Defining the financial industry

2012/03/15

As discussed in a previous post – What do you mean? – having a common set of key business terms and definitions is so beneficial to an enterprise and is at the core of good data management.

So it is good to see people in the financial industry discussing the importance of having a common language both within an individual organisation and across a sector. Andy Haldane – Bank of England’s executive director for financial stability – told the Securities Industry and Financial Market Association in New York yesterday that there is often no common way of calculating risks and liabilities. A few quotes from the article:

“the world’s banks should develop a common language, like the barcodes used in international trade, so that financial risks can be mapped and understood”

“Most financial firms have competing in-house languages, with information systems siloed by business line. Across firms, it is even less likely that information systems have a common mother tongue,”

“Without a common language, Haldane said, trying to map the complex networks between different financial firms and their clients and customers is a ‘high-dimension puzzle’, which hampered the clean-up after the collapse of Lehman Brothers.”

So not having a common set of definitions has hampered the clean-up and makes it more difficult to calculate risks/liabilities. Therefore, can it also be argued that not having this might be one of the root causes of the current financial crisis – or at least made it more difficult to identify/prevent?

One of the excuses often put forward for not having appropriate data management processes is centred around cost. But, following on from this speech, perhaps organisations need to start asking – “can we afford not to do this”.