The banking industry in the country has an immediate need to upgrade its data filing system to avoid the occurrence of fraud and money laundering, according to a global software-solutions expert.
Banks lose billions of dollars annually over criminal acts. According to ASG Software Solutions, fraud and money laundering can be brought “down to a level where banks can assess what exactly is happening” through the strengthening and proper management of their data lineage.
Data lineage is the lifecycle of information stored over time. The computer software company considers this critical for financial institutions to ensure the authenticity of data supporting business operations and management—how data lineage is a key pillar in financial auditing, compliance and regulations to counter antimoney laundering.
In an interview, Praveen Kumar, Asia Pacific general manager for ASG Software Solutions, told the BusinessMirror of the necessity for banks to set up their systems for data lineage to be able to transact internationally and without distress. Such systems also reduce the risks in the banks from a compliance audit and potential fraud incident.
ASG considers data lineage as a “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.
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 road map helping any executive understand how data is produced and how it is consumed within an organization.
After the financial crisis that began in 2007, to improve the resiliency of the financial services industry, global regulators defined BCBS 239, a guideline for effective risk-data aggregation and reporting.
What data lineage does is bring together related information to provide consistency in the system without altering the data itself.
Kumar clarified that clients need not worry as they only assess if the data is in the right place and do not remove any information from the application itself, like taking out the container, but not the content.
It only functions on working with the definitions of the data and linking it up for a better understanding of the operation and information network relating to a customer or a specific transaction process.
“For example we have the spreadsheet which has the customer ID and the customer name. Then there is another application which says customer account number and customer name. Supposedly customer account number and customer ID number are the same, but just in different forms. That’s exactly when we come in and we compare the data and make sure that it does not get disregarded, make sure that it wouldn’t cause any forks along the way,” Kumar explained.
These processes prevent overrides in the system that cause confusion in filing and prevents any gap that may be used as an accessory to fraud.
In case of a suspicious transaction, the bank will be able to track where the discrepancy happened. Tracking the data lineage, the integrity of the data at each point is critical to determine where and when the inconsistency occurred and how it transpired. It will be able to detect whether it was a data entry mistake or fraud. Once the bank tracks this then it can be remedied or addressed. A metadata repository built from all attributes, from all transactions and all values will be able to detect any inconsistency in the system.
“It is quite challenging but it is a need. Doing this involves a lot of manual work, to prove to the central bank if you are really following the process or just doing something just for the heck of it because if you don’t follow the process you’re actually assisting fraud,” he said.
Kumar added that international standards state that banks need to have metadata depository to prove that data lineage exist within their processes.
“I do not believe anybody has deployed a data-lineage solutions in Metro Manila. That is why we are here educating local regulators and banks for them to realize the need for this in their system,” he said.
The executive noted they have already expressed their interest in working with banks in the country and even with the Bangko Sentral ng Pilipinas.
“Usually you can take a specific process and within six weeks we can give you a broad idea of what lineage is there,” he added.
He also clarified that the volume of data will not matter as it is usually depends on the number of applications to sort the data in, to get the metadata processing in place, to interview the process owners and to interview the information-technology personnel.
“From the bank we need at least two to five. The main point is after you distribute the metadata repository and the data-lineage application you could run this process with two people, 24/7,” he explained.
“Philippine banks have a long way to go. We have spoken to some of them but nothing concrete yet has materialized, probably because of the cost to set it up. But in reality this will save them a lot of money in the long run,” he said.
The process would require banks to allot a budget of about $500 000 to $3 million, and would usually take at least six months to a year to set up and be fully functional.
“Globally, the main objective in the industry is for a regulatory requirement which mandates banks to have the process set up within their institution, the of course the banks would allot a budget for it. They need to realize that it does not only simplify the analyzation of data, it does a lot more help in the system,” Kumar said.