BACK OFFICE VIEW: Regulatory fines underline importance of data stewardship

People’s jaws drop when they read about the huge fines imposed on fund managers for a variety of shortcomings, ranging from pricing discrepancies to the late submission of regulatory reports.

Far from being an indication of a deliberate attempt to break the rules, these fines are often a result of the operational challenges that beset many funds and their struggles with data management.

The operational issues faced by funds can be attributed to the relationship between the business and IT departments. At most funds, although business users rely heavily on data, they refuse to take responsibility for it because they see it as an IT issue. For their part, IT staff are happy to be responsible for data once it enters the data warehouses they manage, but they stop short of taking overall responsibility for data quality because they have no control over what happens to the data before and after it enters the data warehouse. The result is that nobody is truly accountable for the fund’s data – be it static or daily data.

This lack of accountability has led to the common practice of data sets being copied and passed from application to application, without consistent checks being performed to ensure the data is accurate. For example, it is common for a user to copy a market data set from the market data provider system in order to calculate a fund’s net asset value. When a tax report then needs to be produced, the same sample of data might be passed straight through and used without any data quality checks being performed. Not only is this likely to lead to an inaccurate tax report, but all of the copying creates a build-up of redundant, inconsistent data. 

It is time for fund managers to address these issues by getting serious about data stewardship. This means making individuals responsible for specific data sets and establishing rules governing the use of data by all other staff. Data stewardship not only involves training staff and giving them a specialist knowledge of the data for which they are responsible; it also means ensuring they have the technology they need to make effective use of this knowledge and to follow the data through its life cycle. 

For a start, fund managers should ensure their regulatory reporting platform allows users to implement business rules quickly. A middle-office trader may know a price change of more than 5% is a strong indication that something is wrong. However, at present, many people are prevented from making use of this type of knowledge because they would need to undertake a complete software update to implement a business rule to this effect. If they are going to take data stewardship seriously, fund managers need far greater flexibility from their platform.

It is also important that, when a potential issue is identified, a fund’s platform makes it quick and easy to investigate. It has been popular for fund managers to use ‘black box’ applications, which do not give users
a transparent view of how their reports  are produced. In order to address data quality issues, fund managers need to move away from ‘black boxes’ and give users the ability to drill down into the results of a calculation or regulatory report, so they can understand how it was created and make changes if necessary.

At a time when margins are being cut, the added burden of a hefty regulatory fine is more unwelcome than ever. 

This is why it is important to embrace data stewardship and the technology needed to make it effective. 

Ralf Menegatti is product owner, asset management, EMEA at AxiomSL

©2015 funds europe



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