Data Management

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Financial Firms Overhaul Data Management Strategies

As capital markets organizations focus on ways to reduce risk, data management is receiving a top-to-bottom makeover.

Dodd-Frank Rules Loom

As rolling deadlines for Dodd-Frank continue to approach and regulators define rules, experts are keenly tracking ongoing regulatory developments for clues into which new data management processes and technologies firms will be required to adopt next.

Some regulatory changes are making banks happy. Notably, global regulators have just eased a key capital requirements element of Basel III that was designed to create a safer financial system and ensure that big banks could survive a future financial crisis without running short of cash.

"We've already seen Basel III water down a little bit their liquidity coverage ratio," Tabb says. "How much more is this going to be watered down?"Experts are also watching the Volcker rule, named for former Federal Reserve Chairman Paul Volcker and mandated by Dodd-Frank.

From a regulatory standpoint, if banks are forced to maintain high capital requirements and spend billions more on compliance, they'll likely start to reduce the number of products they cover and go back to focusing on their core business, says Tabb. Ultimately, regulations and onerous data management requirements could change the capital markets landscape.

"You're going to see newer firms develop that are only going to create the infrastructure they need for specific products," he says. "You're going to see a whole bunch of new businesses come up, and it's going to be the next-generation banks, but they're not actually going to be banks. Meanwhile, bigger banks are going to pare back, burdened by new regulations around financial reporting and new risk management infrastructures."

Global Risk in the Coming Year

The World Economic Forum recently cited massive digital misinformation and stress on the global economic system as two major areas of risk in the coming year.

“The global risk of massive digital misinformation sits at the center of a constellation of technological and geopolitical risks ranging from terrorism to cyber attacks and the failure of global governance,” says the WEF report, which was developed from an annual survey of more than 1,000 experts from industry, government, academia and other areas who were asked to review 50 global risks.

[The Road to Big Data]

Financial firms are currently focusing much attention on sifting through massive amounts of unstructured data to get actionable information. Yet the Internet remains an uncharted, fast-evolving territory, the WEF says. “Social media increasingly allows information to spread around the world at breakneck speed,” the report says. “While the benefits of this are obvious and well documented, our hyperconnected world could also enable the rapid viral spread of information that is either intentionally or unintentionally misleading or provocative, with serious consequences.”

Meanwhile, survey respondents suggested that the economic risk that would have highest impact if it were to manifest in major systemic financial failure. “Global resilience is being tested by bold monetary and austere fiscal policies,” the report states.

Another risk that firms must take into account — particularly in light of the devastating impact of Hurricane Sandy — is environmental risk, which in conjunction with financial risk could create what the WEF describes as a “perfect storm.” “Continued stress on the global economic system is positioned to absorb the attention of leaders for the foreseeable future,” the report says. “Meanwhile, the Earth’s environmental system is simultaneously coming under increasing stress. Future simultaneous shocks to both systems could trigger the ‘perfect global storm,’ with potentially insurmountable consequences.”

A sudden and massive collapse on either the economic or environmental front would doom the other's chance of developing an effective, long-term solution, the report says. Given the likelihood of future financial crises and natural catastrophes, the report goes on to suggest that we need find ways to build resilience into our economic and environmental systems at the same time.

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio

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