Lack of Co-ordination Endangers Regulatory Reform Efforts, Says JWG

JWG, a financial services think-tank, has released the findings of its recent global customer data research programme. The analysis highlights the tall order financial institutions face in complying with 27 new regulatory requirements introduced by the G20 following the onset of the financial crisis.

To date, the regulatory tsunami has generated over 90,000 pages of consultation and other papers, with the reading pile topping 8,900 pages in 50+ documents this month alone.

JWG’s research discovered 10 distinct requirements, covering traders, machines, algorithms, desks and retail customers. The research further highlighted the lack of commonality of approach to this common problem.

Current standards do not allow for a single method to meet the new customer identity management requirements. As a result, regulators are not easily able to analyse the information they need from the financial institutions. In June, JWG carried out a data quality exercise with 10 of its members revealing that, out of 60 legal entities, only two names and addresses could be matched in their entirety.

In addition, JWG’s research showed a low awareness of the issues associated with the new regulations, with 41% of survey participants who are responsible for data not having heard of the requirement for a single customer view (SCV), for example, indicating that industry efforts have made little progress thus far.

The research findings concluded that the industry has yet to address the fundamental issues of data management associated with regulatory reform. The effect of this is that:

• Customer protections implied by the new regulations will not materialise.
• Price/earnings (P/E) ratios of financial institutions will be affected as they struggle to articulate how their business models have been reformed.
• Fiduciary responsibilities to customers will be undermined.
• Systemic risk controls demanded by politicians will be ineffective.
• Protection of personal information will be at risk in the rush to gather information.

PJ Di Giammarino, chief executive officer (CEO), JWG, said: “Trust in financial services is being reinstated by restructuring everything from customer protections to how risks are mitigated and markets and financial institutions are structured. Whilst the data exists to comply with the new regulations, it is not possible to transform it into the required information without rules that define how it should be translated and linked.

“The reality is that each of the 93 points on the G20’s reform plan has been pursued independently and, without a central body to coordinate what is essentially the lifeblood of the industry, the data about the customers and counterparties is going to be useless in the central decision making process.”

With such varied regulatory requirements and different language, legal and tax regimes, there is a real risk that:

• The economy suffers ‘garbage in, gospel out’ as computers generate data that give decision-makers only a partial or misleading view of a highly complex landscape.
• Regulators in each Member State, and every major firm, deploy scores of analysts in an isolated and uncoordinated approach to implement structural reform.
• The economy is impoverished by higher banking fees and ill-informed monetary policy.

JWG calls upon top firms, policy experts and regulators to engage at board level to develop a common language for the data in order to meet the regulatory-driven business requirements for the management of customer/counterparty identify.

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