For Financial Institutions, the Devil is in the Details…and the Details are in the Data

 By Richard Wilson, Vice President, Product Strategy, Harte-Hanks Trillium Software

Now that the Financial Crisis Inquiry Commission (FCIC) has begun hearings in Washington, questions are being asked that will require firms to perform granular research and provide transparency:

Were the financial statements your firm issued covering performance throughout 2005-08 accurate?

What information did you disclose about your firm’s exposure to derivatives and nonprime mortgages? When did senior executives disclose that information to the markets? How did they measure the accuracy of that information?

What sources and documents were used to determine risk exposure and capital adequacy?

What measures and what actions were recommended, and what changes did the firm actually implement, in response to the identification of this risk?

Accuracy in capital adequacy and risk reserve data will play an important role in documenting the integrity of business practices employed by financial institutions when they are called on to answer these questions. More important, metrics about the key data used to support Value at Risk or other Key Performance/Risk Indicators will bring to light critical facts about the problems, inadequate measurements and poor practices of the firms involved in the catastrophic failure of the financial markets.  

Beneath all the spreadsheets and business intelligence reports used to tally profit and loss, value at risk, and risk reserve adequacy used by financial executives to make critical decisions, there are ‘stubborn facts’ that exist in the data.  And those facts will tell an important story about the business practices of the firms coming under scrutiny.

Answers to questions like the ones mentioned above will require firms to produce accurate documentation around communication, process and supporting data. Providing accurate responses to inquiries about the complex combination of information and data will be crucial to the reputation of a financial services firm and its officers – and may even determine who spends time in jail.

The devil is in the (data) details.  What does your financial data tell you?  What does it say about you?

Let me know your thoughts by offering comment.

Comments

[Kenoconnordata.wordpress.com]

Hi Richard,

Timely blog post - I'm presenting on "Achieving Regulatory Compliance - the devil is in the data" in Dublin in February. (http://idq2010dublin.eventbrite.com/).

You have made some excellent points, which I plan to quote you on within my presentation:

"Metrics about the key data used to support Value at Risk or other Key Performance/Risk Indicators will bring to light critical facts about the problems, inadequate measurements and poor practices of the firms involved in the catastrophic failure of the financial markets."

"Providing accurate responses to inquiries about the complex combination of information and data will be crucial to the reputation of a financial services firm and its officers – and may even determine who spends time in jail."

I expect Data Governance Issues will rank high among "the problems, inadequate measurements and poor practices". I recommend financial institutions carry out the above assessment... before the regulator does.

Rgds Ken