Financial firms warned data chaos heightens compliance risks

New research indicates that data management challenges are exposing financial services firms in the UK and the US to increased risks of regulatory non-compliance.

According to findings from a Gresham survey, 44% of financial services decision-makers report that their organisations are either 'warehousing data in too many places, or warehousing too much data', which they identify as a factor contributing to heightened complexity and compliance risks.

The research also notes that 21% of respondents see 'sourcing too much data and via different entry points in the firm, thereby limiting their ability to achieve the data visibility needed for compliance' as a significant issue in their organisations.

The Gresham study surveyed data management decision-makers from financial services organisations across the UK and the US, highlighting that regulatory frameworks such as MiFIR, DORA, and T+0 are increasing non-compliance stakes with penalties, reputational harm, and operational inefficiencies as potential consequences.

Further compounding the situation, the research found that 20% of organisations are managing more than ten different data providers across multiple categories. This increasing reliance on a wide array of data sources is said to exacerbate data governance challenges and compliance risks.

Industry-wide concerns about data and technology investment further underline these findings. McKinsey's 2024 research shows that banks are significantly ramping up their technology spending, with average global expenditure rising 9% over recent years. At the same time, figures from Statista reveal that AI spending in the financial sector is set to increase from USD $35 billion in 2023 to USD $97 billion by 2027, representing a compound annual growth rate of 29%.

However, experts warn that escalating technology investment will not address compliance risks unless core data management issues are resolved. The growing regulatory burden is illustrated by 2024 research from Dun & Bradstreet, which found that 75% of compliance decision-makers in Europe's financial services sector believe regulatory demands on their teams have notably increased over the past year.

Neil Vernon, Chief Technology Officer at Gresham, commented: "While organisations demonstrate eagerness to adopt cutting-edge AI solutions, many have not yet established foundational data management principles or implemented comprehensive data quality frameworks that they need to ensure compliance."

He continued: "This strategic misalignment between tech ambition and core data infrastructure not only impedes innovation but also exposes organisations to operational inefficiencies and heightened regulatory risks."

Vernon further stated, "Compliance fundamentally depends on consolidating fragmented data sources. Firms without the capability to integrate their disparate data streams under one unified structure risk escalating costs and operational failures alongside regulatory breaches. An integrated, strategic approach allows for accurate, high-quality data collection in one place, significantly reducing expenses and safeguarding compliance in a complex regulatory environment."

The research suggests that, as financial services firms continue to respond to new regulatory frameworks, addressing data fragmentation and improving data visibility will remain critical priorities for compliance and operational resilience.