JWG-IT Group Limited, the think-tank for EU-driven IT change in financial services, has received notification that the UK's Financial Services Authority (FSA) will review guidance that the group will submit next year on wholesale customer data management.
This means that top-tier financial institutions, that form the JWG-IT membership, will be creating and putting forward to the FSA industry guidance for the regulator's approval. By doing so, JWG-IT will help firms comply with the new regulatory principles by defining the operational requirements banks should adhere to, meaning that those which have complied with recognised guidance will avoid sanction.
The ability for organisations to formally submit proposals to the FSA for the regulator's approval was introduced in September 2007 as part of its move to principles-based regulation. To date, four pieces of guidance have been confirmed relating to: outsourcing, suitability and appropriateness, investment research and investment policies.
JWG-IT has chosen to submit guidance on customer data management following overwhelming feedback from its membership. At JWG-IT's 2008 FORUMS in London, Frankfurt and Milan, 300 FS participants agreed that a key priority was for firms to get the basics right to mitigate risk in a principles-based trading environment; the top priority, as identified by 55% of attendees, was improving poor quality product and customer data.
The source of the concern was a large set of regulatory requirements now governing the customer data-set and the reputational damage and regulatory fines that have accompanied data breaches in this space. The FSA's rulebooks have now incorporated the EU's Anti Money Laundering (AML III), MiFID and Data Protection Act (DPA) requirements to conduct a "rolling review" of customer data, but there is no industry guidance in this space today.
To generate the guidance for submission to the FSA, JWG-IT will research and define the minimum standards required for the rolling review of wholesale customer data. This will be done through a working group, known as Customer Data Management Group (CDMG), consisting of senior operations, risk and compliance officers within Citigroup, RBS and other top-tier investment firms that collectively represent 80% of the market. The CDMG has defined a common view of the customer data set and the process by which it should be maintained. It is currently working through the 1,000 pages of rulebook text that are linked to 17 key issues, and is drafting recommendations on how they can be resolved. The group will deliver comprehensive guidance in Q109 and work with the FSA until it is able to achieve confirmation.
Julia Sutton, Global Head of Customer Accounts at Citi, said: "Counterparty data management is an important issue on the international stage and we are delighted that the UK is taking it seriously and getting out in front of the global agenda. We are happy to be working with JWG-IT to help establish a common definition of 'what good looks like'."
An important part of the review process will be to vet the firms' work with a Practitioner Advisory Committee comprised of thought leaders who bring both industry and extra-industry perspectives.
Professor Vicki Lemieux, Director of The Centre of Investigation for Financial Electronic Records, CiFER, said: "By participating in this project we are building a deeper common understanding of the way in which banks create, communicate, process, store and dispose of customer records and data that will help develop real world solutions to mitigate identified risks.
The CMDG project is a unique and unprecedented partnership among financial institutions, the FSA, financial industry service and technology providers, and the industry thought leader in this field, JWG-IT. I firmly believe that it could well form a model for responding to other similar industry challenges and CiFER is pleased to be a part of this partnership."
JWG-IT Group CEO, PJ Di Giammarino, said: "To date, the group has found that there is over a £1billion business case for UK firms to improve their data maintenance processes. As such, prioritised investment is key, but we have been pleased to find the group focused on achieving benefits from better quality data customer protection, liquidity risk and other forms of risk management which are cited as areas of paramount concern."
JWG-IT will submit its proposal to the FSA in Q1 2009 and expects it to be formally approved in Q2.