It has been a long time coming, but this year’s FIMA 2009 saw further discussion by the European Central Bank (ECB) about its reference data utility proposals. Francis Gross, head of the central bank’s external statistics division, elaborated on the plans and informed delegates that the ECB has had discussions with Swift about its potential role in this project.

Reference Data Review readers may have indicated their scepticism about the proposals (see last month’s poll results here for proof), but the ECB remains keen to act as a “catalyst” to getting the regulatory and policy community and the industry jointly engaged in the data space and establishing a shared data infrastructure, said Gross. He contended that such an infrastructure would help the industry, regulators and policy makers alike by reducing the reporting burden and allowing all of them to be confident in the accuracy of their data.

“Last year at FIMA I spoke about developing a repository for instrument data but we have since realised that this utility also needs to include a second dimension on entity data. These two data dimensions need to be linked. We would therefore like to see the development of a register of instrument data and a register of entity data, which together would provide the frame of a data infrastructure.” he elaborated.

Gross qualified this by stating that the ECB is keen for a “thin” utility to be established to begin with. “We understand that you need to start small and gradually extend to other data sets,” he said. Instruments and attributes could be added as the utility gained momentum, driven by demand from the industry and regulatory change. “The organisation of the utility should mean it is light, simple and open and not a monolithic monster,” he said. The utility could thus offer a shared reference frame for all data activity ongoing in the market.

The standards for the identification of instruments in the utility would be ISIN, an internationally sanctioned standard, and the one that has gained the most traction as a securities identifier in the market. “There has not been full industry adoption of standards such as these because data issues generally attract little attention from senior executives,” Gross explained. He conducted a quick poll of the room to ascertain how many of the data managers present at the event had at least one conversation per year on data standards and quality with their board and only two or three raised their hands; thus supporting his point that data quality issues are not directly escalated to the board level.

“A champagne party is going on upstairs, indifferent to the data guys who are fixing the pipes in the basement,” analogised Gross. “Upstairs they don’t realise the pipes are rotten but they will if they finally burst and the stink gets bad enough to reach them.”

He claimed that in order to get the attention of the board, the industry is therefore in need of regulatory compulsion to drive forward change. Gross mentioned the Prospectus Directive, currently under review, as a key piece of regulation to which a data standardisation initiative such as the utility could be tied.

Some vendors have thus far been rather wary of the proposals, but Gross contended that this should not be the case. “There is very little threat to data vendors and data application providers from the initiative. We are, after all, starting with the most standardised and easiest data items and these should not prove too controversial.” He believes that vendors, like other industry participants, would benefit from the utility in the long run due to improved STP rates, efficiencies, a reduction in operational risk and an easier data reconciliation process.

However, a number of delegates following the presentation were sceptical that vendors would get on board with the proposals: they argued that vendors have a vested interest in keeping complexity in the process because it is how they earn their crust. By removing the need for data cleansing, the utility would likely put a number of vendors out of business, should it extend further beyond its initial “thin” remit.

Gross also indicated that the regulatory community could make good use of the standardised data and this is something that not many would argue with. He mentioned the European Systemic Risk Board (ESRB) as an example, which could use the data to more accurately track systemic risk across the markets.

Gross is a key champion of ISO standards as a fundamental on which to build data standards for the utility. He also explained the plan to use a combination of both “monopoly”, or utility provider, services and competitively sourced services in the value chain of the utility. This would mean the utility would certify data analysts to update the data contained within it, but it would allow them to operate competitively. These analysts could therefore come from the industry and be employed by banks, vendors or any other interested parties, he said.

The idea behind the initiative seems to rest some way in between a collaborative approach, with the industry updating the data sets, and a benign data dictatorship, where a central body is charged with policing the industry’s adoption of standards for identifiers and key reference attributes. Gross is also confident that a global model can be achieved by the creation of an international operational entity that has the scope to collect and distribute this data in a service relationship with national agencies, certify data analysts to update the data and monitor compliance. Such an entity would require governance with global reach, recognised competence, also involving the industry; not an easy proposition. This is why he feels that a body like Swift could be well placed to play a role: “It is owned by the industry and it has a global scope.”

Exactly what Swift makes of this idea is not yet clear, but Reference Data Review will be speaking with them later this month to find out…