Author: Dr Maximillian Dyck, Paralegal, Suade Labs

Effective risk management at financial institutions cannot be achieved without data lineage, interoperability, and data standards. This article explores these key elements and the potential benefits for financial institutions. As the adoption of technologies grows across the financial services industry, data management tools become ever more powerful. This presents financial institutions with a unique opportunity to maximise the potential of their risk management functions by making the most of their risk data.

Data lineage
Data lineage is the process of tracing the transformations and changes that data goes through over the course of its lifetime in a financial institution. Because financial institutions process vast amounts of data, data lineage can be a significant challenge. From ingestion into the financial institution to processing by liquidity, risk, leverage, legal, and other teams, the data transitions through various systems to aid the institution’s evaluation of its risk positions. The Basel Committee’s principles on risk data aggregation and risk management (BCBS 239) require financial institutions to develop effective data governance processes. Key to this is understanding how, where, and why data is processed in financial institutions. Thanks to technological advancements, financial institutions can deploy technological solutions to assist with oversight over their data. An effective data lineage solution allows financial institutions to understand the various transitions and processes applied to their data, while ensuring the data is auditable for regulatory reports.

Given the complexity of financial institutions, technological solutions are fundamental to meeting the standards set by regulators around the globe. A data lineage solution is one such example. For a data lineage solution to effectively trace the data processing within a financial institution, the solution must be able to interact with other systems both internal and external to an institution.

REST APIs are a powerful means to achieve interoperability. APIs, short for application programming interfaces, offer a secure means of connecting several systems. REST APIs allow developers to connect web services in a scalable and simple manner. The connected systems become interoperable and allow users to make calls for data based on pre-defined characteristics. An API call for data from one system will produce the data in the other system and allow the original system to use that data. Key to a REST API is effective management of the data itself.

Data standards
If financial institutions achieve interoperability, data lineage across internal and external systems becomes more effective. Another key element is the data itself. As REST APIs allow users to perform API calls based on specific data characteristics, data standards offer a powerful means to maximise interoperability. Data on dates offer a simple example. Parts of the world record a date in the format of 1 June 2021, whilst others would adopt the approach of 06/01/2021. To ensure the REST API calls are effective, recording data in the same format is important. Advancements in data standards offer a powerful tool to achieve standardisation across data formats to facilitate REST APIs, interoperability, and data lineage to enable institutions to make the most of their data and maximise the potential of their risk management functions.

Watch our webinar with Solidatus on data lineage, interoperability and data standards.

Key learning outcomes:

· Interoperability: the key component to efficiency and agility
· The importance of auditability and transparency
· How important are data quality and accuracy when it comes to data lineage?
· The role of data standards in achieving data lineage and interoperability
· Technology solutions for achieving compliance with BCBS 239
· How to make the most of your risk data

Watch the webinar here.