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Triggered by Regulation – Why the Need to Comply is Driving Financial Services Firms to Adopt Data Management Best Practice

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Triggered by Regulation – Why the Need to Comply is Driving Financial Services Firms to Adopt Data Management Best Practice

By Graeme Dillane, manager, financial services, InterSystems

Traditional database architectures are coming up short in today’s data-driven world. Part of the problem is that it is difficult for them to handle the tsunami of data coming into the organisation. Data volumes are growing rapidly. Analyst firm, IDC recently projected1 that by 2025 the global ‘datasphere’ will have grown to a staggering 163 zettabytes of data generated per year, ten times the data generated in 2016.

Scoping out the Challenge

Financial services organisations often find it especially difficult to get a handle on the vast volumes of data they have at their disposal – and they therefore struggle to use it to get a clear picture of how best to address specific organisational or operational challenges.

Most of these businesses are facing a complex raft of different issues. Many have had the same legacy systems in place for decades and they are often reliant on these systems for their day-to-day operations. These legacy systems are often not fully integrated with the rest of the organisation. As a result, many of their applications run in siloed environments.

That, in itself, is a significant challenge. Added to it, (and partly because of it), financial services organisations are often doing very little with the vast volumes of data that they have access to.  They frequently have no means of analysing that data, particularly when it is unstructured, let alone analysing it in real-time. This has been a problem for many years across multiple financial services sectors but with important new regulations like Markets in Financial Instruments Directive (MiFID II) and Fundamental Review of Trading Book (FRTB) coming on stream, it is becoming ever more urgent.

To meet, these and other industry regulations, financial services organisations often need to provide regulators with information from right across these silos,  analysed in a real-time environment. Typically, they don’t have the technological capability to be able to do this today.

Regulation impacting the financial services sector is nothing new, of course.  Since the banking crash of 2008, there has been a plethora of new legislation.  In the past, financial services organisations have tended to address these regulations in a piecemeal fashion by putting in place new siloed applications to meet the specific needs of each new ruling. Up to now, this approach has worked after a fashion but many organisations have merely done the minimum they needed to do to meet each successive regulation.

The latest round of regulations is raising the stakes though and effectively demanding that these organisations break down their data silos, better integrate their data enterprise-wide, and analyse it in real time in the context of new event and transactional data. In line with this, financial services organisations increasingly understand the scale of this problem and are actively seeking out solutions.  The precise solution chosen will of course be different depending on the specific financial services sector and the status of the business.

The more data that organisations are storing on legacy solutions, the more they are going to require an updated data platform that can handle real-time analytics to meet the pressing regulatory requirements they face. Even organisations that have fewer legacy systems are still likely to require solutions that deliver enhanced interoperability to help provide a real-time view across the business.

Finding a Solution  

The above highlights the broad-brush requirements that financial services organisations should be looking for. But at a more granular level, they need to think through the step-by-step processes required to meet these regulations. To comply with FRTB, for instance, organisations will typically need to bring information in from multiple applications; run reporting on this data on a real-time basis and generate that in a format that meets the regulator’s precise requirements. That’s just one example but in general terms there will be a host of complementary processes that organisations will need to implement that also help support compliance with regulatory requirements.

Organisations need to seek out a data platform that can ingest data from real-time activity, transactional activity and from document databases. From here, the platform needs to take on data of different types; from different environments and of different ages to normalise it and make sense of it. Interoperability is key. As is granular, role-based security.  Any chosen solution needs to be able to ‘touch’ those disparate databases and silos, bring information back and then make sense of it in real-time.

Data platforms also need to be agile.

as businesses move systems and applications into the cloud, they are starting to use software to ‘containerise’ their applications and modules. Once containers have been set up in the cloud, they are then reusable by other applications within the suite.

It is crucial too that the chosen platform can perform analytic queries – or ask questions – of the data that the organisation holds even if that data is in large data sets and stored in different data and application silos. This capability is critical for complying with regulatory requirements, and answering unplanned ad hoc questions from industry regulators, for example.

Beyond Regulation  

Of course, the power of analytics can take businesses far beyond regulatory compliance. The ability for platforms to provide a panoramic view of disparate data in a secure, role-based manner, for example, can also be used by financial services organisations for a variety of other business requirements, for example, for calculating real time position values used in program trading with millisecond performance to meet strict performance SLAs.

