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The Evolution of Financial Services CDOs

From guardians of risk and compliance, chief data officers are evolving into key roles in business decision making focused on strategy and innovation.

• By Richard Seeley
• May 10, 2021

The stereotype of the chief data officer as a security watchdog guarding against cyberattacks is outdated, according to a recent survey of information technology executives within the financial services sector. CDOs are moving beyond protecting the data and overseeing compliance; they are now using insights from the data to support business innovation.

For Further Reading: CDO’s Next Major Task: Enabling Data Access for Non-Analysts Eyes on the Data: The Growing Importance of the CDO So You Are a New CDO

"Moving forward, data executives must focus not only on securing data and ensuring their organizations meet rigorous data regulations but also on new strategies for leveraging big data and their organizations' proprietary data to generate business value." That's according to a report prepared by Financial Information Management (FIMA) and WBR Insights, a division of Worldwide Business Research. The report is freely available from sponsor InterSystems Corp. (registration not required for access).

This strategic evolution was widespread: 63 percent of CDOs responding to the survey are developing an analytics-driven business strategy by taking "an offensive approach to data management," the report says. Offensive data management is defined in the report as "leveraging data to generate value, revenue, and profit, usually by drawing insights from it."

"Many firms report that AI-driven analytical cloud services are at the forefront of these initiatives, with such solutions enabling financial services firms to sift through enormous volumes of data and gain a single view of accurate, consistent, and trusted real-time data," according to a press release from InterSystems.

Not every CDO is on the innovation bandwagon, but the majority are moving toward enabling business improvements with their data, as these survey responses indicate:

• "Still entirely compliance driven" (3 percent)


• "While we focus on compliance, we have also begun to improve our ability to support the business at large" (14 percent)


• "Our compliance focus is now handled well enough to the point that it is a secondary concern to business improvement" (45 percent)


• "We have fully realized a 'governance 2.0' model where the majority of compliance concerns are automated, allowing a primary focus on creating business efficiencies" (38 percent)

Obstacles on the Innovation Path

Evolution can be dramatic but it is not always easy. The survey found many CDOs still facing data management problems that make it harder to move up from guardian to innovator.

More than two-thirds (69 percent) of survey respondents said the "lack of downstream visibility of data consumption impedes their pursuit of an offensive data management strategy" and 65 percent "cite[d] unclear data provenance and tagging information as an impediment."

Not all financial organizations appear to be enjoying the fruits of automation. The report notes that although CDOs are freeing up time for more strategic work thanks to automation of data management and governance, some manual processes remain in place.

Gaps in automating management tasks is not the only problem today's strategy-oriented CDO is facing. Governance tasks continue to multiply. The report notes that "financial leaders ... have faced consistent barriers to leveraging their proprietary data, customer data, and big data. They've also faced mounting pressure from regulators, governments, and their customers to better safeguard data."

Compliance: Expensive and Often Manual

It is not cheap to do compliance right. Big chunks of an organization's budget go to complying with regulations for data governance.

"Naturally, modernization and the deployment of an overarching compliance strategy requires significant investments," the report authors note. "Compliance itself still imposes a significant investment. According to this study, 88 percent of organizations devote 40 percent or more of their data practice's operating budget to compliance activities."

Respondents to the survey said a portion -- in some organizations a large portion -- of their work is still done the old-fashioned way. The report noted that "part of the reason compliance is still relatively expensive for financial organizations is the fact that many compliance activities still must be completed by hand -- 95 percent of the respondents to this study claim that 40 percent or more of their regulatory compliance efforts are performed manually."

When asked about how much compliance work is performed manually, 45 percent of respondents indicated half the work is done by hand. Another 41 percent said 40 percent of the work was not automated, and just under a tenth (9 percent) said manual processes were at 60 percent.

The amount of money spent on compliance and the amount of work still done manually were surprising to Scott Gnau, vice president of data platforms at InterSystems. "While it's no surprise that risk data aggregation is the top compliance concern for CDOs, it's surprising how much of their budget goes toward compliance. Eighty-eight percent of those surveyed said they are devoting 40 percent or more of their total data practice budget to compliance functions. This really highlights the role of regulations when allocating data management budgets."

Ready to Go on Offense

Despite the obstacles, there was optimism among the survey respondents. Many feel that their organizations are ahead of the curve -- with enough management and security technology in place to begin focusing on what the data means to overall business strategy and planning.

Almost half (49 percent) believe they are positioned to outpace their competition in data management practices. A smaller segment (14 percent) say they are exceeding the industry average in modernizing their management, and 23 percent see themselves meeting the industry averages.

"These results suggest that most companies with a clear data leadership structure may achieve full data modernization in the coming months and years," the report's authors state. "This will have a significant impact on those organizations' business operations, as they'll be able to fully automate their compliance responsibilities and focus almost entirely on leveraging business data to generate value."

At the top of the optimism curve, 19 percent of respondents rated their organizations "very prepared" for offensive data management this year, 61 percent said they are "mostly prepared," and 26 percent checked the box for "somewhat prepared." Only 13 percent indicated they were "mostly unprepared."

Automation for Innovation

The promise of automation to free executives to focus on big picture planning is a theme of the survey report. Gnau sees automation as the difference maker. "In order for financial firms to get over the hump of defensive data management and to focus on an offensive approach, it's imperative that they accelerate compliance automation projects to focus on becoming a truly data-driven organization."