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24 March 2014

#DMSLondon - The Hobgoblin of Little Minds: Risk and Regulation as Drivers

The second panel of the day was "Regulation and Risk as Data Management Drivers" - you can find the A-Team's write up here. Some of my thoughts/notes can be found below:

  • Ian Webster of Axioma responded to a question about whether consistency was the Holy Grail of data management said that there isn't consistent view possible for data used in risk and regulation - there are many regulations with many different requirements and so unnecessary data consistency is "the hobgoblin of little minds" in delaying progress and achieving goals in data management.
  • James of Lombard Risk suggest that firms should seek competitive advantage from regulatory compliance rather than just compliance alone - seeking the carrot and not just avoiding the stick.
  • Ian said he thought too many firms dealt with regulatory compliance in a tactical manner and asked if regulation and risk were truly related? He suggested that risk levels might remain unchanged even if regulation demanded a great deal more reporting.
  • Marcelle von Wendland said she thought that regulation added cost only, and that firms must focus on risk management and margin.
  • James said that "regulatory risk" was a category of risk all in itself alongside its mainstream comtempories.
  • Ian added that risk and finance think about risk differently and this didn't help in promoting consistency of ideas in discussions about risk management.
  • James said that the legacy of systems in financial markets was a hindrince in complying with new regulation and mentioned the example of the relatively young energy industry where STP was much easier to implement.
  • Laurent of Bloomberg said that young, emerging markets like energy were greenfield and as such easier to implement systems but that they did not have any experience or culture around data governance.
  • Marcelle said that the G20 initiatives around trade reporting at least promoted some consistency and allowed issues to be identified at last.
  • Ian said in response that was unconvinced about politically driven regulation, questioning its effectiveness and motivations.
  • Ian raised the issues of the assumptions behind VaR and said that the current stress tests were overdone.
  • Marcelle agreed that a single number for VaR or some other measure meant that other useful information has potentially been ignored/thrown away.
  • General consensus across the panel that fines were not enough and that restricting business activities might be a more effective stick for the regulators.
  • James reference the risk data aggregation paper from the Basel Committee and suggested that data should be capture once, cleaned once and used many times.
  • Ian disagreed with James in that he thought clean once, capture once and use many times was not practically possible and this goal was one of the main causes of failure within the data management industry over the past 10 years. 
  • The panel ended with Ian saying that we not just solve for the last crisis, but the underlying causes of crises were similar and mostly around asset price bubbles so in order to recuce risk in the system 1) lets make data more transparent and 2) do what we can to avoid bubbles with better indices and risk measures.

3 Regulation panel

 

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