Less than 80 days to go until Mifid II, when information will need to be exchanged between market players in a completely new way. Manufacturers of financial products need to think in detail about how they will send out data and documents to their retailers, and how they can receive sales information outside their target market.
What’s likely to be the next challenge is working out how to shape these data flows so they are structured, standardized, efficient and ready in time. There is a danger that, without thinking through the data from the regulator’s technical standards right down to business and IT requirements, firms will be left attempting the financial data equivalent of trying to eat soup with a fork. Some pretty drastic consequences could ensue from this – such as not being able to supply data to the market, which could lead to no products sold. But why is all this a looming problem for manufacturers?
Well, in a nutshell, manufacturers need to work out how to get their products to market in a compliant way. After all, if their distributor networks don’t get the data or documents in an easy and efficient way, this will have an impact on what they can offer to their customers. Therefore, connectivity, automated data exchange and automated data processing will be key success factors.
In an ideal world, getting these elements in place would be straightforward, but when you get down to the details, it’s far from being simple. Certainly, some attempts at standardization have taken place – several open templates designed expressly to facilitate Mifid II information exchange have recently appeared on the market courtesy of industry associations.
Templates, however, are only the start of the story. In practical terms, a template still needs to get ‘translated’ by firms to be able to speak the in-house IT language and fit into existing technical structures. The issue of customization becomes particularly critical when it comes to IT systems and data management rules. Firms deal differently with all manner of basic data management questions, including: are empty fields classed as empty or zero values? Are values separated by dots or commas? Is the in-house standard CSV or XML files?
Moreover, the bread and butter of data mapping needs to be overlaid with a layer of metadata that follows the product to the point of sale. This involves elements like time-stamps that can be archived for audit (to prove the KID was provided before the sale took place). Entitlement metadata also needs to be aligned with target market and product suitability requirements, so that the right people receive the right data and documents in time to keep your product governance compliant.
Manufacturers will need to repeat this process for every single distributor in their retail network. For their part, retailers will also need to make sure they can receive or get access to the data for every product on their shelf. To avoid the cost and expense of building the huge pile of proprietary connections necessary to achieve this, what’s needed is for the information to be standardised and normalised at an industry scale, so it can be disseminated effectively without overwhelming cost burden and data management complexity. On the most practical level, buy-side and sell-side firms alike need to think in more detail about how to exchange information or they will be left trying to fit the proverbial square peg into a round hole.
With this in mind, the industry needs to start talking about IT specifications and data mapping capabilities alongside guidelines. In the past few months, it’s likely that many manufacturers were preoccupied by the need to build systems to deal with generating KIDs for Priips or Mifid II data calculations. The trouble is that, as a result of having attentions elsewhere, many have put the issue of how to connect and exchange data on the backburner.
Without robust solutions to this problem, manufacturers are in danger of not being able to reach their markets with the data and documents needed to do business – making it excessively difficult for the marketplace to get hold of their products. And whichever way you look at this, it’s not good for business or for investors who may see consumer choice limited.
On the other hand, if a manufacturer is well prepared, they may be able to enlarge their distribution footprint to steal a march on competitors. Regardless of which firms fare best, it is fair to say that with so much to consider, January 3 may well be the end of the beginning, but it is by no means the beginning of the end when it comes to the Mifid II data challenge.
Roy Kirby is senior product manager at SIX Financial Information