Banking
How poor data governance is crippling banks
Published
3 weeks agoon
By
editorial
By Philip Dutton, CEO and Co-founder of Solidatus
It may have started ‘Dear [Chief Executive Officer]’ and ended ‘Yours sincerely’ but the tone in swathes of a letter from the Bank of England’s Prudential Regulation Authority (PRA) to UK-based banks felt more in keeping with a note from an angry headteacher to the parents of a wayward pupil.
Delivered earlier this year, the seven-page document (PDF) contained instructions on a wide range of topics including credit risk, operational risk and resilience, model risk, and financial risks arising from climate change. And the message was loud clear: banks need to get their houses in order.
As CEO and Co-founder of Solidatus, these subjects are closely aligned with my areas of interest.

Phil Dutton
But, along with a few paragraphs on data, the section that really caught my eye focused on risk management and governance, something that, when done right, mitigates the risk of fines and creates money-making or money-saving opportunities – but we’ll come the specifics at the end.
Part of a wider discussion on financial resilience in the letter, it’s something the issue has been bubbling under as an unresolved going concern ever since the global financial crisis of 2007 and 2008.
Global problem
And that’s the thing: while these frustrations were aired by the Bank of England, this is a worldwide systemic problem. Yet despite warnings from regulators, banks continue to fall short on data governance regulations, the Bank of England’s intervention simply being the latest piece of criticism of their approach to risk management, data governance and production controls for regulatory reporting.
Effective governance ensures that data is consistent and trustworthy and doesn’t get misused. It should be a priority for any organisation dealing with wide-ranging information across multiple systems, particularly in regulated industries. But it’s a disturbing reality that most banks have inadequate standards, resulting in weaker security infrastructure, poor decision-making and lack of compliance.
So why are most banks so reluctant to invest in improving their data governance standards, preferring to take a more reactive approach and waiting until they’re pulled up by regulators?
In this article, I go on to suggest answers to this question, setting them in the context of the top data governance challenges banks face, what needs to happen to improve data governance in banks, and whether the PRA’s letter is likely to have any impact.
Data governance challenges
The root cause of these problems is that most banks’ governance practices over the years haven’t kept up with the pace of change in technology, the proliferation of data or the number of systems used to hold this data and the ever-increasing set of regulations that create obligations.
Rewind 25 years or so, and a small tech stack with IBM at its foundations would be simple to manage, the flow of data between systems being sufficiently limited to keep track of without tearing your hair out. But those days are behind us, and now there’s a tendency for banks to have their heads in the sand rather than face and respond to the new reality.
This careless attitude could cripple their businesses, either through fines or simply because the data you need to make informed decisions is getting lost in the clutter.
This governance-centred section of the Bank of England’s letter focuses on counterparty risk management, chastising banks that “despite regular messaging from the PRA on the subject, these events [Russia’s invasion of Ukraine and volatility in the nickel and long-dated gilt markets] demonstrated that firms continue to unintentionally accrue large and concentrated exposures to single counterparties, without fully understanding the risks that could arise”. But the problem stretches far beyond this into general business negligence.
At its core, poor data governance presents multiple challenges, including:
• Lack of visibility into your full landscape of data sources, usage patterns and/or control gaps;
• Your suite of tools and platforms not meeting your needs across internal and external stakeholder groups, meaning they’re not future-proofed for an evolving regulatory landscape;
• Implementation of change programmes being slow and hampering strategic business objectives;
• Badly thought-through or non-existent integration of compliance into business processes and controls, with linkage to regulatory obligations; and
• Limited insight into regulator expectations and interpretation of requirements.
The goal is to drive operational efficiencies and risk mitigation. But how?
Improving your data governance
Governance is a multifaceted discipline. It boils down to better embedded practices and processes, but these must be combined with the right software solutions, ones that allow you to truly manage the infinite complexity through operational blueprints of active metadata. Leveraging your existing data and systems captured across your bank in context to provide insights from the past to create action plans in the present to achieve the desired future state.
Relying on Excel is negligent and relying on 1st or 2nd generation data governance platforms is no longer acceptable.
Ultimately, it’s taking the first step of data discovery. To do that, you need to:
• Automate the capture of lineage and understand the connections between processes, data, controls and reports to applicable regulatory obligations;
• Connect existing catalog information, such as asset inventories, data dictionaries, processes, risks, controls, and other enterprise taxonomies and/or hierarchies;
• Trace internal risk appetite framework(s) to policies and standards to external regulatory requirements; and
• Link self-assessments, internal audit and external examiner results.
And that means using more versatile software.
What will the impact be?
You might be seeing the light, but I’m left asking: will the Bank of England’s letter have a significant impact across the sector?
Well, yes and no. The letter itself doesn’t explicitly lay out what the consequences of non-compliance are. It also only has official oversight in the UK.
To counter that, though, the law is already well known, even if not reiterated here. If you’re not complying, it’s more likely a question of when, not if, the regulators will come knocking. Furthermore, the Bank “will continue to work closely with our regulatory counterparts on these topics”; the UK isn’t an outlier here.
