Philippine banks fall far short of properly managing their “data lineage,” according to the regional head of an enterprise solutions firm working with the country’s banking sector.
According to ASG Software Solutions, at a time when threats of fraud and money laundering are pushing regulators to implement stricter rules on “too big to fails” banks, it is vital for these big lenders to strengthen their “data lineage” or the data life-cycle process in their institution for them to be able meet international compliance standards to stay competitive.
The company’s discussions with top Philippine banks, which started this year, revealed an active need for banks to build data lineage process, said Praveen Kumar, Asia Pacific general manager for ASG.
ASG is a privately held computer software company that develops and sells enterprise software to international clients.
ASG considers “data lineage” a critical process for financial institutions to ensure the authenticity of data supporting business operations and management. According to the company, it is a key pillar in financial auditing, compliance and regulations to counter anti-money laundering.
Data lineage is defined as the “data life cycle” that includes the data’s origins and where it moves over time. It describes what happens to data as it goes through diverse processes. It helps provide visibility into the analytics pipeline and simplifies tracing errors back to their sources.
In explaining how data lineage critical for meeting compliance standards, the software company said that the data life-cycle process illustrates the various forks along the way where data may be transformed, or where “bad data” may be propagated.
These forks represent likely decision points, or points of governance, where data can be checked, validated, authorized, approved, and where there may be a transition in data ownership and responsibility.
Data lineage provides a two-dimensional roadmap, which helps any executive understand how data is produced and how it is consumed within an organization.
ASG said a scenario for example is when a bank customer transfers P350 to another account but five days later finds out that P3,500 has been debited from her account—the bank is responsible to the customer to show where the discrepancy occurred.
Kumar said one of the international guidelines that requires data lineage is the creation of “metadata glossary” within a financial institution.
“When banks had to start complying with these international guidelines, they have to implement this thing called metadata glossary. It is an accumulation of key data elements of words that will be used by banks on their applications, contracts, documents, etc.,” he explained.
For example, Kumar said “investment” and “risk” are words that can be interpreted differently by different branches within the bank itself.
Metadata glossary captures all these key words/data elements that are picked from various records and applications and define each one of these, he said.
“International standards say that banks need to have metadata depository/glossary. With this, they say banks should prove that data lineage exist within their processes,” he said.
“I do not think we have anybody [banks]who has deployed a full-pledged metadata glossary and data lineage solutions in Metro Manila yet,” Kumar said.
At present, he said the firm is educating the banks, and explaining how the data solutions can add value to their institution.
Kumar said that some of the banks expressed interest in the solutions but hesitates to fully set it up because of its large budgetary requirement.
He said setting up this process would require a big bank to allot a budget of about $500,000 to $3 million since it will require international expertise, and would usually take up to six to 12 months.
Kumar, however, see the process as a necessity and not an option. “It’s a matter of time before they understand that to transact internationally and also to bring in more predictability and reduction of risk within the banks both from a compliance audit and potential fraud perspective, data lineage can be really useful and can save them a lot of money in the long run,” he said.
“It simplifies work. It will tell them what the problems are, but most banks say they don’t have the budget for it,” he added.
The ASG executive said this would only be realized, if there is a regulatory requirement which forces banks to have the process set up within their institution.
“When a regulation comes in, then banks will make a budget for it to avoid penalty,” he said.
Kumar said one of the priorities of ASG to realize this is to discuss the metadata glossary and data lineage with the central bank.
“The discussion will make us see if we can understand their roadmap as to what is their objective on making this a regulatory requirement. We want to underside their perspective,” he said, referring to the Bangko Sentral ng Pilipinas (BSP).