November 2019

Why Data Quality is Still Putting Banks on the Naughty Step

By Chris Peacock, Head of Marketing. 

The Bank of England has written to Britain’s 40 largest lenders warning them that they face potential investigations and fines if they don’t improve the quality of regulatory reporting.

That sounds good in practice.  After all, who wants a re-rerun of the 2008 financial crisis caused by financial institutions who had underestimated their liquidity requirements?

It’s over a decade later though, and we’re still talking about weaknesses in data quality and reporting.

Institutions have invested millions into transforming processes in the front-office, customer facing systems and mobile banking apps. And tech has advanced hugely in the last ten years. So where is the innovation to streamline and improve regulatory reporting?  And why are manual processes and spreadsheets still so prevalent in the back-office?


The root cause

Regulatory reporting requires data from across the institution and there are many potential break points where data quality can suffer.

The root cause of poor reporting lies in the legacy technology still in use at many institutions, and the lack of standardisation. The use of multiple systems requires substantial manual intervention to assimilate the required data and errors inevitably creep in. In addition, data deemed as critical or required is just not readily available and as a result the report quality can fall short. Similarly, antiquated legacy technology holds back operational agility, flexibility and responsiveness to change.

Financial institutions still have a huge reliance on on-premise software.  Want a significant change? That’ll take months to roll out. Even minor system changes like ingesting data from a new source or setting up a new reconciliation can take weeks of effort.

While the pressure has been on financial institutions to modernise their back offices for many years, the entrenched systems and how many how many critical business processes they touch, means it is no surprise that banks are holding back from rip and replace transformation projects.


To boldly go

What is needed is a bold, new vision.  One that takes a different approach to centralised reporting, obtaining accurate and robust data from wherever it resides in the business.  This is what is really needed to underpin a more robust and flexible regulatory reporting process.

Throwing more and more manual resources at the challenge is clearly not the answer. Everyone knows that managing data is time consuming and often relies on people to locate, extract, transform and process the data.  But where there is manual effort, there will always be errors and inconsistencies. These two points were highlighted in the BoE letter.


Software as a Service (SaaS) technology

Should bank CEOs be worried?  I’d imagine there were a lot of uncomfortable conversations internally after the BoE letter dropped. As one executive who received the letter said, “This was quite a thing to do. It is putting chief executives on the naughty step publicly.”

Technology can help. No longer are data integrity tools confined to unagile, on-premise systems that can take months to onboard new types of data. With Duco, for example, firms can set up reconciliations to compare books and records to regulators, trade repositories and ARMs within hours and days, rather than weeks and months.  Duco can monitor data integrity, consistency and rapidly locate the source of errors such as under-reporting and over-reporting.  These can then be assigned for investigation using automated workflows.

It’s impossible to completely banish the complex interconnected silos where data resides. But new technology is making sure that getting access to this data is no longer a lengthy drawn out process.  With data and regulation agnostic capabilities, SaaS solutions like Duco are helping institutions cater for all current and future regulatory requirements such as MiFID II, SFTR, Dodd Frank or the latest EMIR revision.

New banks and FinTech contenders are putting together groups of best of breed solutions, including plenty of SaaS, and winning.


Conclusion

One banker described the BoE letter to the Times as being “a very, very stark warning”.  As the regulator looks to tackle the problem head on, relying on the same old systems and processes is unlikely to appease them.

SaaS solutions, by contrast, can go live in a day, allow new processes to be built by business users in a week, and deliver business value in a month. This enables institutions to put a robust reporting framework in place, quickly and affordably.

By investing in more sophisticated technology, institutions will benefit from a reporting and data integrity infrastructure that is not only fit for purpose, but is future proofed to enable a flexible response to any new reporting requirements. Or indeed any business change.

Cloud solutions are there to help, and here to stay. It’s time to act!