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Reference Data Management: Regulation, Risk, and Remodeling Data

Managing reference data is beginning to acquire strategic priority, with new regulatory proposals potentially remodeling of the ways in which reference data is acquired, processed and consumed by various parties. Firms are now increasingly looking to address data management challenges at an enterprise level rather than a functional level, according to the new report, Reference Data Management: Regulation, Risk, and Remodeling Data Around Legal Entities, from Celent, an international financial research and consulting firm.

Key findings of the report include:

Celent estimates that annual spending on reference data management will be in the range of US$35 billion to US$37 billion in 2013, which is expected to grow by less than 6% for the next two years. A significant part of the spending on reference data management goes towards reference data feeds, which Celent estimates account for about 60% of the total spending. Annual spending on reference data feeds is estimated to be around US$21.5 billion in 2013.

Spending on reference data management is being pushed in two directions by two opposing forces. On one side is the need for efficient data management coupled with mandatory regulatory reporting requirements; on the other side is the uncertain business environment. Since the cost of non-compliance is high, incurring financial and reputational risks, the spending priority on compliance is high, and consequently firms are cautious about spending on other initiatives.

Risk management and regulation are key factors shaping reference data management practices. With respect to regulation, there is still a degree of uncertainty about the implications of additional requirements, and how they translate to new technology requirements, especially since there would be significant regulatory overlap between business domains. Several firms are in wait-and-see mode, while others have taken a lead in setting up the basic structure so that they can quickly implement specific requirements when there is sufficient clarity.

There are two trends in the industry which Celent believes will impact reference data management in the coming years, namely exploding data volumes and the increasing pervasiveness of cross-border trading. Both these trends pose new challenges and drive increased demand for robustness, flexibility, and scalability in data management systems.

Reference data management solutions have evolved over time to become more flexible in their ability to both extend and integrate. The focus of the current breed of solutions is on three C's: centralization, consistency, and completeness.

The preferred methods of implementation of reference data management solutions are proprietary development and buying off the shelf. Celent estimates that around 80% of the implementations are by these methods, split almost equally. Outsourcing and cloud are beginning to emerge as options, especially among buy side institutions, because they are more willing to test the waters by moving specific applications to the cloud.