A key provision of the Dodd-Frank Financial Reform Act is the creation of a Consumer Financial Protection Bureau (CFPB), established as an autonomous part of the Federal Reserve and tasked with regulating financial products and safeguarding consumers. Ironically, some challenges facing the new bureau are very similar to those faced by the very banks and financial institutions that will be regulated.
Protection by Merger & Acquisition
The bureau will not be entirely new; instead it will take over personnel, responsibilities, and resources from various existing government agencies-including the Fed, FTC and FDIC. Therefore, from an organizational perspective, the bureau's creation is akin to numerous mergers and acquisitions of various consumer protection departments.
The global financial meltdown and the wave of consolidation that followed have illustrated examples of how to, and not to, maximize value, minimize cost and tackle governance issues when financial organizations are forced together. Elizabeth Warren has put reaching out to bankers high on her agenda, their lessons learned might be instructive to her.
Another challenge that the CFPB shares with the companies it will regulate is the need for comprehensive and innovative data management strategies. Data volumes in commercial enterprises continue to grow exponentially, in some part due to increased financial regulatory requirements-which the Dodd-Frank Act may indeed exacerbate.
Why Data Matters for the CFPB
The financial crisis highlighted the shortcomings of theoretical economic analysis and the CFPB will need more empirical information to assess product safety. To accurately analyze the use, effect and danger of financial products, regulators need comprehensive and current data about products, producers, consumers and usage. This level of data has historically not been collected by financial authorities. As an example, a bellwether indicator of consumer wealth-the Survey of Consumer Finances-is only published by the Fed every three years. The underlying data is typically two years old and is based on a sample size of just 4,500 U.S. households-neither current nor comprehensive.
The CFPB will have to acquire real-world data on a variety of financial products and their impact. Examining credit cards alone will need data elements ranging from credit card products, terms, fees, outstanding debt, average percentage of debt per household, demographics of households and so on. Mortgages will need similar information and include metrics on performance, payment schedules, delinquency rates and foreclosures.
Another large data segment comprises the list of "covered persons." The Act broadly defines these entities as those who engage in "financial activities." In practice, this means not just banks and mortgage companies, but also financial advisors, debt collection agencies, real estate appraisal services and so on. The bureau needs to manage master data elements, such as covered entities and products, to fully understand relationships, hierarchies and exposures. In addition, the research department in the CFPB could have potentially more wide-ranging data acquisition needs.
The bureau requires a strong technology framework to address its data management needs.
Once again, the regulators need to look no further than the financial institutions they'll oversee for a reusable template. A robust data integration platform with multidomain Master Data Management (MDM) is one such example.
Data Integration is the Foundation
Many banks and financial institutions have relied on data integration to ensure that their data is accurate, complete and current. The CFPB has similar requirements-how to acquire data from numerous financial institutions and "covered persons." The data formats could range from spreadsheets to the standards of ACORD, FIX and SWIFT. Data transformation is a key component of this process to standardize data arriving from the various stovepipes at each financial institution.
MDM is another key technology component. Critical reference data in banks is typically stored in different formats in disparate systems, with varying quality. Multidomain MDM has been the foundation of customer-centric and risk management solutions because it enables banks to get a reliable view of customers, counterparties, securities, trade and market data and the critical relationships between this data.
An integral data quality "firewall" at the MDM hub ensures the quality of the reference data. Since transparency builds trust, the use of alerts and dashboards for all stakeholders-including business users, data stewards and IT-can help garner trust in data and data-driven decisions. MDM is a critical foundation for financial institutions that are looking to consolidate, manage and consume reliable and related data for competitive advantage, risk management, and compliance. Similarly, the CFPB needs to build a single-view of covered-persons, the products they sell, affected consumers, complaints and enforcement actions.
Multidomain MDM would not only allow the CFPB to maintain these different kinds of entities, but also detect and manage hierarchies and dependencies among the entities. For example, the CFPB can then map disparately defined but otherwise similar products to distribution channels and then to consumer complaints in a unified manner.
Most importantly, a well chosen MDM strategy will allow the nascent bureau to start small by addressing one set of needs, prove success and grow to address other needs and initiatives.
These are extensive data management challenges that are similar to what many banks and financial institutions have faced, and solved. The new CFPB would be well served by learning from their experience
Ramesh Menon is senior director of product management at Informatica.
