Waiting to Notify Customers of Breach Is to the Company's Advantage

Loraine Lawson

One of the promises of master data management and other data integration projects is that you can obtain a "single view" of whatever it is you're looking at, whether it's a customer, a product or sales figures.

 

Nobody uses the word "truth," but the real goal seems to be getting as close to the truth about a customer, a product or your financial status as you can. Maybe it's time data integrators rethought their marketing, because truth seems to be in short supply -- and high demand -- these days, especially when it comes to financial data.

 

Wednesday, the Wall Street Journal published an article on the latest financial brouhaha, the undermining of the Libor system. The Libor system measures the average interest rate at which banks make short-term loans to one another. It's calculated each day, based on information from banks around the world. It's supposed to be an indication of the industry's financial health, but it's also used outside the banking industry for setting interest rates on home mortgages or corporate debt, according to the WSJ.

 

The problem is, some suspect the banks are lying about their loan rates because they don't want the market to know how badly they need cash -- and how much interest they're willing to pay to get it. If they are lying -- the article uses the more benign "fibbing" -- then it would mean millions of borrowers are paying artificially low rates on loans. It would also undermine confidence in the Libor and that would lead to other problems, as the article explains.

 

In this situation, it seems people are choosing deception. If that's the case, there's not a lot IT can do to help bring out the "truth."


 

But sometimes, people and companies aren't setting out to deceive. Sometimes, they just don't have access to the truth because it's buried in massive amounts of data. In these situations, IT and technology can make all the difference, as Tony Fisher, CEO of DataFlux, explained to me during a recent two-part interview.

 

Fisher contends better data integration and governance could have helped head off the subprime mortgage crisis.

 

This intrigued me, because, frankly, I felt that lack of personal and corporate responsibility created the problem. And he did not disagree. Certainly, a lack of regulations and a disregard for risk played a role in the crisis:

"... you're right, they really didn't care. ... what the lenders would do is have a lot of these mortgages and they'd package the mortgages up into a single set of collateral, and then they'd resell that. But what that did is remove the risk for them, because they're no longer the holders of those mortgages."

That doesn't change the fact, however, that the warning signs were also in the data, and in many cases, the data wasn't passed along to bulk mortgage buyers. In other words, better B2B data integration and management might have helped institutions see the problem before the whole house of cards fell in on itself. According to Fisher:

"...at the end of the day, a lot of the subprime mortgage crisis really did have to do with the lack of risk assessment. And risk assessment is something your data will indeed bring forward. All the information is in the data, but you have to use the data. ... the fact of the matter is that there are no standards associated with the way that the information is passed along. So, there is no obligation on the lender to provide in a very defined format the information about the individual loans."

It's a long interview, but Fisher offers an insightful, IT-focused perspective on the subprime mortgage crisis and the Societe Generale derivative trading brouhaha. He nicely outlines where IT and regulations could have helped in both situations. No doubt, IT will soon be called on to help comply with the regulatory acts that will follow these financial debacles.

 

In the second part of the interview, he discusses steps CIOs can take to prevent similar problems in their own companies, and how data integration and governance tools can not only help with compliance, but alert you to business problems before they reach crisis stage. He also talks more specifically about DataFlux's solutions.

 

Finding the "truth" isn't your typical argument for funding a project. And, honestly, I don't know how you calculate the ROI for helping your company uncover the "truth" in the data. Isn't avoiding financial catastrophe and bad press a form of risk management?

 

If you're not sure how to word that in your presentation to the CEO, perhaps you can point out where ignoring the truth has gotten some of their colleagues in the financial sector.

 

Everybody loves to quote Jack Nicholson's famous "You can't handle the truth" line in "A Few Good Men." But ultimately, the movie shows that the lie is more damaging than the truth -- and the truth is essential for accountability.

 

We can learn how to handle the truth. But in this complex information age, business will need IT's help to find it. What they do with it after that ... let's just say it's too bad integrity isn't something you can upgrade.



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