AIM Software, the Vienna University of Economics and Reuters (LSE: RTR) have
released the findings of the second global reference data management and risk management survey, based on phone interviews with 1,070 financial institutions across Europe, America, Asia and the Middle-East.
This year's survey reveals that improving data quality is regarded as a key
issue for risk management and that regulatory requirements including Basel II, the Markets in Financial Instruments Directive (MiFID) and Sarbanes-Oxley are driving investments in IT.
"The results show that companies see the close connection between reference data management and efficient risk management," explains Martin Buchberger,
Head of Marketing at AIM Software. The fact that the percentage of companies
planning to improve the automation in this area grew from 64% in 2004 to 72%
in 2005 underlines this finding.
The focus lies on the automation of reference data and the processing of corporate actions data, the areas from which the largest costs originate. 45% of the 1,070 respondents plan to increase the level of automation for corporate actions. "Companies realize that they face serious operational risk and huge potential losses in this area. Corporate actions are deemed to be the least automated and therefore most labour-intensive, error- and risk-prone areas," states Angela Wilbraham, Managing Director at A-Team Group.
Developments in the Commonwealth of Independent States and in the Middle-East & Africa are remarkable: 89% in the Middle-East & Africa and 72% in the Commonwealth of Independent States intend to improve the automation of their financial data management; Straight Through Processing is a major issue in these markets. In addition to that, on a global perspective, 44% of the respondents plan to increase the degree of automation for reference data
and 40% for pricing data.
"In comparison to last year's survey, more attention is being paid to the challenges of Basel II and risk management," explains Buchberger. "Financial
institutions intend to manage their allocation of regulatory capital more rigorously and to align this with risk exposures. This effort is targeted towards improving the understanding of risk management, so establishing higher internal standards and better management of capital."
The predominance of proprietary data management solutions has reduced significantly since this was still regarded as an internal core competency.
Although in 2005 36% of companies still rely on proprietary development, 45%
of the interviewed companies prefer to buy and/or to extend a solution, whereas in 2004 only 42% intended to do so. A reason for this trend may be
the wider range of standardized data and risk management solutions offered.
The interdependence of quality of data and efficient risk management is
reflected by the fact that 64% of 1,070 respondents claimed to already have
a data management strategy in place for market risk, while both credit risk
and operational risk were named by 63% of addressed companies. Also, a majority of 63% of the companies rely on in-house solutions for their risk
data strategy. The companies' internal knowledge of specific risk structures
has proved to be important for achieving a successful solution.
"This survey enables companies to get a comprehensive overview of the status
quo in their industry. Readers can deduce where they have to catch up with
the regional benchmark and how trends like STP are evolving," says Kevin
Bradshaw, Managing Director, Enterprise Information, Reuters Group plc.
The AIM Global Data and Risk Management Survey 2005 gives an in-depth insight into global trends and developments in the financial industry. "However, the efforts in reference data management obviously have to be synchronized with those already invested in risk management and the integration of STP in order to close the gap in data quality issues," Buchberger concludes.