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When one thinks of utilities – you immediately think of gas, water, and electricity, items you must have but are not excited about. Remember when the good old telephone was also on this list? How times change. Who today could say that their phone is just a utility in this day and age? On the contrary, the dominance of the mobile in everyone’s life means that, far from being a utility, it is now seen as a device that connects all aspects of life from work to play – in other words, it has become essential.
Similarly, in the financial markets right now, there are certain pieces of information that can no longer be seen as a utility. Much in the same way as how your name and telephone number are vital to how WhatsApp functions on a mobile device, understanding who your trade counterparty is and what their unique number identifier is, is equally important in high finance. But the trouble is that these days, with markets getting increasingly more complex, an added layer of sophistication is also needed. Using the phone analogy, it is the equivalent of the latest iPhone software update.
Nowhere is this more the case than in the world of sanctions. As different sanctions are imposed across multiple jurisdictions at different times, the context of each individual sanction changes quickly. The reality of modern-day markets is that a flag that says yes to one sanctioned security today, could very well be a no tomorrow depending on geopolitical events. Therefore, it is not hard to see why more and more financial institutions are seeking more than just the data saying yes or no – what they are really after is a layer of expertise on top to provide much-needed context, with which effective decisions can be made.
However, it is not just about sanctions. With the next iteration of Basel in the pipeline, local regulators are shifting their focus from just demanding data consistency, to seeking both data consistency and quality. Whenever changes happen to existing regulations, even small ones, financial institutions need to know for certain that their data is up to scratch from a reporting perspective. Reference data is the lifeblood on which any financial institution bases its decision-making, so it shouldn’t be putting firms at financial or reputational risk by continuing to view it as a utility.
With geopolitical and economic risks and uncertainty rife, now is the time for financial institutions to view their data infrastructure as more than just a utility. After all, much like the journey of the phone handset, financial markets are at a critical point in time between key changes in technology and evolution in the role data is playing in critical decision-making for banks through to asset managers.
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