Financial Stability Requires Industry Wide Collaboration on Data Standards

G-20 Economies Promote Data Sharing through Collaboration

June 2017

Oliver Burrows, Bank of England Aurel Schubert, European Central Bank Richard Berner, U.S. Office of Financial Research

Around the globe regulators and market participants are confronted with the challenge of managing ever larger amounts of data essential for financial-system oversight and risk management. This article summarizes the work done to date and describes future work to be undertaken. The significance of these efforts is highlighted this week by the global conference at the International Monetary Fund on the G20 Data Gaps Initiative: a set of 20 recommendations on the enhancement of economics and financial statistics launched after the 2007-2008 financial crisis to provide broader data sets for policy makers and supervisors. 

The G20 Data Gaps Initiative, along with other responses to the global financial crisis, illustrates an increasing demand by both regulators and industry for more granular data. The need to find better solutions for data standards developments and data collection is becoming ever more pressing, even with the advent of new data management technologies.

The financial system is global, so global leadership and collaboration on standardized data collections are essential to provide policymakers and private-sector stakeholders with high-quality, granular data. In turn, such data are essential to assess and monitor future threats to financial stability, and to help reduce their impact and frequency by making the global financial system more resilient.

At another recent event, the March 2017 workshop “Setting Global Standards for Granular Data” was an opportunity to continue a discussion about best practices and emerging issues in the usage and standards of granular data. The workshop was the third in a series organized by the European Central Bank (ECB), the US Office of Financial Research (OFR) and the Bank of England (BoE). This one brought together policy makers, international organizations and financial industry practitioners from around the world.

Participants from all those groups agreed that the time is right to move forward in establishing clear, internationally mandated data collection standards for a variety of scenarios, based on more granular schemas and a common vocabulary, where appropriate. Led by regulators from around the world, the success of these efforts critically depends on industry engagement and collaboration.

Evolution of the workshop series

The first workshop, held at the BoE in 2014, facilitated the coordination of regulators’ efforts to agree an approach for granular data standards. The second workshop, hosted by the OFR in 2015, focused on some of the specific obstacles present in establishing global standards for granular data, such as global semantic differences, technical challenges and legal and jurisdiction constraints. The most recent workshop included for the first time a wide number of financial market practitioners, in recognition of the importance of common collaboration. Global market participants support these standardization initiatives, because of clearly evident benefits they could deliver in reduced reporting costs and improved data quality.

Collaboration with industry

All three sponsoring institutions recognize that the challenge could best be overcome in partnership with the international financial industry and standards setting organizations. Initiatives such as BCBS 239 — “Principles for effective risk data aggregation and risk reporting“ from the Basel Committee on Banking Supervision — have challenged large financial organizations to implement high-quality data management processes, data identification and modelling programs, and innovative technical solutions to improve their internal data standards. The two day workshop in March was widely attended by regulators and representatives from the financial industry (especially from banks identified as global systemically important banks).

Attendees expressed considerable enthusiasm for the theme and strong interest in the ideas presented. The topics ranged over semantic technologies, natural rules languages, big data techniques, developments in standards such as the Legal Entity Identifier (LEI), and the impact that collecting granular data will have. Presenters were chosen from the regulatory community, academia, standards groups and industry. Case studies of existing collaborative initiatives such as the Banks’ Integrated Reporting Dictionary (BIRD) and Austrian Regulatory Reporting (AUREP) were shared, along with cases of granular collections recently being implemented, in part as a result of the previous workshops.

Some of the most interesting and thought provoking features of the conference were the interactive feedback sessions. These sessions highlighted differing perspectives, potential new challenges and new opportunities that had not been considered before, which demonstrated the real value of bringing different groups together.

Aspects such as leveraging existing expertise found in standards organizations, special interest groups, academia, and fintech companies were particularly exciting. Change comes with a cost, so giving firms incentives to support and adopt new standards needs to be considered. At the same time, the impact of change should be managed through good communication, adequate forewarning and practical initiatives.

The furtherance of the LEI with respect to geographical and cross sector coverage, allied with the need for high levels of data quality was of particular interest and participants agreed that it would benefit from further regulatory support around the world. The active development of the three core identifiers — LEI, Unique Transaction Identifier (UTI) and Unique Product Identifier (UPI) — across the globe is essential in allowing regulators and risk managers to answer a deceptively simple enquiry — “Who trades what, to whom?” — in the global financial system.

Next steps

The overall response from participants was of strong support  for further collaboration. A number of further initiatives have been pursued and the three sponsoring institutions form a cross-continental collaboration of authorities and will continue their work along with other organizations under the theme “Sharing the Challenge”.

The following areas were identified as needing attention and were regarded as priorities by the attendees:

• Further promote, support and increase the coverage of the LEI and the extension of phase 2 “relationship” information.
• Establishing a common granular (atomic) regulatory dictionary of terms (regulatory ontology) particularly with respect to known gaps and overlaps.
• Establish a common financial instrument taxonomy.
• Support and implement the adoption of other financial identifiers such as initiatives by the Committee on Payments and Market Infrastructures and International Organization of Securities Commissions (CPMI-IOSCO) on the UTI and UPI.

Close cooperation between the public and private sectors on the development of standardized granular data collections and taxonomies facilitates the ability of policy-makers to understand interconnected markets and market participants. Cooperation can also bring efficiencies to regulatory reporting and bolster risk management efforts by the private sector.  We are committed to continuing efforts to realize these goals.

Oliver Burrows is chief data officer at the Bank of England, Aurel Schubert is director-general statistics at the European Central Bank, Richard Berner is director of the U.S. Office of Financial Research