And this is before we look at the sheer increased efficiency of smart data governance. With the right software used well, your efficiency savings can be immense. 90%+ cost savings aren’t unheard of when it comes to mapping and monitoring your data and systems, with the resulting data discoveries you make creating huge opportunities not just to save money but to make money.
So, whether this letter itself has any impact is moot; the world is moving towards an imperative to improve governance regardless.
When better governance also gives you a competitive advantage and improves data discovery, why wait to get your house in order?
Banking
Top banking trends of 2023 and global outlook of banking and fintech for the year ahead
Published
3 days agoon
March 28, 2023By
editorial
Author: Professor Marco Mongiello, Pro Vice-Chancellor, The University of Law Business School
You’d be forgiven for assuming that the global outlook for banking and fintech will be dominated by the usual suspects:
Artificial Intelligence – AI plays an increasingly prominent role in banking and fintech by enabling personalised services, fraud detection, predictive analytics, use of chatbots and robo-advisors.
Blockchain and Cryptocurrency – the secure, decentralised and swift system for financial transactions that blockchain has brought to the fore a few years ago, is now becoming ubiquitous. An increasing number of transactions are recorded through blockchains technology, primarily in the cryptocurrency market.
Digital Banking and fintech – accelerated by COVID-19 pandemic, the adoption of digital banking is a trend that will persist as customers have become accustomed to the convenience and efficiency of digital banking. Moreover, fintech enables access to financial services for previously underserved populations in developing countries or less affluent social groups in more affluent societies. This includes mobile banking services, peer-to-peer lending platforms, and microfinance solutions.
Open Banking – another global trend is the use of open APIs (Application Programming Interfaces) that allow third-party developers to build apps to facilitate customers’ access to financial data and services from banks.
Nonetheless, the challenges posed by these rapid changes are reminders that banking, an industry that by its very nature needs to be conservative, risk averse and solid, wobbles on the unchartered grounds of fast and turbulent innovation, where entrepreneurship instead thrives. The underlying rationales of banking and fast digital innovation are not incompatible but do need solid operations and thought-through decision-making to avoid causing catastrophic collapses.
The recent examples of Silicon Valley Bank, Silvergate, FTX and Wirecard are stark reminders that digital entrepreneurship applied to banking doesn’t just bring to customers the visible transformation of valuable new services, but also dents (perhaps as an unexpected consequence) the rationale itself of the role of banks in the global economy. Moreover, the central banks’ ability to contain the effects of single banks’ defaults is no longer a certainty, as experienced just over a decade ago and more recently. The markets’ sentiments are hardly reassured by the commitments of even the most coveted players, such as the European Central Bank, the Federal Reserve, and the President of the United States himself.
Regulators are lagging behind and their attempts to catch up may cause further seismic shocks to the global banking system. For example, another trend that is emerging is one of artificial intelligence decision-centres (i.e., decentralised offices of banks which take autonomous decisions on behalf of investors) outside the most stringent regulatory environments, enabling banks to operate globally more efficiently and more competitively. And we can expect that regulators will close the gap either abruptly, as it is currently happening in China, where private banks are subject to an escalation of regulatory and monitoring restrictions, or more gradually as it is happening in Europe and in the US.
The questions we face, as individual or trade customers of our high street banks, as direct investors or clients of managed funds, are whether banking will become more user-friendly yet, for our daily use but riskier, too, or is it simply becoming more efficient, transparent and also safer.
I’m afraid that the answer is by no means an obvious one. Therefore, caution, level-headed decision- making and critical thinking have never been as important as these days. Whether you are looking after your family savings or growing your pension reserve, the imperative is that you keep updated about the providers of the financial services you rely upon as well as about the general regulations that apply to your financial transactions. This is where, for example, you need to be familiar with your rights in case of cyber fraud, as well as learning how to minimise the risk of becoming a victim thereof. Also, taking additional steps to evaluate the credibility, solidity and reliability of the online provider of that app that was recommended by a trusted friend, may prove a very good move.
Similarly, whether you are the CFO of a medium or large company, or are a sole trader wrestling with your own business’s finances, you need to reflect on what you really want from your bank in the first place. That is before you started to be swayed by the whirlpool of offers of ‘opportunities’ to multiply your financial investments. Chances are that your initial approach to your bank was dictated by either a need for financing your working capital, as per your budget and strategic plans, or to find a safe place for your temporarily idle liquidity. Perhaps you were also after some basic treasury services such as swift payments and debt collection. Maybe some other financial services closely related to your business operations, e.g. factoring. The advice is to give very careful consideration to services that are more remote from your business, because the trend for the next years is that more and more of those will be offered to you. But many new services will disappoint those who, sadly, cannot afford financial mishaps as they look to run and grow their business.

