Data Management Best Practices for Financial Institutions

NEIL BEGGEN: Hello and welcome to the Risk and Accounting Advisory Podcast. I'm Neil Beggen, Cherry Bekaert's leader of our Risk Advisory Practice.

NEIL BEGGEN: Today on our podcast we are going to focus our discussion on risk and data management. In this digital age, it's imperative to manage your organization's data, including policies and procedures, as well as best practices to maintain the integrity and performance of data, systems, and the organization.

NEIL BEGGEN: Helping me today is Alan Swan, Managing Director and Chair of Records Risk Advisory Practice and leader of our Risk and Data Management Solutions Group. Al, thanks for joining me.

ALAN SWAN: Pleasure to be here.

NEIL BEGGEN: As you know from our prior podcast series, Risk and Review, we typically keep to five key questions and try to keep these brief. Given the breadth of today's topic, we thought we'd break the rules and go beyond five questions. Let's jump in.

NEIL BEGGEN: In a highly technology-driven world, let's start with the continuous digitization of business operations. Based on that, what is the impact on small and medium-sized banking institutions?

ALAN SWAN: Digitization is the baseline use of digital technologies and data to create revenue, improve business processes, and transform operations. Digital information that comes out of those systems is at the core of banking transformation today.

ALAN SWAN: Part of digitization involves converting customer data from different sources to automatically generate insights about behavior. With digitization, banks can provide an enhanced customer experience, and customers now expect more timely and convenient ways to manage their money and wealth.

ALAN SWAN: For banks, digitization means more data at higher velocity. That challenges institutions to manage data inflows and forces them to become more automated. Banks need to use data efficiently to better service clients, offering multiple interaction channels that are timely, user-friendly across generations, and capable of completing tasks.

NEIL BEGGEN: I appreciate that overview. Let's unpack the impact on small and medium banks. What would you say about that?

ALAN SWAN: New technologies are creating a revolution in how customers engage with their finances. This changes the competitive landscape for both small and large banks.

ALAN SWAN: Smaller institutions have an opportunity to compete on service and customization for their clients. Larger institutions can leverage deeper technology pockets to provide more advanced capabilities on a broader, almost commodity basis. This revolution is forcing the banking industry to rethink how it does business and how it delivers a unique, thorough customer experience to remain competitive.

ALAN SWAN: Digitization is also an internal benefit and challenge for smaller and medium-sized organizations. These institutions benefit from more digital data and can take a data-driven approach to decision-making using analytics. Increased convenience of online banking reduces human error and time spent on corrective actions. At the same time, more online services and transactions attract more sophisticated cyber attackers, requiring banks to invest more in protective solutions. Fraud and AML will become more difficult to detect, trace, and mitigate.

NEIL BEGGEN: You touched on challenges. Can you double-click on that for us? What are some of the challenges small and middle-market banks face?

ALAN SWAN: The core question for a small or medium bank is how to allocate spend to improve the digital experience while maintaining regulatory adherence, client service, and security required to stay relevant. The digital channel will account for more bank revenue and is growing fast. Without a digital presence, banks will struggle to remain relevant.

ALAN SWAN: To take advantage of this dynamic, banks have a few years to adapt. To be a leader rather than a victim of change, banks must appreciate the magnitude of the opportunity and understand the gravity of the threat.

ALAN SWAN: Banks need a holistic digital strategy that includes data and how it is managed.

NEIL BEGGEN: With more people having greater access to data and much broader usage, what are the risks and benefits of the democratization of data?

ALAN SWAN: As the digital age has progressed, data has become more abundant. The data organizations receive must be relevant and reliable, and users must be ready to manage this onslaught of information. Data has moved from a backroom chore to a front-office necessity for competitive advantage.

ALAN SWAN: For firms that can manage data effectively and efficiently, providing access to the right people at the right time creates an intrinsic competitive advantage. The challenge is getting the right people the relevant data, which is becoming more complex and demanding.

ALAN SWAN: To manage larger volumes of data, firms need the right foundations: processes, supporting solutions, and resources. Governance should include definition, lineage, and segmentation of data.

NEIL BEGGEN: What is the benefit of defining and segmenting the data you mentioned?

ALAN SWAN: By defining data and establishing its lineage and use, users have a baseline reference to better understand and use the data consistently and as intended.

ALAN SWAN: For small and medium banks, this exercise does not require a complicated toolset, but it does require an established methodology for capturing elements, designing definitions, and gaining consensus about meanings and usage. Once you establish baseline terms and definitions, you can maintain and add to that glossary going forward.

