According to a new survey undertaken by AIM Software, the financial industry continues to struggle with compliance with regulations, including Basel II, MiFID (Markets in Financial Instruments Directive) and the Sarbanes-Oxley Act. AIM Software's study was designed to provide insights into the driving forces, challenges and planned investments for reference data automation and risk management. The survey was sponsored by FT Interactive Data, an Interactive Data (NYSE: IDC) business, and a leading supplier of financial information to global markets.
The findings of this year's survey reveal that improving reference data quality is regarded as a key issue for risk management and that regulatory requirements are increasingly strongly driving investments in IT. Companies now pay more attention to the challenges of Basel II (which enters into force in Europe in 2007) and the Sarbanes-Oxley Act of 2002.
Regulations apart, the surveyed companies are also focusing on reducing errors and costs associated with back office workflows through improved straight through processing (STP). This year 53 percent of the survey respondents named improved efficiency as an important driving force for implementing a risk management solution, suggesting that risk management is no longer considered only as a cost but also as a benefit.
Martin Buchberger, head of Marketing at AIM Software states, "Financial institutions are beginning to realise that investments in reference data management and risk management can help to reduce not just the risks but also the costs. The surging investments in the back office are proving a drastically changed agenda and are a sign of the silent revolution in the back office that started some years ago."
Buchberger adds, "The results show that companies see the close interdependence between high quality reference data management and efficient risk management." The fact that 37 per cent of companies are planning to invest in the automation of reference data within the next two years underlines this finding.
The focus in reference data management lies on the automation of static data and the processing of corporate actions data, the areas from which the largest costs originate. Twenty-six per cent of the 1,027 respondents plan to increase their levels of automation for corporate actions. "Companies realise that they could face serious operational risk and huge losses in this area. Corporate actions are one of the least automated and therefore one of the most laborintensive, error- and risk-prone areas," states Graham Parry, manager of FT Interactive Data's European Business Development Group.
The predominance of proprietary reference data management solutions has reduced significantly since this area is no longer regarded as an internal core competency of an institution's IT department. Although 22 percent of the companies interviewed still rely on proprietary solutions, the number of companies preferring to buy a data management solution grew from 19 percent in 2005 to 22 percent in 2006. One reason for this trend might be the wider range of standardized data and risk management solutions now available on the market and the associated increased awareness of such solutions.
In addition, institutions are aiming more and more for better implementation of standards for the delivery of reference data. Worldwide, 11 percent of the survey participants are already using ISO 15022 to a greater or lesser extent.
"Our research activities are giving an in-depth insight into global trends and developments in the financial industry. However, the efforts in reference data management and STP obviously have to be synchronised with those in risk management in order to reap the most benefit out of back office investments," concludes Buchberger.
The findings of the survey can be downloaded for free at http://www.dmstudy.info/2006.
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