Austria: Global Survey Shows: Basel II Driving IT Investments Financial Industry Regards Data Quality As A Key Issue For Risk Management

Last Updated: 18 November 2004
Article by Gerlinde Pachinger

A study of 1,700+ banks from 63 countries, conducted by AIM Software, the Vienna University of Economics and sponsored by Reuters, has revealed that improving data quality is regarded as a key issue for risk management - and that regulatory requirements including Basel II and Sarbanes-Oxley are driving substantial investments in IT.

The survey quizzed banks about eleven key topics involving reference data management and risk management and shows that financial institutions worldwide are making considerable efforts to deepen their data management and increase data quality.

These efforts are being driven, besides cost pressures and increased transaction volumes, by regulatory requirements such as Sarbanes-Oxley and Basel II, which will be implemented in more than 100 countries within the next years. "The results show that companies realize the close connection between a comprehensive data management and an efficient risk management," explains Martin Buchberger, Head of Marketing at AIM Software.

"The new survey is the first to take a truly global perspective. Former surveys were usually based on the US and Western Europe, yet now for the first time regions like CEE, Central and South America, Australia, Asia and the Middle-East are covered", states professor Klaus Arnold from the Vienna University of Economics.

"The effort that financial institutions are making to improve their data management is noticeable," Buchberger continues. The areas where most banks reported plans to substantially improve data quality within the next two years were the Middle-East (79%), CEE (84%), Asia (88%) and Central & South America (92%).

The focus of banks' efforts lies in the automation of reference data and corporate actions processing, the areas from which the largest costs originate. In fact, one out of ten institutions still employ more than 50 people for reference data management. "The survey enables companies to get a comprehensive overview of the status quo in their industry. Banks can deduce where they have to catch up with their regional benchmark and how trends like ISO 20022, STP and Reconciliation are evolving," adds Buchberger.

ISO 15022 and its successor ISO 20022 or UNIFI (formerly known as ISO 15022 2nd edition) is the arising standard data model for financial institutions. In January 2004, the Working Group 11, (WG 11) was created to develop a Financial Instrument Data Model and an ISO Technical Specification, providing a single standard for describing a financial instrument throughout its lifecycle.

The importance of such standards is rising steadily with globally 17.4% of the respondents having ISO 15022 already in use, with especially high recognition rates in Asia (24.4%) and Western Europe (20.9%). The move towards ISO standards is underpinned by the pilot phase finished recently by SWIFT, comprising Telekurs, FT Interactive Data, Reuters, Mergent, NextInfo and WM Datenservice as participants to test the transmission of provider data through ISO 15022 message formats.

Looking further at standardization, 42% of the survey respondents plan to purchase an off-the-shelf data management solution or to buy and adapt a solution to their own needs. 26% of the respondents rely on proprietary development. "This is a significantly smaller proportion than in the past, when data management was still regarded as an internal core competency. This may be due to a higher demand of functionalities that cannot be developed anymore by a single bank in a cost-efficient way", comments Buchberger. With respect to outsourcing, 18% outsource the development of a system and 14% the data processing itself. Outsourcing is especially popular in North America, the Middle-East and Asia.

54% regard workflow management as the major objective of data management with event reporting ranking second (52%). "This is certainly connected to the increasing number of processed corporate action types since financial institutions realize that they are facing serious operational risk and huge potential losses in this area", Arnold explains. What is specifically interesting here is that corporate actions made a huge leap forward compared to previous surveys.

On a global perspective, 29% of the respondents currently plan to increase the degree of automation for reference data, 29% for corporate actions and 24% for pricing data. Altogether not less than 64% of the interviewed institutions are intending to enhance their level of STP.

The AIM Global Data Management Survey 2004 gives an in-depth insight into global trends and developments in the financial industry. "The most outstanding finding of the study is that the Middle-East and CEE countries are making significant endeavours to catch up in data management, homing on the current state-of-the-art at an impressive speed", concludes Buchberger. "However, the efforts in data management obviously have to be synchronized with those already invested in risk management and the integration of STP, to close the gap in data quality issues."

The full results of the survey are available at http://www.dmstudy.info/access?view=1350

About AIM Software Founded in 1998, AIM Software specializes in data and risk management solutions for financial institutions. With offices in Austria, New York, Switzerland and Hong Kong, AIM Software operates globally, servicing 70+ clients in the major financial centers, making it a global leader in reference data management.

About Reuters Reuters, the world's largest international news agency with 2,300 editorial staff in 197 bureaus in 92 countries, bases its reputation on speed, accuracy and independence. In 2003, the Reuters Group had revenues of GBP 3.2 billion.

About the Vienna University of Economics The Vienna University of Economics with about 20,000 students was founded in 1898 and offers a broad range of disciplines. The Department for Applied Regional and Economic Geography focuses its research on regional developments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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