Data volumes are rising exponentially alongside regulations, adding to the burdens on legacy data management infrastructure, writes Rohan Singh, head of asset servicing for Asia-Pacific at BNY Mellon.
Technology is offering greater tools to cope with this new landscape, but a shift in mindset is required as buy-side leaders face the need to move towards establishing a single source of truth and trusting in a more open data ecosystem.
The challenges of data management are broadly the same today as they always have been: data quality, consistency, availability, accessibility and tech architecture to support the demand. But today’s business environment is heightening these challenges for institutional investors.
For a start, the volume of data that passes through the middle office is larger than ever and continuously expanding. Some of this is related to investments and new asset classes, but much of it is driven by mounting regulatory obligations.
Against these headwinds, an ability to scale data infrastructure is important, but so too are processing speed and data accuracy. Both attributes of expected data management infrastructure have also made it challenging in a geographically and ideologically diverse region like Asia-Pacific (APAC). Here, institutional investors must gather a variety of data across multiple geographies from disparate sources and systems that lack standardisation, causing validation issues for the clients prior to consumption for investment decisions.
To be successful today, delivering high-quality, accurate and holistic data that supports the need of different internal user groups for informed decisions is key. Newer technologies for data storage and dissemination, such as cloud infrastructure and application programming interface (API), have allowed accessibility to large chunks of data consumed at higher frequency by the front office and senior management without much prejudice of data provisioning by IT teams previously.
Institutional organisations will need to review their current tech architecture and internal data governance policies to utilise the newer sophisticated tech offering to their full potential to maximise gains.
Future-ready data management infrastructure will need two key attributes which are crucial to its completeness and effectiveness. They are to have a single source of truth and an open ecosystem.
A single source of truth
Institutional investors are demanding more timely, transparent and trustworthy data for their investment decision cycles. More than 70% of large asset owners in APAC subscribe to multiple asset servicing and technology firms. The multi-provider model for diversification of exposure risk creates challenges from a data aggregation perspective. The concept of creating a single data source, which standardises and stores data from multiple providers for investors to carry out instant, informed and intelligent investment activities, is gathering importance.
The key tenets for a successful data model for institutional investors are good data governance and clear data ownership within their organisation. A majority of the organisations that embark on the data consolidation journey fail to address the need to have consistent standards, controls and processes that cultivate trust in data integrity and quality.
In recent years, more than 60% of large asset owners such as sovereign wealth funds (SWFs), pension funds and central banks in APAC have transitioned to manage their own funds and behave more like asset managers. This has triggered various projects to create a central data hub that would act as the single data source for their internal stakeholders and their investment decision-makers.
Moreover, the constant increase in the regulatory reporting requirements in APAC and EMEA [Europe, the Middle East and Africa] requires institutional investors to have a consistent, comprehensive and consolidated investment data set with full control, which is driving the data consolidation movement.
An open ecosystem
In creating a digital framework for the future, buy-side leaders have to prepare their organisation for a change in their tech infrastructure to enhance the experience of users from the way they interacted with technology in the past. To benefit from the increased frequency of data availability and to access more data, an open ecosystem is required.
In our experience with APAC clients, more than 80% use different systems to carry out similar functions – but by various internal teams, creating an inconsistent data source that causes challenges for data consolidation.
Having an open ecosystem would provide institutional investors with the option to continue choosing the best-in-class systems for their investment activities and to capture insights from a wide variety of data sources and vendors as the single source of truth. An ability to track internal workflows related to data processing and potentially an overwhelming amount of unstructured data and alternative data sets into timely, valuable and actionable information can help meet reporting or data analytics needs. It can also provide complete data to management teams to help them make better-informed decisions to differentiate from their competition.
The data management industry is evolving rapidly. While innovation used to occur primarily in isolation and then applied to existing problems, new disruptive technologies such as cloud computing, artificial intelligence and robotic process automation (RPA) have already entered the mainstream financial and investment sectors.
With APAC regulators pushing for in-country data storage for their central banks and SWFs, cloud storage has seen an increased demand. Applications of these innovations, which include RPAs, natural language processing and augmented reality linked with the cloud storage can enhance processes, provide scale and stability, and allow the creation of useful and meaningful insights from unified data.
The democratisation of data
Whichever technologies are being deployed, asset owners find themselves increasingly confronted with the need to accept that the trade-off of an open ecosystem and faster data access is the fact that some of the data they rely on as their single source of truth will be sourced from a third-party provider. The paradigm of ownership has shifted to the paradigm of access. It is difficult to avoid the inevitable, nor the disruption that comes with it.
In creating a true digital framework, organisations would also need to take down the barriers within their internal teams to accept the open ecosystem for its full potential. The democratisation of data management within the teams would provide extensive benefits.
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