Wednesday, November 19, 2008

What is DIG?

In case you haven’t heard, financial services companies are in a crunch time right now. Some say the current stormy conditions are unprecedented. Some say it’s a rocky time, but certainly manageable. Either way, financial service companies have to be smarter than ever in managing risk.

That’s what DIG is all about, helping financial services companies manage risk from their data. It's a new solution set from Trillium Software.

In Europe, BASEL II is standard operating procedure at many financial services companies and the US is starting to come on board. BASEL II is complex, but includes mandates for increased transparency of key performance indicators, such as probability of default (PD) and of Loss Given Default (LGD) to better determine Exposure At Default (EAD). Strict rules on capital risks reserve provisions penalize those institutions highly exposed to risk and those unable to provide ‘provably correct’ analysis of their risk position.

Clearly, the lack of risk calculations had something to do with the situation that banks are in today. Consider all the data that it takes to make a risk compliance calculation: customer credit quality measurements, agency debt ratings, accounts receivables, and current market exposures. When this type of data is spread out over multiple systems, it introduces risk that can shake the financial world.

To comply with BASEL II, financial services companies and those who issue credit have to be smarter than ever in managing data. Data drives decision-making and risk calculation models. For example, let’s say you’re a bank and you’re calculating the risk of your debtors. You enrich your data with Standard & Poor's ratings to understand the risk. But if the data is non-standardized, you may have a hard time matching the Standard & Poor's data to your customer. If not found, a company with a AA- bond rating might default as BB- in the database. After all, it is prudent to be conservative if you don’t know the risk. But that error can cause thousands, even millions to be set unnecessarily aside. These additional capital reserves can be a major drag on the company.

With the Data Intelligence and Governance (DIG) announcement from Trillium Software, we’re starting to leverage our enterprise technology platform to fix the risk rating process to become proactive participants in the validation, measurement, and management of all data fed into risk models. The key is to establish a framework for the context of data and best practices for enterprise governance. When we leverage our software and services to work on key data attributes and set up rules to ensure the accuracy of data, it could work to save the financial services companies a ton of money.

To support DIG, we’ve brought on board some additional financial services expertise. We’ve revamped our professional services and are working closely with some of our partners on the DIG initiative. We’ve also been updating our software, like our data quality dashboard, TS Insight, to help meet financial services challenges. For more information, see the DIG page on the Trillium Software web site.

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Disclaimer: The opinions expressed here are my own and don't necessarily reflect the opinion of my employer. The material written here is copyright (c) 2010 by Steve Sarsfield. To request permission to reuse, please e-mail me.