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'Faux amis', a well-known trap for French students, is the concept of words that appear similar, but actually have rather different meanings. A similar situation is emerging in data management. Over the last twelve months, a phrase better known in the enterprise tech world – MDM, or 'master data management' – has entered common parlance. But what does it really mean in this context?
To answer the question you need to look at what's prompted it – and that's easy enough to understand. It's borne out of the growing focus on entity data among compliance, risk management and other teams within financial institutions. In the past, the idea of risk and data management centered primarily on the securities that a financial institution held. But now, from BCBS 239 to Dodd-Frank, systemic risk regulations are forcing organisations to build out a complete view of the risks they are exposed to by having a full understanding of the companies they do business with. On top of this, the customer due diligence requirements of FATCA and AML regulations require banks and others to validate every aspect of an entity in the on-boarding process.
In the enterprise software world, MDM is commonly defined as a practice which involves the processes, governance, architecture and standards required to source, cleanse and centralise data to provide a single view of a business. In this context, the application of MDM to entity data in the financial services makes some sense.
However, when you look under the hood, the translation of the broad MDM concept to the world of capital markets is not quite so neat. Entities themselves pose just one part of financial risk – securities form the other major piece. Often, these entities are issuers of products as well. For example, your corporate finance team may do business with a bank that also happens to issue a structured product that your asset management division holds. And then what about guarantors and counterparties on the securities these entities issue? A 'master' view of a firm and risk isn't so possible without connecting entities and securities.
Securities have traditionally fallen under the enterprise data management (EDM) umbrella that we in financial services are familiar with. So what impact does the introduction of MDM have on EDM? Do they sit comfortably side by side? Is there any overlap?
The way to look at MDM for capital markets is the entity equivalent to a securities master: an entity master. The approach is quite similar: take feeds from various sources, validate and cleanse and create a single, master copy for users to utilise throughout the business. Because securities are part of the entity equation, there is natural overlap between the securities master and the entity master. A data architecture that can incorporate and link multiple data sets will connect the two and produce a consolidated view of the financial risk that an institution is exposed to by doing work with another organisation.
By defining MDM in this way from the get-go the industry, already rife with complex phrases, will go a long way to avoiding any coq ups...
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