Strong Data Practices Will Help Restore Faith In Australia’s Financial Institutions

By Abraham Teo, Head of Product Management APAC, AxiomSL APAC

With the Royal Commission’s blistering report on Misconduct in the Banking, Superannuation and Financial Services Industry out in the open since February 1, 2019, all eyes are now on financial institutions and their supervisors to see how they will address its 76 recommendations and work toward restoring the shaken faith of the Australian people.

Sweeping reforms are expected to be introduced over the next decade leading to tightened regulatory purview over financial institutions’ (FIs’) business conduct to protect the interests of the very customers that the industry serves. Indeed, APRA, the Australian Prudential Regulation Authority, refers to the Royal Commission’s (RC’s) recommendations as a guiding light in bringing about reform in the financial sector.

Poor data practices played a role in failure.

The RC lifted instances of misconduct attributable to negligence and greed. Examples of chasing sales targets and wrongfully charging perpetual commissions on (un)rendered services made hard reading. Yet, not all the bad outcomes are attributable to malfeasance. Lack of controls, governance and poor or absent data management practices also contributed heavily to the FIs’ failures, as starkly illustrated by AUSTRAC’s levy of a $100M penalty on a large Australian bank in 2018 for failing to monitor and conduct due diligence on more than a quarter million customer accounts.

FIs must quickly close the critical data-quality gap, or risks will remain.

Before the RC’s report, BCBS 239 and similar regulatory-driven initiatives around the world strongly identified the critical gap between existing and ideal data-quality benchmarks and practices and mandated improvement. In Australia, supervisory agencies had already issued prudential guides such as RPG 702/CPG 235 that require FIs to overhaul their data quality and control regimes. The guidelines demand that regulated entities establish a transparent view of critical processes including regulatory reporting, customer onboarding and credit approvals. FIs must map dataflows from source systems to terminal usages while recording the data’s transformations and uses throughout the journey.

The truth is that FIs in Australia are far behind in overhauling their data processes. As the RC’s report revealed, most FIs in Australia cannot claim anything like 100% transparency into their processes, operations and the data flowing across them. Most cannot adequately show how their data moves from origination through aggregation, calculation, validation to various financial/regulatory data submissions without resorting to costly, manual-bound, one-off processes that often deliver doubtful and unrepeatable results. Certainly, most cannot meet regulatory standards for quality and accuracy with the requisite near real-time responsiveness.

Thus, the risk remains of management failure and/or opportunity for malfeasance due to lack of data (the ‘unknown unknowns’) or poor data-quality and transparency. Without incorporating strong data-quality and lineage capabilities into their institutional DNA, FIs cannot hope to create trustworthy data and turn the tide.

Turning the tide with data integrity, control and transparency capabilities.

If there is a bright side to the RC’s report, it is that FIs can take immediate action to tackle their data-practice deficits and achieve a turnaround that along with other critical renovations, will help restore Australian’s trust in individual FIs and in the financial system. And many FIs are leading the way as they revamp their APRA Economic and Financial Statistics (EFS) compliance programs by using innovative technologies to improve data management and incorporate data lineage into their regulatory-reporting infrastructures. Implementing best practices for data management, control, quality and lineage is achievable right now with automated tooling. Trusted, transparent data drives coherent processes and enables informed, appropriate business decision-making and defensible regulatory-reporting.

Contact our AxiomSL subject matter experts here to learn about AxiomSL’s ControllerView® data integrity and control platform and LineageView capabilities.