Exploring how to best deliver better Data Standards in the Financial Services Sector

Allan, Willi and Jeff’s session will stimulate discussion and debate amongst all participants through sharing a set of ideas that they believe are a prerequisite to the paradigm shift forward that is needed in the regulatory reporting space.

Their objective is to explain what they see as the essential building blocks needed to create a new, advanced, financial regulatory information collection system that is far more informative, far less burdensome and far more responsive than what we have now.

They believe that their proposed system will help regulators better understand the risks to both individual financial institutions and the financial system as a whole. The new system will enable regulators to better understand the current condition of regulated financial institutions and better understand how the condition of individual banks and the financial system as a whole changes when the state of the world changes.

They will be considering how best to achieve what is needed, and will be taking a look at:

• Granularity:  Every financial product is a financial contract and contracts are the building blocks of finance. They are the starting point for a better system.
• The value of a “pull system” as opposed to a “push system” for collecting data from regulated financial institutions. A “push system” requires regulated financial institutions to constantly respond to changing regulator requests.  A “pull system” enables the regulator to reach into established data repositories to extract data as needed.  

• The value of collecting granular data that can be analyzed and aggregated by any desired criteria, at will. The current approach collects rigidly aggregated reports (based on prior established criteria) that contain precalculated results that cannot be further analyzed.  The key consideration of the granular data collected with a “pull system”  is that it has to be analyzable at the individual contract level. 

• The type of granular financial contract data that is needed: Unique counterparty identifiers plus financial contract data that enables current and forward-looking analysis.

They will also be talking through what the Algorithmic Contract Types Unifed Standards (ACTUS) is and how it benefits regulatory oversight, financial institutions and the market, explaining that:

• ACTUS is an algorithmic financial contract standard that generates the promised payment obligations of financial contracts with respect to amounts and timing.
• ACTUS is an enabler of all types of financial analysis because all such analyses starts with the payment obligations of the granular financial contracts.
• Using a common standard like ACTUS provides an efficient way to conduct analysis in all banking functions with respect to finance tasks and risk management, thereby eliminating the very costly reconciliation challenges that banks must solve between the inconsistent analyses produced by different systems within a bank.
• Use of the ACTUS algorithmic financial contract standard is the key to making a “pull system” of regulatory data collection work, thereby enabling the regulatory analysis that is needed

How exactly does ACTUS contribute to the success of a “pull system”.

1. • It provides a validated standard for collecting granular financial contract information.

1. • It enables granular data to be collected in a “pull system.”

1. • It makes the data that is collected fully analyzable with respect to changes in the state of the world, such as changes in market risk, credit risk, and behavior risk.  The impact of risk on the condition of a financial institutions can only be quantified in terms of the extent to which risks interrupt and/or diminish the promised payments embodied in financial contracts and those promised payment obligations are precisely computed by the ACTUS algorithms.

1. • It enables a wide range of analytical approaches, including even the multiple ways in which the condition of a bank can be represented according to different accounting standards/approaches (IFRS, fair value, nominal value, and local GAAP).

1. • It enables realizable near time insight into the condition of individual regulated financial institutions.

1. • Combined with a system of unique counter-party identifiers, it enables regulators to see the entire financial market in a way that makes transparent interconnectedness in the market (who owes what to whom) and the extent to which problems in individual financial institutions are likely to be transmitted to other institutions, thereby representing threats to the stability of the financial system.