey yielded a consensus prediction that these costs will only continue to climb.
Of the 275 buy-side representatives who took part in the poll, 82 percent predicted rising index data licensing expenses. Data management professionals were even more likely to have this point of view, as 91 percent predicted these costs would increase over the next year.
In addition, respondents indicated their expectations that the number of indexes and benchmarks will continue to grow. More specifically, 76 percent believe this figure will move higher. Of those who participated, 69 percent forecast that the number of indexes will increase by up to 10 percent. Furthermore, 26 percent made an even more bold prediction – that this number will rise by between 11 and 20 percent.
How buy-side firms can prepare
Amid this situation of growing data demands and difficult regulations, buy-side firms can benefit greatly from operating in a way that makes them nimble and cost-effective. One good step toward achieving this result in the current environment is establishing a data operating platform.
Institutions that want to develop one of these platforms should aim to build something that has the following:
- Flexibility: Having the ability to meet new requirements – whether they come from clients or regulation – is important.
- Proper data governance: This set of policies and procedures must exist at all levels.
- Transparency: Stakeholders must have visibility into how their data is being used and also what governance is in place.
- Total cost of ownership: This measure of expenses should help the company maximize profitability.
Buy-side firms that want to build data operating platforms effectively might consider working with a managed data services provider, as doing so will help them develop an optimal strategy for governing their index and benchmark data.213131