The Treasury and Bank of England recently announced a state-backed digital pound is likely to be launched in the UK later this decade, following the popularity of cryptocurrencies. However, the ‘Britcoin’ will be backed by the central bank, ensuring the digital pound will be much less volatile than its sister, cryptocurrency. Could a digital pound backed by the central bank be the answer to utilising technological developments in the finance system for the better?
Ross Thompson, Accountancy and Finance Lecturer at Arden University, considers what we can expect from ‘Britcoin’, how this will impact consumers, businesses, and the economy, and whether ‘Britcoin’ could be the revolution to restore our confidence in the banking system.
Trust in our financial system hit an all-time low post the 2008 financial crash. Even ten years on from the collapse of Lehman Brothers, a survey found 66% of adults in Britain still don’t trust banks to work in the best interests of society.
This means there remains to be apprehension for people to sign up to and use a bank to help manage their money. The UK doesn’t seem to struggle too much in this arena, however, as according to the Financial Conduct Authority (FCA), most UK consumers (96%) have a current account from a bank or building society. Regardless, there is still a significant number of adults who do not have a bank account or are what is known as ‘unbanked’.
The lack of trust plays a big part here. More people want better control over their money and to cut out the middleman, hence why cryptocurrencies and blockchain became a tempting option, as it can potentially remove the need for banks for any transactions. However, the volatility of these currencies has been a cause for concern for many investors and regulators.
Blockchain and cryptocurrency are gaining more traction and are becoming more of a viable option for businesses, especially due to talks of regulations coming into fruition. This is especially true with cryptocurrency, with the government announcing crypto assets will be subject to FCA rules in line with the same high standards that other financial promotions such as stocks, shares, and insurance products are held to.
The “Britcoin” aims to solve the issues traditional Bitcoin presents. It would be backed by the central bank, which would ensure its stability and reduce its volatility, making it a more attractive option for investors and providing greater confidence in the stability of the financial system. Britcoin will be as stable as the inherent stability of the British economy and political system. It would also provide an opportunity for the UK to stay at the forefront of technological developments in the finance system – a system in which it can sometimes be slow to react.
One of the key benefits of a digital pound is that it would be much faster and more efficient than traditional banking systems. Transactions could be completed almost instantly, regardless of where the parties involved are located. This would make cross-border transactions much easier and could even help to boost international trade.
The Bank of England’s Governor, Andrew Bailey, stated: “a digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability”, pointing toward the other advantage of a digital pound. It would offer more security as transactions would be recorded on a distributed ledger, which would make it much more difficult for hackers to tamper with the system. It would also provide greater transparency, as all transactions would be recorded on the ledger and could be easily traced if needed.
However, there are also some potential drawbacks. One concern is that it could lead to a reduction in the use of cash, which could have implications for those who do not have access to digital technologies or who prefer to use cash for privacy reasons. There are also concerns that a digital pound could be used for illicit activities, such as money laundering or terrorism financing. On top of this, more details are required in relation to the levels of personal account privacy; the potential to usher in ‘big brother’ banking systems is a growing a concern regarding state digital currencies.
Around 85 central banks are currently engaged in projects to create digital currencies, according to figures from the Bank for International Settlements. But as it stands, many feel there is probably little need for a digital pound; with a growing amount of people using their debit cards, phones and watches to fulfil the same function, a digital pound is deemed unnecessary. On top of this, many of the public fear that a government digital currency could potentially infringe on their privacy – despite the BoE stating the currency would be subject to rigorous standards of privacy and data protection.
And in countries where a digital currency has already been established, there has been little uptake – widely due to the lack of trust between central banks and citizens. It seems gaining users’ confidence should be the Bank’s first priority. The House of Lords economic affairs committee stated last year that a digital pound would pose “significant risks” such as state surveillance, financial instability as people convert bank deposits to CBDC during periods of economic stress, an increase in central bank power without sufficient scrutiny and could be exploited by hostile states and criminals; it is safe to say that the nation’s ‘Britcoin’ will need to be very well thought out.
It has the potential to revolutionize the finance system, however, and could provide significant benefits to investors and consumers alike. However, the potential risks and drawbacks must be carefully considered before any decision is made to launch such a currency. Having said that, if it is implemented correctly, a digital pound could be a powerful tool for utilising technological developments in the finance system for the better.
Magazine
Trending


Efficient Ways Construction Firms Can Bring Down Costs In 2023
Consistent, high-quality construction projects being underway is often a sign of a thriving economy. The future of the US is...