The ability to process transactions at scale in real-time and simultaneously run analytics using transactional (real-time) data and large sets of non-real-time data (e.g. historical and reference data) is a critical capability for various business requirements, for example fpr powering mission critical trading platforms that cannot slow down or drop trades, even as volumes spike. This kind of capability has the potential to bring significant benefits to many financial services businesses today.

Across the financial services sector, though, it is the onward march of regulation that is acting as a key disruptor. Businesses are being driven to innovate and adopt the latest platforms, spanning data management, interoperability, transaction processing, and analytics, by an urgent need to comply.

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UK might need negative rates if recovery disappoints – BoE’s Vlieghe

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UK might need negative rates if recovery disappoints - BoE's Vlieghe 1

By David Milliken and William Schomberg

LONDON (Reuters) – The Bank of England might need to cut interest rates below zero later this year or in 2022 if a recovery in the economy disappoints, especially if there is persistent unemployment, policymaker Gertjan Vlieghe said on Friday.

Vlieghe said he thought the likeliest scenario was that the economy would recover strongly as forecast by the central bank earlier this month, meaning a further loosening of monetary policy would not be needed.

Data published on Friday suggested the economy had stabilised after a new COVID-19 lockdown hit retailers last month, while businesses and consumers are hopeful a fast vaccination campaign will spur a recovery.

Vlieghe said in a speech published by the BoE that there was a risk of lasting job market weakness hurting wages and prices.

“In such a scenario, I judge more monetary stimulus would be appropriate, and I would favour a negative Bank Rate as the tool to implement the stimulus,” he said.

“The time to implement it would be whenever the data, or the balance of risks around it, suggest that the recovery is falling short of fully eliminating economic slack, which might be later this year or into next year,” he added.

Vlieghe’s comments are similar to those of fellow policymaker Michael Saunders, who said on Thursday negative rates could be the BoE’s best tool in future.

Earlier this month the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them.

Investors saw the move as reducing the likelihood of the BoE following other central banks and adopting negative rates.

Some senior BoE policymakers, such as Deputy Governor Dave Ramsden, believe that adding to the central bank’s 875 billion pounds ($1.22 trillion) of government bond purchases remains the best way of boosting the economy if needed.

Vlieghe underscored the scale of the hit to Britain’s economy and said it was clear the country was not experiencing a V-shaped recovery, adding it was more like “something between a swoosh-shaped recovery and a W-shaped recovery.”

“I want to emphasise how far we still have to travel in this recovery,” he said, adding that it was “highly uncertain” how much of the pent-up savings amassed by households during the lockdowns would be spent.

By contrast, last week the BoE’s chief economist, Andy Haldane, likened the economy to a “coiled spring.”

Vlieghe also warned against raising interest rates if the economy appeared to be outperforming expectations.

“It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.

Higher interest rates were unlikely to be appropriate until 2023 or 2024, he said.

($1 = 0.7146 pounds)

(Reporting by David Milliken; Editing by William Schomberg)

 

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UK economy shows signs of stabilisation after new lockdown hit

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UK economy shows signs of stabilisation after new lockdown hit 2

By William Schomberg and David Milliken

LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.

The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.

A separate survey of households showed consumers at their most confident since the pandemic began.

Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.

The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.

Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.

Official data for January underscored the impact of the latest lockdown on retailers.

Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.

“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.

The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.

BORROWING SURGE SLOWED IN JANUARY

There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.

Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.

That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.

The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.

Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.

“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.

Some economists expect higher taxes sooner rather than later.

“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.

Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.

The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.

IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”

However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.

Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.

“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”

($1 = 0.7160 pounds)

(Editing by Angus MacSwan and Timothy Heritage)

 

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Oil extends losses as Texas prepares to ramp up output

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Oil extends losses as Texas prepares to ramp up output 3

By Devika Krishna Kumar

NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.

Brent crude futures were down 33 cents, or 0.5%, at $63.60 a barrel by 11:06 a.m. (1606 GMT) U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 1%, to $59.92.

This week, both benchmarks had climbed to the highest in more than a year.

“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.

Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.

Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.

“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.

Oil fell despite a surprise drop in U.S. crude stockpiles in the week to Feb. 12, before the big freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]

The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.

“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.

(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Jason Neely, David Goodman and David Gregorio)

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