HOW FINANCIAL SERVICES FIRMS USE TECHNOLOGY TO TURN DATA INTO ACTIONABLE INSIGHT

Data capitalization helps firms extract more value from data and technology to gain five critical competitive advantages

DATA DRIVES MARKETSBloomberg was founded to bring efficiencies to capital markets through timely access to quality data. Over time, this mission expanded to include the role accurate data plays in market transparency, confidence and global economic growth. Today, it continues to evolve in response to post-crisis realities.

One new area of focus is making the best possible use of enterprise data, whether it comes from a vendor, a proprietary internal application or a transaction. When firms act decisively on the long-held belief that data holds exceptional value, they can achieve five important benefits that strengthen any firms competitive position. We call this data capitalization.

WHAT IS DATA CAPITALIZATION?Data capitalization offers a new way to approach the familiar and complex challenges of acquiring, organizing, moving and using data. While all firms intuitively understand that data is now more valuable than ever that it is a vast, untapped resource for growth and innovation very few are acting on this in a consistent or strategic way. Data capitalization reframes the issue, offering tangible ways firms can extract greater value from data and technology, from the desktop to the enterprise.

GET MORE VALUE FROM DATA

Three key points

321 Dont go it alone.

Follow best practices.

Invest in innovation.

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Data flowing through the organization comes from vendors, exchanges, proprietary tools, customers and transactions. Firms that are making the best use of this data tend to stand apart from their peers in three ways. They recognize that data distribution is not a challenge they have to solve independently. They know how radically technology and infrastructure have changed since the crisis and that new best practices have emerged. And they are willing to invest in more open, integrated, automated and transparent infrastructure. When firms do all three, data capitalization delivers all of the following benefits.

How data capitalization worksTogether, four pillars of operational excellence enable firms to redirect more resources to strategic innovation, creating a virtuous cycle that builds a considerable competitive advantage.

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LOWER TCOWhat the crisis made apparent was that conventional ways of acquiring and managing data did not hold up when firms were forced to do more with less. Redundant data sources and bespoke distribution systems set the stage for discrepancies among the front, middle and back office.

The process of data capitalization starts with abandoning pre-crisis practices and making trusted enterprise data the top priority. When data is consistent across the business, it eliminates the cost of resolving data disputes, fixing errors and rechecking work. A more standardized infrastructure for accessing and working with data reduces operational support costs, as well as the cost of using data to meet new business needs. Consolidating data sources also helps firms avoid paying for the same data twice.

Total cost of ownership (TCO) can drop even more by moving away from in-house and on-site solutions to managed services. Firms pay for the end result users getting the right data in the right place at the right time instead of paying for hardware, software, connectivity and service. All the heavy lifting of distribution is done in the cloud.

This allows IT and market data teams to handle higher workloads without adding staff and spend more time on projects that differentiate the firm. Handing over control to experts in data distribution also creates opportunities to add value to data before it arrives, such as updating related fields automatically or translating identifiers, without hiring and training a separate internal team to figure out the same solution.

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MORE EFFICIENT WORKFLOWThe same conventions that complicated data consistency also wreaked havoc with firms attempting to streamline and integrate workflow across the enterprise. Natural integration is rare because firms rely on dozens of applications and systems that were not designed to work with one another.

Data capitalization leads firms to move away from customized and legacy solutions and toward best practices for enterprise-level integration. These practices may be guided by vendor partners, but they are not vendor specific. They involve field-proven frameworks for integrating fundamental internal systems, such as decision support tools or compliance engines, with real-time market and reference data and analytics, as well as applications for managing orders, trades, portfolios, risk and accounting. They may involve open (non-licensed) APIs that do not lock firms into using proprietary tools and open symbologies that make it easier to integrate security and entity data from many sources. Overall, strategy informs technology, not the other way around. The end result is workflow that is more efficient in daily practice and easier to change over time.

With managed services, you dont have to invest in hardware or networks. If you want to scale up capacity or add more services, thats our problem, not yours. Ken Chin, Bloomberg Research & Development

EASIER REGULATORY COMPLIANCECompliance used to be a necessary evil, or a well get to it task. But the massive increase in regulatory demands makes this unworkable. Regulatory awareness must be embedded across the enterprise, from the front office tracking LEIs to the middle office managing risk to the back office calculating capital adequacy. Many reports require data aggregation across business units, often according to regions or counterparties.

As a result, firms need to source data from providers that address these needs. Choosing regulation-ready data makes it faster and easier for firms to aggregate positions across classifications, as well as identify instruments affected by FATCA, MiFID 2, AIFMD and many others.

Firms that are taking advantage of data understand compliance can be a competitive differentiator. Asset managers with proven compliance solutions, for example, are more attractive to insurers. This is one way the process of data capitalization becomes literal. Complying with Solvency II affects how much capital institutions must withhold due to risk. The more precisely firms can articulate risk, the better they can use that capital and the more revenue they can generate.

Investing in more reliable, dependable data and distribution makes it easier for firms to master the essential compliance tasks of identification, classification and valuation. With these fundamentals under control, firms can focus energy on more complex regulatory challenges, such as building the data models to comply with Basel III directives for risk aggregation and reporting. A stronger grasp of compliance data puts any firm in a better position to handle the demands of current and future regulations as well.

