What are the benefits of granular data for financial regulators?

New financial regulations come in almost every day. As governments aim to ensure financial stability, the amount of data they ask central banks to process from financial institutions is constantly on the increase. The striking growth in the demands for data on both the regulator and regulated side causes significant increases in time spent as well as financial impact.  

Financial regulators oversee institutions in many different jurisdictions, each of which has its own laws, systems, and methods of reporting. The explosion in data reported today has resulted in inconsistencies, such as delays, errors and duplication of work, making for slow and inefficient processes.  

A joint report from the World Bank and Cambridge Centre for Alternative Finance addressed key internal challenges regulators are facing, including access to accurate and timely data (29%) and increased demand for resources (29%). As a result, most regulators worldwide are looking to invest in data-on-demand and granular data. 

What is granular data and why is it useful? 

Granular data is part of the solution for handling the increasing growth of data. It refers to data that is broken down to its finest, most detailed parts, that is still usable. When the data is broken down into smaller components or disaggregated, it is easier to ‘slice and dice’ it in different ways.  

Regulators need to standardise data models and reduce the duplication of effort. Granular data supports these goals by providing a simpler, lower-level view of transactions, fewer calculations, transformations, or aggregations are required. This facilitates reduced data validation requirements. 

Benefits of granular data and data-on-demand 

Benoît Cœuré, Member of the Executive Board of the ECB, at the Third OFR-ECB-Bank of England workshop on “Setting Global Standards for Granular Data: Sharing the Challenge”, says that both authorities and companies will benefit from the use of granular data.  

“Authorities – including central banks – need high-quality financial data at a granular and aggregate level to perform several of their functions, including conducting monetary policy, assessing systemic risks, supervising banks, performing market surveillance and enforcing and conducting resolution activities.” 

What does this mean for the regulator? Here are some of the benefits of granular data for financial regulators: 

• Results are faster, and the burden of data reporting is reduced. 
• Better accuracy and insights as the financial services organisation will not misinterpret the data request. 
• Greater flexibility to re-use acquired data to produce different insights. 
• Better supervision, through increased visibility of data. 
• With better access to better (more granular data), it opens the opportunity to identify potential risks at an early stage, and act proactively. 

A path to granular data  

An immediate change from all current data collection to granular data is not practical, especially for smaller jurisdictions. Granular data in SupTech leads to reduced cost over time, but the upfront investment for financial regulators can be significant. Legacy systems can be a problem. Often, older systems were not procured with granular data acquisition in mind. 

Investment in the processing power and storage capabilities of the regulators’ infrastructure also needs to be considered. Relational databases have evolved significantly; and are now capable of handling acquisition, processing, and analysis of granular data given the correct setup. 

Therefore, it may be useful to take a phased approach to introducing granular data. For financial regulators, it makes the most sense to begin by prioritising the most pressing supervisory needs, along with the areas where it will have the most immediate impact.