Regulations Shaping Data Management in the Financial Sector
Banks have always been among the most regulated institutions; however, the year 2008 showed that “the most regulated” doesn’t necessarily mean “regulated enough.” Shortly after the recession, the financial sector experienced a regulatory crackdown from Dodd-Frank, the Foreign Account Tax Compliance Act, and Basel II and III among others, all of which imposed rigid requirements for data reporting.
The Basel Committee principles for effective risk data aggregation and reporting issued in 2013 are a good example of how the regulatory environment shapes data management processes within financial organizations nowadays. There are eleven principles (excluding those related to supervisory authorities) banks and financial institutions should comply with by 2016.
Principles One and Two: Governance and Data Architecture
The first two principles, “Governance” and “Data Architecture & IT Infrastructure”, are general requirements stipulating that a bank should “design, build, and maintain data architecture and IT infrastructure which fully supports its risk data aggregation capabilities and risk reporting practices,” which in turn should be consistent with other principles established by the Basel Committee. As the remainder of this blog will demonstrate, an enterprise data management (EDM) solution, like ZEMA, can help banks meet the numerous, complicated challenges involved in regulatory compliance.
Principle Three: Data Integrity
Being one of the main challenges not only for the banking sector, but for any other institution dealing with big amounts of data, accuracy and integrity are the core subjects of the third principle. Unfortunately, today a large number of banks face data accuracy challenges due to the absence of consistent data processes and terminology, as well as reliance upon inadequate IT systems. Automating data aggregation is one of the ways banks can minimize errors and enhance reporting accuracy, especially during times of stress or crisis.
ZEMA’s data module fully automates data collection, validation, and analysis processes. In addition, the solution integrates with a variety of downstream systems. These functionalities make ZEMA one of the most demanded EDM solutions on the market. Let’s see how it can help businesses meet other principles.
Principle Four: Completeness
This principle stipulates that banks “should be able to capture and aggregate all material risk data across the banking group”, meaning banks’ data management system should easily aggregate information from external providers as well as from upstream internal systems. This also includes a requirement for the ability to group data by various types—in IT terms, banks should apply a comprehensive metadata layer.
ZEMA not only collects data from all internal and external sources required by a client, it also assesses information according to four criteria: completeness, correctness, timeliness, and newness. After validation, data is stored in the ZEMA database and a rich metadata layer is applied to it. This layer allows clients to easily access and understands what is available to their systems and users.
Principle Five: Timeliness
Given the increasing frequency of financial transactions, requirements for data timeliness have risen dramatically. In its fifth principle, the Basel Committee requires banks to “generate aggregate and up-to-date risk data in a timely manner.”
ZEMA can collect data in any granularity to meet specific business needs. Information can be captured each second, minute, hour, day, week, month, or year.
Principle Six: Adaptability
The sixth principle requires financial institutions to be able to meet a variety of ad-hoc and on-demand reporting requests. Fortunately, ZEMA’s modules are highly customizable, which allows market participants to create new fields and reports in response to changing regulations.
Principle Seven: Accuracy
In its seventh principle, Basel again draws attention to data accuracy, focusing this time on reconciliation and validation. Most banks’ approach to data management is still very conservative: different departments replicate the same data and store it multiple times, creating numerous versions of the truth. Therefore, data centralization is an important step towards ensuring the consistency and accuracy of information across an organization.
ZEMA possesses a scheduling and centralization application which offers a single point of access to all data, eliminating silos that often cause risk, misuse of resources, and unnecessary costs.
Principle Eight: Comprehensiveness
Comprehensiveness is the eighth Basel principle, which states that reports should cover all material risk within an organization and should be consistent with the size of the entity in depth and scope. To comply, organizations must have a data management system which can provide a high level of integration, ensuring information is fully accessible from all locations.
ZEMA acts as a data and analytics backbone, linking internal systems together and connecting them to data that is free of delays, gaps, errors, and redundancies.
Principle Nine: Clarity
Even the most accurate and comprehensive data report may lose its value if it lacks clarity and usefulness. Banks should communicate information in a concise and clear fashion, yet tailor their reports according to the needs of the users of the information.
ZEMA’s integration tools can automate fragile and time-consuming intra-day and end-of-day processes. For example, the software can issue reports in a fixed format to a secured location at the end of a particular period.
Principles Ten and Eleven: Frequency and Distribution
The last two principles—frequency and distribution—urge banks to distribute reports to relevant users at a set frequency while ensuring confidentiality is maintained.
ZEMA offers a robust ETLP (extract, transform, load, publish) process that supports importing transactions from any number of sources and publishing to any number of reporting bodies. This process can be set to occur on a manual, scheduled, or event-driven basis.
ZEMA Solution for Compliance
Here at ZE, we do not view tightening data reporting regulations as a complication, but as an evolutionary process that eliminates inadequate practices and “forcefully encourages” the development of cutting-edge data management solutions for the market. To see how our award-wining solution, ZEMA, may help address data reporting requirements for financial institutions, book a complimentary demo.