Journal of Operational Risk

Risk.net

Observations on the new US financial regulation challenges to the financial sector: data standardization, straight-through-processing and operational risks

Allan D. Grody

ABSTRACT

This paper looks at the post Dodd-Frank environment wherein the financial industry engages with governments to identify systemic risk by first addressing the underlying operational risks of data inconsistencies across the industry. The regulation has provided the impetus for the industry to come together, as other industries have, to solve this problem through global collaboration. We explore other global industries' successes as a benchmark for what the financial industry needs to do. The benefit to the industry of lowered systemic risk, reduced operational risk in each financial institution, and lowered costs to all are the motivation for achieving a degree of data standardization to realize the vision of straight-throughprocessing across the entire industry. The singular attempt by a sovereign government, even as large as the market the US regulators oversee, will not be sufficient to solve this problem nor observe the consequences of the operational risks of faulty data as it cascades into systemic risk. This is truly a global issue best resolved by global financial institutions who alone transcend these silo regulators fiefdoms, and in whose name the objective of systemic risk mitigation is being undertaken.

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