A Point of View

Unleashing the Power of Information Assets in

Financial Firms with Effective Reference Data
Management
The Growing Importance of Reference Data in Effective Risk Management
Maintaining data accuracy is critical to ensuring data security and compliance, as well as improving customer engagement. Therefore, banks
and financial institutions need to ensure that accuracy is maintained every time the data is modified. This requires establishing efficient
workflows between departments to ensure there is no duplication of activities. Moreover, it is critical to establish relationships between data
and define ownership to ensure traceability of reference data attributes.
To achieve these objectives, organizations need systems or platforms that are in sync with each other, with proper controls to filter unreliable
data, identify duplication, and flag exceptions for monitoring. The source of most data anomalies today is the lack of information integration
across departments. Limitations of systems in identifying and managing inconsistent or unreliable data further compound the problem.
Moreover, data reconciliation is a time-consuming process that requires deployment of large number of human resources. However, it does
not resolve the root cause of the problem, resulting in recurrence of data issues.

Understanding the Factors Impacting Data Accuracy

While financial services firms strive to ensure superior data management to meet regulatory pressures, manage risk, and ensure operational
efficiency, here are some key challenges that restrict their ability to achieve the objectives.
Legacy data issues: For most organizations, the biggest challenge lies in correcting data issues that already exist in the systems. Multiple
clients and databases with enormous amounts of data make it a time-and-effort-intensive task to identify bad data.
Limitations of existing systems: The systems that are currently in use were often not built to account for data anomalies, or meet the
current global and regulatory standards. Moreover, there is often no connection between downstream and source systems. Data is
maintained manually, a time-consuming process that is prone to human error. Lack of data masking capabilities, inability to filer data, and
existence of disparate systems make data management a complex and arduous task.
Inadequate knowledge of data dynamics: In many large organizations, employees across the enterprise are not aware of the importance
of reference data, as they may not use directly within their department. However, reference data plays a significant role in maintaining the
accuracy of data and can impact information management negatively if it is not taken into consideration during remediation.

A Comprehensive Approach to Reference Data Management

Storing and managing large volumes of complex data sets accurately and cost-effectively is a critical imperative. While technology solutions
can help overcome reference data management challenges, organizations need to adopt a methodical approach to technological
transformation, whether it is an upgrade or a new implementation.
Technology Upgrade
While upgrading, existing technology can ensure enhanced data accuracy; it comes at a huge cost. Irrespective of the technology solution
chosen, it needs to be customized as per business requirements. Ideally, the following key features should be incorporated during
implementation:

A centralized view of data: A centralized source system can capture both external and internal feeds from multiple sources, combine
and reconcile them into a single view, and distribute the data to various target systems. This will not only help improve the level of data
accuracy but also simplify accessibility and governance.

Data masking: With a centralized view of data, it is important to ensure that only required data is accessed by users across units and
departments. This is vital to ensuring data protection and adherence to customer security policies. Data masking helps each functional
unit view only specific data related to their business while accessing a global data platform.

Data filtration: The system should be able to identify and filter inaccurate data. Based on business rules, the data platform can identify,
segregate, and filter bad data, and maintain consistency.

Scalable databases: To manage the rapid data proliferation of data, organizations will eventually need several terabytes of storage
capacity, something that legacy databases are not often equipped for. Therefore, it is important to implement a reference data
management platform with Big Data capabilities. This will not only help address scalability requirements but also enhance data analysis
and ensure the transformation capabilities required to manage both structured and unstructured data formats.

Technology solution implementation: For any new technological implementation to be successful, it is important to understand the
structure of the existing system and the area of implementation. While implementation and integration between systems are generally
customized to each organization, the technological changes are typically implemented on the source systems. However, in order to establish
a centralized platform and gain a holistic view of the data, the same technology should be implemented across all target systems as well. This
will also ensure compatibility and seamless integration.
The deployment of the new solution can be done without disrupting operations, as depicted in Figure 1.

SOURCE
(RECON)

NEW
SOURCE

NEW
TARGET

RULE FILTER

TARGET
(RECON)

RULE FILTER

External
Source 2

TARGET (A)

External
Source 1

Internal Data Input

Feed to New Source

SOURCE (A)

TARGET (B)

SOURCE (B)

TARGET (C)

Auto Feed into system

Feed to New Target

Flow from new Source

Compare Between Systems

Manual Data Feed

Figure 1: Representation of a Parallel Run

In a parallel run, the new source and target systems have their own reconciliation platforms that run in parallel. The new source systems take
the data feed from the same sources as the existing systems, while the new target systems take the data from the existing target systems (A,B,
and C). The data extracted from these target systems are then reconciled and filtered based on customized business rules applied to the new
systems. Rejected data should be analyzed and re-fed into the system to ensure that all the data is migrated accurately to the new system.
Once all the data is moved to the new system, it can replace the old platforms. Automated reconciliation can be implemented, with
customized analytical, rule-based filtering that helps enhance data governance and operational efficiencies. An exception log should allow
continuous monitoring of data anomalies to maintain data accuracy and integrity. Also a centralized team is recommended to monitor and
manage these exception logs.

Securing the Future with Holistic Reference Data Management

Increasing regulatory pressures, growing complexity of financial products and instruments, and changing market dynamics are driving the
focus on creating and maintaining accurate and secure data. This is forcing organizations to invest in and build capabilities to meet scalable
data management requirements. Implementing a centralized system to manage reference data effectively and efficiently is a step in this
direction. As financial organizations strive to capitalize on data for competitive advantage, an integrated reference data management system
enables them to accurately understand and mitigate risks while driving greater value through informed decision-making.

About the Author

Arindam Sarkar
Arindam is part of Tata Consultancy Services (TCS') Business Process Services (BPS) unit. He has over 10 years of experience with managing
business and teams in capital market and banking projects and operations which includes reference data management, data quality, hedge
fund and credit services. His areas of interest include project management, investment banking and data analytics. Arindam holds two
master's degrees in masters in financial economics and business administration from Ohio University, Ohio, USA.

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