Regulations Spur Data System Upgrades

Terry Flanagan

Regulators are demanding greater transparency and visibility into transactions, particularly asset-backed securitizations, which figured prominently in the 2008 credit crisis.

Under the European Central Bank’s (ECB) Asset-Backed Securities (ABS) loan-level initiative, data will be required for any assets being used as collateral under the ECB Repurchase Agreements (Repo) System.

On July 6, the ECB announced that valid loan-level performance data for new and existing residential mortgage-backed securities (RMBS) bonds, with other ABS asset classes to follow, must be collected and submitted to the European DataWarehouse, which was built as part of the ECB initiative, by September 2013.

Not complying with the required reporting by that date would render the RMBS ineligible as collateral under the Eurosystem repo operation.

“This is a significant shift from existing requirements,” said Randall Orbon, vice-president at Sapient Global Markets, a Boston-based financial services provider. “The challenge for most data providers will be locating, identifying and extracting large volumes of complex data from disparate systems.”

Providers will also need to standardize the data to fit the ECB’s asset-specific templates, validate the data content, and create and submit compiled XML files to the European DataWarehouse, which will be used for the processing, verification and transmission of ABS loan-level data.

Firms are looking more closely than ever at enterprise data management tools to manage the lineage of where data originates, where it’s stored and who are the consumers.

“Regulatory risk is pressuring firms to refocus on their data strategies and their ability to rapidly analyze data, collect information and accurately respond to demands for reporting and transparency,” said Jeremy Skaling, head of product management at Eagle Investment Systems, a subsidiary of custody bank BNY Mellon.

“Due to these demands, firms require the ability to rapidly integrate disparate systems, enrich data with additional sources, create central reporting repositories and ensure that data is accurate and readily available,” he said.

The European DataWarehouse will ensure that loan-level data is made available to market participants to increase disclosure in relation to, and facilitate the risk assessment of, existing and future ABS transactions.

Processes and software systems will be put in place that allow ABS originators to submit loan-level data to the European DataWarehouse electronically, and the loan-level data will be checked for compliance with the specific ECB reporting templates as well as for consistency and timeliness.

As one of the prime contractors for the European DataWarehouse, Sapient Global Markets has launched services such as complex data mapping and enrichment, the conversion of data between formats required by different regulators such as the ECB and Bank of England, and the streamlining of two-way communication between regulators and data users through custom-built connectivity channels.

The Eurosystem, the monetary authority of the eurozone, intends to introduce the loan-by loan information requirements for RMBSs first and then gradually to other asset classes, such as commercial mortgage-backed securities and small and medium-sized enterprise transactions.

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