How to identify the signs that your IT department need restructuring
Eric Lefebvre, Chief Technology Officer at Sovos For firms to execute transformations and meet their overall vision, it is...


Top banking trends of 2023 and global outlook of banking and fintech for the year ahead
Author: Professor Marco Mongiello, Pro Vice-Chancellor, The University of Law Business School You’d be forgiven for assuming that the...


Sustainable transformation in the energy sector: econnext AG focuses on scale-ups
Scale-ups rather than start-ups: scaling market-ready technologies and companies for a sustainable transformation of the energy and technology sectors Profitable...


Budgeting the unknown, forecasting the uncertain
Tarka Duhalde, Vice President, Financial Controller, IRIS Software Group Volatility and uncertainty are still looming large. In late March...


Building resilience: How to create stability during uncertain times.
Jim Wilkinson, CEO of Zuto We live in uncertain times. Businesses have faced one challenge after another, and we’ve...


The need for simpler cross-border payments must be a priority for all banks
Mushegh Tovmasyan – Founder of Zenus Bank Despite the transformative changes we have seen in the banking sector over...


How app usage can help brands increase their online revenues and customer retention
Arunabh Madhur, Regional VP & Head Business EMEA at SHAREit Group Brands are continuing to invest heavily in the...


Will ‘Britcoin’ change the way we bank?
The Treasury and Bank of England recently announced a state-backed digital pound is likely to be launched in the UK...


In-Store, Online & In-App – Unifying Payment Authentication
Michel Roig, President of Payment and Access, Fingerprints Often, new technologies are lauded as the death of existing ones....


Why the future is phygital
By Eric Megret-Dorne, Head of Card Issuance Services and Service Operations at Giesecke + Devrient Digital banking has become...


Why Keeping Track of Cash Is Key to Economic Survival
By Joshua May, Consulting Manager EMEA, BlackLine Finance and Accounting (F&A) has always had a reputation for its calm...


Does the middle market have a financial edge?
Ilija Ugrinic, Commercial Solutions Director at Proactis Companies tend to look up the ladder when searching for ways to...


Hybrid Intelligence – The only way to face the problems of the future
Author: Prof. Dr. Iris Lorscheid, Vice-Rector Research and Professor of Digital Business and Data Science Computer Science at the University...


Consumer demand driving sustainable payments
Jenn Markey, VP Payments & Identity, Entrust Sustainability is a buzzword that seems to be at the forefront of...


Adyen drives conversion uplift with advanced authentication solution
The company’s expanded authentication offering optimizes authorization, security, and end revenue Adyen (AMS: ADYEN), the global financial technology platform...


It’s time for financial institutions to take personalization seriously
David Hetling, Global Marketing Director, Financial Services, RWS Financial institutions will always play a critical role in society, offering...


The Future of Capital Markets: Democratisation of Retail Investing
Nicky Maan, CEO of Spectrum Markets Over the past decades, global capital markets have undergone tremendous changes. There have...


5 Often-Overlooked Investment Options To Consider Exploring In 2023
When choosing what to invest in, many people will initially focus on the stock market which is considered a more...


New Open Banking platform Archie waves a timely hello to Britain’s beleaguered businesses
Archie is a game-changing payments and data platform that’s inherently human in its approach; a refreshing proposition in the jargon-heavy...

Efficient Ways Construction Firms Can Bring Down Costs In 2023

How to identify the signs that your IT department need restructuring

Top banking trends of 2023 and global outlook of banking and fintech for the year ahead

Sustainable transformation in the energy sector: econnext AG focuses on scale-ups

Budgeting the unknown, forecasting the uncertain

Building resilience: How to create stability during uncertain times.

RBI’s MASTER DIRECTION ON DIGITAL PAYMENTS SECURITY CONTROLS

EMV® 3-D SECURE: ENABLING STRONG CUSTOMER AUTHENTICATION

HOW TO SIMPLIFY IDENTIFICATION IN THE GLOBAL DIGITAL ECONOMY WITH THE LEI

EXEGER – CHANGING THE PERCEPTION OF POWER

FUTURE FX PROMO
