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Improved data management could release £17bn of regulatory capital across the banking sector

New white paper from SWIFT and Deloitte calls for a more strategic approach to reference data management

Improved data management could enable banks to release £17bn ($27bn) of regulatory capital and improve profitability, according to Deloitte, the business advisory firm, and SWIFT, the financial messaging provider.

Regulators in the UK, EU and US are introducing a series of rules – including Basel III and MiFID II in the EU, and Dodd-Frank in the US - to increase banks’ resilience and improve risk management. One of the changes, expected to be endorsed at the G20 summit in June 2012, is the introduction of a common identifier for all parties involved in a financial transaction. Firms will be required to include this unique identifier in regulatory submissions to enable regulators to better monitor system risk.

To meet the demands of these regulatory changes, banks will need to improve data management. Deloitte research indicates that these improvements could also allow the top banks in the EU and US to release £17bn, or 2% of Tier 1 capital.

Stephen Ley, head of Deloitte’s enterprise risk services for banking and payments, said:

“Banks and other financial institutions are facing a huge amount of new regulation with, for example, Basel III and MiFID II in the EU, and Dodd-Frank in the US. At the same time, regulators are taking a more intrusive approach to supervision and financial institutions will need to decide how to manage these data-driven compliance requirements.

“Financial institutions have a significant opportunity to use the changes required by regulators to improve efficiency. Those that take a strategic approach to data management could reduce operating costs, improve risk management and compliance and release much-needed capital. Under Basel, for example, the misclassification of underlying assets caused by poor data management can lead banks to retain more capital on their balance sheets; capital that could be used to generate more profitable business.”

Patrik Neutjens, head of reference data, SWIFT, added:

“Change is coming quickly to the data industry. As the root cause of issues that impair business capabilities at all stages of the trade lifecycle, poor data will not be tolerated. To stay competitive and in compliance with new market requirements, financial institutions need to embrace a more strategic, enterprise-wide approach to data management.”