Data Governance is a term used to describe all processes and management of data in a given organization, including said data’s quality, protection and use. Financial service companies may have a particular need for governance due to the nature of the data held. Private information related to assets and finances should be held to an even higher level of care.
As the image (below) highlights, data governance is one of the multiple pieces that make up “corporate governance”.
Screenshot via TU Berlin
Other asset categories that need governance may sound familiar.
- Human Resources (skills, workforce)
- Physical (property, equipment)
- Financial (credit, cash)
- Intellectual (copyrights, patents)
Proper data governance practices can improve performance, alleviate internal issues pertaining to data, and prevent potential data breaches. In this article, we’ll review three crucial data governance best practices for companies in the financial service industry.
1. Understand Regulations and Compliance
Given the increasing frequency and severity of data breaches, there is much more scrutiny among individuals regarding their personal details. There is also a wave of current and future legislation created to protect users and give them control over their data privacy. Ensuring compliance with all regulations your company falls under is a much needed component of data governance.
While there are a number of government measures, there are three which currently stand out.
General Data Protection Regulation (GDPR)
The GDPR covers data privacy for citizens in all countries belonging to the European Union. Even if you are not located in Europe, GDPR likely affects you. If any of your customers, or even site visitors, are E.U. citizens — compliance is expected. If your online properties are not in compliance, your company could be subject to stiff penalties. In some cases, your users may not get access.
Markets in Financial Instruments Directive II (MiFID II)
MiFID II is the second iteration of another piece of legislation created for the E.U. Again, the U.S. may not be directly under MiFID’s jurisdiction, but anyone managing assets for U.K. and E.U. citizens will want to take notice.
Financial Crimes Enforcement Network (FinCEN)
Technically, FinCEN is not legislation. This organization is more of a policing network to enforce the laws pertaining to the finance industry. While there are a number of laws listed on the site, 31 U.S.C. 310 is a prominent U.S. regulation dealing with data.
2. Focus on Implementation
If data is stored, your organization has a current form of data governance. This doesn’t mean that the current form is effective or even compliant with applicable regulations. Thoroughly reading and understanding regulations as well as common compliance issues will help you recognize shortcomings in your company’s existing processes. However, there are some “basics” that should be included in your evaluation and implementation of updates.
Whole Leadership Involvement
Much like other company initiatives, every member of the executive (or management) team should have a working knowledge of the data governance plan. Due to proven effectiveness, the Chief Financial Officer of many organizations is often given oversight of data. While there should be one champion, every leader in the organization should be involved at some level.
Data is an Asset
As mentioned, data is a type of asset for businesses. Without viewing sensitive data in the same context as other resources, your team may not treat it with the care needed. Bank accounts are closely monitored, buildings are maintained, and employees are cared for — yet data at large is poorly protected.
Create a Long-Term Practice
After creating an asset mindset regarding data, it may be easier to care for over the long-haul. Again, assets are managed and regularly scrutinized. For instance, portfolios are updated and employees are trained or disciplined. Data should be a regularly and consistently regarded piece of the business.
3. Regularly Monitor Key Metrics
After focusing on proper implementation of data governance, part of the regular care is to monitor certain metrics. These indicators can help you determine the success of your procedures as well as alert you to any issues. Some metrics, once improved, can even save money and improve profitability.
Here are two of the most universal metrics for financial services companies to track.
According to the Harvard Business Review (HBR), poor data quality costs $3 trillion per year in the U.S. alone. The simple lesson here is: improve your data quality and improve the bottom line. While there are many underlying causes contributing to this issue, a clear set of routines and procedures can result in dramatic improvements in data quality.
Even small businesses often have multiple individuals who need access to data. Having a solid set of policies for every facet of data management is crucial (as you’re probably aware). However, many companies fail to ensure that their employees, contractors, and users actually follow those policies. Ensuring adherence significantly cuts the risk of error-based data loss (such as an employee leaving a company device in public).
Data governance is a must for today’s banks and financial services companies, thanks to the ever-rising frequency of data breaches and increasing regulatory oversight via GDPR and other regulations. Understanding the regulatory landscape, implementing strategic policies and procedures, and monitoring key metrics to ensure compliance will help to ensure your success.