Paper points to outmoded data models as major contributor to financial crisis
The Cline Group, a capital markets consulting and training firm, today released a white paper that examines the reasons why risk and performance measurement systems failed to predict last year’s financial markets meltdown. The paper, A New Vision on Enterprise Data Management (EDM), points to inadequate and poorly structured EDM systems, which created low-quality data that fostered inaccurate securities valuations and faulty measurements of risk and liquidity.
“The crisis exposed a number of serious operational and information technology shortcomings across the financial services industry. On the surface, firms failed at risk management and reporting. Dig a bit deeper, and it emerges that many problems originated with firms’ failure to create high quality, enterprise-wide reference data repositories with consistent, standardized data inputs,” said Bill Cline, founder and managing partner of The Cline Group and author of the report. “The data let us down: Firms must find new, more advanced ways to improve the quality of reference data that support their analysis and decision making.”
The paper details the reasons why virtual data management – which makes use of XML and high-performance messaging infrastructure – reduces latency and makes data available to business applications in real time, improving valuation accuracy, risk management and reporting. Distributed data management efficiently and cost-effectively integrates data from disparate applications, overcoming the challenges presented by multiple information silos.
The paper provides as an example how one vendor, CorrectNet Inc. (www.correctnet.com), a managed services provider of client and risk reporting for global market participants, employs a virtual data model by dynamically structuring disparate data, standardizing all data to XML and normalizing the data to the required structure and schema. The process then applies rules-based exception processing and enriches data according to service need.
“Investors and regulators need transparency to accurately consider the risk/reward premium on their investments, and this cannot be done without high quality reference data. To regain investor confidence, financial services firms cannot continue to depend on legacy approaches to EDM. Those that do so will continue to spin their wheels with costly and time-consuming projects – projects that fail to produce high quality data for risk and performance systems,” said Robert Miller, CEO of CorrectNet.
