London - Four out of five financial institutions see badly managed reference data as a major cause of internal Straight Through Processing (STP) failure, according to a report published today by TowerGroup, Reuters and Capco.
STP is the automation of the entire lifecycle of a financial trade and depends upon consistent data about the customer, the instrument, the deal and settlement. The research surveyed 131 financial markets industry professionals around the globe and found that on average, 30 per cent of failed trades are caused as a direct result of poor data management. The leading cause of these failed trades was identified as the inaccurate identification of settlement counter-parties, reducing STP in the post-trade and settlement arena.
Despite the impact of poorly managed data, 37 per cent of respondents stated that their organisation did not have a reference data strategy. In addition, 55 per cent said they did not have, or were unaware, of the existence of defined data reference standards within their organisation. These findings highlight that by failing to implement the necessary controls and strategies to manage the quality and consistency of their reference data, banks are exposing themselves to undue risk, inefficiency, costs and failed trades.
The research highlights the industry's reliance on manual entry and maintenance of reference data, even though human intervention increases overheads and the risk of errors. A third of respondents indicate that 90 per cent of their data is updated manually. Only four per cent of respondents have automated maintenance for over 90 per cent of their data. This lack of automation is reflected in the resources financial institutions are using to maintain data, with 10 per cent of organisations employing over 200 staff to re-key information.
With T+1 deadlines looming and STP as a pressing business requirement, the research also indicates the enormous task at hand for the majority of
financial institutions. The average number of client records and instruments
held is over two million. This volume of information is made harder to
manage because it is also widely distributed, with 48 per cent of respondents indicating that this data is held in 10 or more systems across their organisation. In eight per cent of cases the data is held in more than 150 systems.
Tim Lind, Senior Analyst, TowerGroup, said: "Reliable reference data is
fundamental to all aspects of the investment process, but as the research shows, its management will be one of the biggest challenges facing financial institutions going forward to T+1. What we found through this study and our own extensive STP and T+1 research is that although the industry is aware of the inadequacies of their data management practices, the issue is only just being given the attention or the level of priority it deserves. The message is clear - to achieve true STP, financial services institutions need to consider how to effectively define, manage and augment their reference data."
Martin Cole, Managing Director, Reuters Consulting, commented: "Achieving true STP in an environment full of disparate and unconnected systems is a huge challenge, and one which TowerGroup predicts the global securities industry will spend an estimated $19bn on over the next four years alone. This report has confirmed that data management has a crucial role to play in achieving the goals of STP and T+1. By drawing on many years of managing and distributing the data produced by 263 of the worlds exchanges, Reuters is well positioned to offer a complete data management solution."
Roger Preece, Partner, Capco, says: "This research shows that data management is still being largely ignored at the institutional level. Accurate, consistent and timely reference data is one of the key foundation blocks for achieving STP, managing risk and performing effective client relationship management. It does not exist at the moment and therefore must be one of the major priorities for industry participants. Costs, control and client service must be the focus and our recently announced joint venture with Reuters has been established to provide solutions which enable financial institutions to solve this issue."
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