How a Data Governance Strategy Enables Financial Services Firms to Meet Fast Changing Compliance Requirements
Navigating the terrain of compliance regulations is nothing new for financial institutions. However, as the compliance landscape rapidly evolves, even experienced navigators are entering uncharted territory. Legacy practices and systems are no longer enough to maintain compliance, and the burden on staff is increasing. Compliance tools and next-gen technology can help you stay compliant, but their effectiveness is dependent on the quality and accessibility of your data.
In order to wrangle the mass amount of data you have and use it to meet compliance requirements, it’s important to have a strong data governance strategy. Your data governance strategy defines how you store, maintain, and process data, as well as who has access to it. A well-defined plan allows you to take a disciplined approach to managing your data, which is critical to adapting to the changing financial regulatory landscape.
Why Practicing Good Data Management is More Urgent than Ever for Financial Institutions
An ever-growing slate of regulations, both national and international, require financial institutions to monitor and govern ever increasing volumes of data to ensure accuracy and reliability. While other industries often only need to maintain and share data, organizations in the financial sector must also leverage complex data sets to prove compliance with specific industry and/or governmental policies, including liquidity and risk management requirements, to name a few. Failure to comply can lead to high fines, lack of trust from customers and partners, and damage to your reputation.
Banking Regulations Are Growing More Complex
Compliance standards are far-reaching, touching numerous aspects of the organization. In addition to longstanding standards like Know-Your-Client (KYC), MIFID, BASEL, and the reporting required by governmental and international regulators, organizations must comply with newer regulations around cybersecurity and protecting consumer data. As the scope of regulations grows, more departments throughout the organization are involved in collecting, managing, and processing data for compliance.
Because of the increasing complexity of regulations, as well as rising public scrutiny, meeting compliance standards is growing more difficult. According to Wolters Kluwer, navigating regulatory compliance is increasingly a top concern for financial institutions. Among the top barriers to implementing effective compliance programs, survey respondents cited manual processes and inadequate staffing. Inadequate, enterprise-wide data standards also contribute to compliance challenges. When financial institutions don’t have established data governance protocols in place, they must dedicate valuable human and other resources to cleaning up bad data, creating workarounds for outdated processes, and working across business units to define terms and ensure data is shareable.
These challenges drain productivity and invite risk, especially for sprawling, complex organizations. For example, CitiBank, which grew exponentially due to acquisitions, was fined $400 million and suffered reputational damage due to poor system integration and lack of controls.
To navigate regulation complexity, many institutions are implementing new technology. These new technologies require new processes, especially around controls and documentation. But technologies are only as good as the quality of the data they ingest and how well it’s defined.
The Benefits of Data Governance for Banks and Financial Institutions
To address these challenges, financial institutions need a well-developed data governance strategy. Data governance consists of the policies, procedures, roles, and responsibilities that ensure that an organization’s data is accurate, timely, and of high quality. With a strong data governance strategy, financial institutions can position themselves to meet compliance requirements and achieve other business objectives. Below are a few key points to consider for creating strong financial data management and governance practices in your organization:
1. Standardize Data Practices Across the Enterprise
Compliance failures are often caused by poor data controls. Data governance enables financial institutions to standardize data practices and ensure consistency across platforms and different parts of the business. Instead of losing time due to data cleanup projects and defining terms across business units, you can implement automation and analytics tools that enable employees to provide accurate information to regulators.
2. Delegate Responsibility for Data Management
As part of a data governance plan, you identify who interacts with data, when they interact with it, and how. By outlining clear lines of accountability, along with the reasoning for data management practices, financial institutions can ensure that everyone who interacts with data that is used for regulatory compliance understands their role and responsibilities.
3. Be Ready for Future Regulations
It’s impossible to predict future regulations, but it’s clear that financial institutions need to expand their data capacity and control to keep up with ever-changing regulations and support the need to respond quickly to new requirements. A future-proof governance strategy considers the data discipline you need to meet current and future compliance needs. With standard data definitions and policies, you can confidently and efficiently adapt your tools, processes, and responsibilities as regulations evolve.
Beyond meeting compliance requirements, improving data governance enables banks and financial institutions to improve customer satisfaction, compete more effectively, and reduce cybersecurity risks. Here are the benefits of enacting better data governance within your company:
Enhance the Customer Experience
Customers want low-friction omnichannel interactions with their financial institutions. For example, if they make a change to their account online at a branch, they want to be able to see that change reflected on the website when they log in later that day. They also want to be able to do more digitally, especially through mobile apps.
These same trends are influencing B2B customers. B2B banking clients want access to online portals, real-time cash flow data, and better integration between payment and ERP systems. Implementing these tools effectively requires better data integration and quality, both of which are central components of data governance.
Maintain a Competitive Advantage
Fintech solutions are disrupting the financial space, many of these are built on cutting-edge data platforms. Older financial institutions must leverage data more effectively to remain competitive and adapt. New institutions—and even fintech businesses—need to ensure that their data processes are set up properly to sustain growth.
These processes should include quality checks on the data, reconciliation/controls of data across lines of business, and leveraging standard definitions across the organization.
Reduce Cybersecurity Risks
On average, data breaches cost financial institutions $5.97 million in 2021 and 2022. Strong data governance allows financial services firms to improve cybersecurity and recover more quickly in the event of an attack:
- Identify high-risk, high-value data so you can ensure that it’s properly protected according to its level of sensitivity.
- In the event of an attack, having your data accurately mapped and classified allows you to focus your recovery strategy so you can mitigate the impact of the attack as much as possible.
- When employees clearly understand data policies and can easily access the data they need, you can reduce the likelihood that they implement workarounds that may expose sensitive data.
Assess Your Data Governance Strategy
To meet snowballing regulations and rise to the challenges of the marketplace, banks, and financial institutions need a modern approach to data governance. If your organization is dealing with any of the below data hurdles, then now is a good time to reassess and refine your data governance strategy.
- Lack of data standardization across business areas
- Inability to define data attributes across business areas
- Inability to meet regulatory requirements, or concern about your ability to comply in the future
- Lack of insight into the depth of customer relationships
- Inability to assess the profitability of specific business areas, product lines, and customer relationships
- Inability to produce accurate, insightful executive scorecards and dashboards in a timely manner due to manual processes
A well-planned data governance strategy addresses the root causes of these common issues, enabling you to exercise greater control over your data and use it to reduce risk, remain in good standing with regulators, and deliver better solutions to your customers.
How to Get on the Path to Better Data Governance
The evolving regulatory landscape may be new territory. Data governance allows you to confidently meet requirements today and set the foundation for compliance tomorrow. To develop an effective data governance program, work with an expert that understands the demands on banks and financial institutions.
When a global financial institution was facing compliance challenges due to disjointed systems and inconsistent data practices, Kenway developed a data governance strategy that set the foundation for the technical and process modifications needed to manage data now and in the future. As a result, the organization reduced manual data reconciliation and duplication, and improved its ability to meet regulatory requirements. The organization also realized other business benefits, such as operational efficiency.
To learn more about how Kenway helps financial institutions navigate the rough terrain of new regulations, read our case studies here.
Data Governance in Banking FAQs
Why is financial data management important?
Financial data is highly sensitive and heavily regulated. To protect customer assets and the organization’s financial interests, data must be managed according to a well-defined data governance strategy.
What is data governance in banking?
Data governance is the collection of policies, procedures, roles, and responsibilities that enable financial institutions to maintain data accuracy, quality, and timeliness.