In addition, a stronger regulatory focus on information governance demands that firms invest in the ability to control, search and retrieve both structured and unstructured data. That means firms need to start building a proactive surveillance platform one that allows them to integrate the traditionally separate worlds of trade and communication surveillance, streamline global compliance investigations and meet Dodd-Frank requirements for complete trade reconstruction in a more efficient manner.

_04 Systems attempt to differentiate themselves by looking at data differently across the workflow. Some use derived data and apply analytics. Then other systems use those outputs as their input, or their version of the truth. Everything gets manipulated within a highly integrated enterprise workflow. But if you step back and provide a framework for enterprise integration with transparency and control, you can get closer. Brian Cunningham, Global Head of Bloomberg Connectivity & Integration

SMARTER GOVERNANCEEasier compliance is directly related to smarter data governance. Underlying every regulation is a concern about governance: where data originates, what processes govern it, whether users are following these rules, and if so, what proof exists. Firms that pursue data capitalization will be better equipped to enumerate all the data sources, pathways, workflows and systems involved because they will have invested the time and budget to do so. They will understand that not all data is created equal. Knowing the operational purpose of data, including which data adds the most value to the business, makes it easier to set priorities and develop governance policy that is efficient, effective and enforceable. And they will be able to ensure that business strategy guides governance so that the metamodel is tightly aligned with enterprise needs and the framework helps identify potential points of inconsistency.

Of course, by aligning with the managed services model, firms will also be well served to collaborate with data and technology experts who have invested heavily in practices and technologies that help ensure data quality throughout the entire supply chain.

If an insurance company is evaluating two asset managers with identical performance, but one has a complete Solvency II solution in place while the other is still getting up to speed, its an easy decision for them to make. John Randles, CEO of Bloomberg PolarLake

Governance is like a supply chain. Its garbage in, garbage out. But if you have reliable data organized in a sensible way that supports your business strategy, then its much easier to demonstrate the data lineage for virtually anything regulators ask for. Devesh Shukla, Global Head of Bloomberg Reference Data

Product Development

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GREATER INNOVATIONAs pillars of operational excellence, the first four benefits lower costs, smoother workflow, easier compliance and smarter governance are tightly linked. Compliance and governance concerns create urgency for more efficient workflow, which in turn helps reduce TCO.

Innovation is the culmination of all of these and of data capitalization. When internal systems for data acquisition and distribution become more standardized, and in some cases hosted and managed by dedicated providers, firms can redirect more resources to strategic innovation. In other words, the real issue is opportunity cost.

Top talent are not overloaded trying to develop in-house solutions to familiar challenges, which makes them easier to retain. Across the front, middle and back office, the firms best minds have consistent access to the right data, in the desired format and at the right moment, to generate new insights and drive optimal decision making. They are not spending their days trying to work around painful data issues. Rather, they are focused on what comes next. And along the way, firms will have developed stronger relationships with data and technology providers that are eager to propose their newest and most creative ideas.

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For multi-asset-class trading operations looking to efficiently scale their business, the integrity and management of data across the enterprise become critical pieces of the conversation of managing a firms total cost of ownership. Mark Gonzalez, Head of Bloomberg SSEOMS

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THE BOTTOM LINE1. Dont go it alone.Recognize that untangling the knot of data, technology and integration is not what financial services firms are designed to do. Partner with experts that understand the need and have already developed proven solutions.

2. Follow best practices. Be willing to take a hard look at legacy technology, entrenched systems and traditional modes of operation. Solution providers have worked with dozens of clients through hundreds of implementations to develop best practices. Leverage these experiences.

3. Invest in innovationIf data is valuable, it needs to be a priority. Plan to invest in more flexible, open, integrated, automated, transparent and managed solutions. The return on this investment will be considerable.

MORE POINTS OF VIEWThe discussion doesnt end here. Experts at Bloomberg are engaging in conversations about these concepts in many ways with professionals from across the financial industry.

Financial firms are focusing on the operational purpose of data and collaborating closely with providers to gain new insight and realize the full value of current data assets.

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Ken Chin, Bloomberg Research & Development

Harald Collet, Global Head of Bloomberg Vault

Brian Cunningham, Global Head of Bloomberg Connectivity & Integration

John Mason, Head of Bloomberg Regulatory & Compliance Solutions

Dan Matthies, Global Head of Bloomberg AIM

Mark Gonzalez, Head of Bloomberg SSEOMS

John Randles, CEO, Bloomberg PolarLake

Devesh Shukla, Global Head of Bloomberg Reference Data Product Development

Peter Warms, Head of Bloomberg Product Development for Global Data & Symbology

Series Contributors

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Many firms believe a legal entity master (LEM) is an important opportunity to streamline workflow. But questions remain about ownership, technology and data governance.

CONTACT US TODAYBloomberg for Enterprise is ready to help firms capitalize on data. To find out more, contact us at eprise@bloomberg.net or visit bloomberg.com/enterprisebloomberg.com/trading-solutions