Solvency II Drives Data Management

Terry Flanagan

Asset managers to be impacted by EU directive.

Asset managers in Europe are facing a slew of data management challenges stemming from the European Union’s Solvency II directive.

The directive introduces strict requirements for data quality for insurers. No previous insurance regulation has provided such detailed specifications for data quality.

“Solvency II has been a hidden problem for asset managers,” said Hugh Griffiths, senior consultant at Cutter Associates. “Their insurance clients are, and will do so increasingly, demanding more data – provided to a greater, more granular level of detail and to be provided more frequently and quicker than today.”

At the very least, a stronger set of data governance and provision processes is required, according to Griffiths.

Improved data management systems are being implemented to address this need. It’s now fully realized that the underlying resource to any financial system is its data,” Neill Vanlint, managing director of client operations at GoldenSource, told Markets Media. “Improving quality, lowering data costs and transparency of data provenance are now industry best practices,”

According to the first of two consultative papers on Solvency II issued by the U.K.’s Financial Services Authority, implementation of Solvency II will cost U.K. insurance firms 1.9 billion pounds, with annual ongoing costs to maintain compliance of about 200 million pounds per year.

The consultation papers cover the FSA’s proposed transposition of the Solvency II directive into law. But Solvency II will also contain a regulation, which is not subject to transposition by national regulators, and thus could be a potential source of concern.

“Of particular note in the draft rules are the frequent cross-references to the ‘Solvency II Regulation’, a proposed EU regulation which will lay down more detailed requirements of Solvency II,” said Steven McEwan, of counsel in Hogan Lovell’s financial institutions group. “It means that firms will in future have to refer to the EU text rather than only the FSA rules.  As a result, obtaining guidance on points of interpretation may well become more difficult.”

M&G Investments (M&G), one of Europe’s leading investment managers with £200 billion of assets under management, completed an upgrade to GoldenSource EDM version 8 in May 2011.

“New regulatory directives, such as Solvency II, require firms such as ours to produce increasingly granular information to support risk management and capital adequacy practices,” said Alan Towndrow, group IS director at M&G Investments. “Having access to quality data enables us to pre-empt regulatory demands and ensure our systems are ready for any additional changes.”

Along with the upgrade, M&G extended GoldenSource’s enterprise data management (EDM) platform to utilize the derivatives capabilities, doubling instrument volumes and delivering trusted, consistent information to power key M&G front office systems.

Said Vanlint, “The benefits significant to our data model are focused on reducing several operational and regulatory risks, supporting real-time production applications, and delivering more breadth and depth than other single focus data repositories.”

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