ALAN SWAN: This is fundamentally about consistency. It's a simple means of creating a governance framework that can be expanded without a disruptive program with long deployment and high costs. Many clients create governance programs with data stewards, but small and medium firms can likely manage with existing knowledge workers.

NEIL BEGGEN: Why is segmentation so important?

ALAN SWAN: Segmentation serves two main purposes: segmenting by usage categories and by regulatory and privacy concerns. By categorizing data, the right data can be provided to appropriate users at the right time and level of scrutiny.

ALAN SWAN: Categorizing data enables more effective management of large data sets. For example, data used primarily for marketing can be managed with a lower level of accuracy than data used for regulatory or financial reporting. Marketing data can be processed more quickly and with less oversight, whereas financial or regulatory data requires higher accuracy and scrutiny because of reputational and regulatory consequences.

ALAN SWWAN: Getting the right data to the right resources enables deeper analytics for competitive advantage. Banks using data broadly for analytics lead in innovation across sales, product design, pricing, underwriting, and differentiated customer experiences.

ALAN SWAN: Pricing for risk is a current issue. If you understand the risk associated with counterparties—corporations, small companies, fintechs—you can incorporate risk into pricing methodology, which helps over time for loans and other products.

ALAN SWAN: With a segmented approach, risks and costs related to broad data use can be mitigated while capturing the benefits of data growth.

NEIL BEGGEN: How can the banking industry address the need for specialized resources and manage external partnerships in the digitization process?

ALAN SWAN: This is a challenge for firms without large technology staffs. New tools like MDM, lineage, and data quality capabilities have proliferated, and many providers offer products to support data management. Navigating these choices can be daunting for medium and small firms.

NEIL BEGGEN: How can banks navigate the selection process to identify the right vendors for their specific organization and unique needs?

ALAN SWAN: We suggest maintaining strategic functions internally and finding partners for nonstrategic components. Firms should define what they want to be known for in the market—customer service, innovative products, competitive pricing—and then distinguish what to do internally versus through partnerships.

ALAN SWAN: Identifying partnerships and trusted advisors is critical. Many medium-sized institutions cannot afford a full technical set of resources to develop, implement, and maintain digitized solutions. Managing cyber activity can also be a cost challenge.

ALAN SWAN: Banks should develop a strategic approach to managing operational functions through internal controls and external partnerships based on what is strategic and what is not.

NEIL BEGGEN: Staying with small and medium financial firms, what is the requirement to meet changing regulatory requirements, and how can they demonstrate they are managing the data assets used in reporting effectively?

ALAN SWAN: Institutions must demonstrate they are managing data and have an auditable understanding of what happens to data as it moves through the environment. Regulators and analysts ask questions such as: What does the data mean? Is it defined? How do you define it? What happens to elements as they move through the environment? Is there a transformation? How does it arrive at the value provided?

ALAN SWAN: Not being able to provide evidence through documentation or a systematic approach raises questions about the validity of reporting provided to regulators and business users. It's all about trust.

ALAN SWAN: To demonstrate to stakeholders that data is managed and understood, data governance must be in place and supported by processes and tools. For many small firms, that sounds like a big task, but there are deployable approaches that consider the institution's size, complexity, and market strategy rather than a cookie-cutter solution.

NEIL BEGGEN: How can these firms address this requirement efficiently and effectively?

ALAN SWAN: Smaller firms should think process-oriented and leverage simple tools. Solutions like ServiceNow, Smartsheet, and SharePoint provide frameworks that facilitate collaboration of the governance team, including data stewards working on daily issues.

ALAN SWAN: These applications are customizable frameworks that provide structure to manage the governance process without the heavy cost of implementing a large ERP solution. For example, you can develop a data glossary accessible to a broad audience while only allowing a few administrators to make edits and updates.

ALAN SWAN: These tools support institutionalizing consistent processes, such as change management. Because they are highly customizable, they can manage several processes without high complexity or cost. For small to medium firms, keeping it simple, providing clear value, and making tools and documents accessible is essential for successful implementation.

NEIL BEGGEN: Simple is the word of the day. I appreciate the discussion.

ALAN SWAN: This was great. I appreciate the opportunity.

NEIL BEGGEN: Thanks for taking a deep dive into data management best practices. We ask our audience to stay connected to Cherry Bekaert's channel as we release more podcasts later this spring and into the summer. You can check us out at cbh.com/podcasts. Please like, share, and subscribe to the Risk and Accounting Advisory Podcast, and thanks for listening.