Welcome to the podcast that shares the views of high-level leaders in the European and global financial services industry.

Nicolas Mackel: Welcome to Shaping Finance, a podcast which offers a platform to higher-level decision makers and shapers in international finance. My name is Nicolas Mackel, I’m the CEO of Luxembourg for Finance and the host of this podcast.

Nicolas Mackel: My guest today is Sherry Madera, the chief industry and government affairs officer at Refinitiv. You all know Refinitiv, the global financial data business that stems from the previous financial and risk business of Thomson Reuters, and that has now been planned to be acquired by London Stock Exchange. We will hear more about Refinitiv’s activities in this podcast.

Sherry has joined Refinitiv in March 2019 from the City of London Corporation, where she held the role of Economic Ambassador in Asia. And before that she was posted at her Majesty’s embassy in Beijing, where she was in charge of promoting trade and investment between the UK and China with a particular focus on the financial services and technology sectors.

Sherry holds several leadership roles, including a non-executive director ship at the University of Nottingham. She’s an advisory board member at the Cyberport in Hong Kong, and acts as the chair of the Future of Sustainability Data Alliance. And data is exactly what we’re going to talk with her about.

Nicolas Mackel: More data was created in 2017, than probably in the previous 5,000 years combined, and the explosion of data has almost led to a saturation effect. For many financial firms, it’s no longer a question of data availability, but rather which data sets should be used and how actually to make good use of it. And this data usage in finance is shifting, given the massive amount of information that is now available. Where do you see the future of data going?

Sherry Madera. – “Yeah, thanks so much, Nicolas. I think that this question about data sort of really blows the mind when you start thinking about volumes. Just to put it in context, annually the worldwide data is expected to grow from 33 zettabytes in 2016 to 175 zettabytes in 2025. And just to put into context, one zettabtyte is equal to as much information as there are grains of sand in all the world’s beaches. So, I mean, this is a real explosion as you’ve outlined, and from a market perspective, from a financial perspective, Refinitiv deals with real-time market data at almost 10 million price updates a second. And the platform logs 40 billion market updates a day.

And if you’re thinking about sort of real, sort of how this is being used on a exchange basis, data capturing price and volume, we call it tic data, going back to 1996. In our system, it totals more than 60 petabytes, which is not quite a zettabyte, but give it a few more years and it will be. So, there’s a huge amount of not only historical data out there, but data that’s being generated on a regular basis.

And this should be fantastic news for financial markets, because what you can measure, you can manage. And if we start thinking about how data is being utilised today versus even 5 or 10 years ago, I think what we’re seeing is a lot more demand for not only the financial data that’s talking about pricing and volumes and what’s happening in terms of financial statements, but also what are the impacts of some of the big macro data sets? Things like trade, things like environmental impact, weather patterns, footfall data, et cetera.

So I think that analysts now who are looking at deploying capital are really having a buffet of choice as to what it is that they’re inputting into their analysis modes.

Nicolas Mackel: Data is obviously increasingly also used by policy makers and governments. And given Refinitiv’s position as a global firm, it probably also gives you a good perspective as to how different governments, different countries are making use of such data. What can you tell us about the differences between say Europe, the US, Asia, or within Asia, China in particular, or other Asian countries?

Sherry Madera. – “Yeah, I think that there are some base cases for the use of data and obviously through our experience at Refinitiv, we’re looking at this from a financial markets perspective, but a lot of our clients are corporates that are also looking at using data to mitigate risk and to also comply with the regulatory requirements in their areas.

I’m going to make some vast generalisations. So obviously there will be cases where this is not the case, but I do think that we can call out Europe quite securely as being on the front foot about using different types of data in the financial sphere. And we see this from, for example, the Non-Financial Reporting Directive, the NFRD, which is currently being reviewed by European regulators. And they’re looking at how it is to use different types of data and this incorporates ESG or climate and social and governments’ data as part of how to manage, how to regulate, how to mandate disclosures, how to make access efficient and be utilised.

So I think that Europe is very much on the front foot in terms of thinking about how data can also push forward regulatory regimes and create an efficient deployment of capital, and clarity and transparency. But that doesn’t mean that the US or the Americas and Asia are behind. Far from it. I think that there’s an increase in terms of data usage and how data can impact financial decisions, particularly in the US where there’s a really robust technology industry and data capture industry that is working to provide that data across many different sectors, finance being only one of them.

And Asia is catching up fast. And of course, with the volume of the demographics, the number of sheer people in Asia alone, that means that those numbers are big and crunchy. But one of the things that you know is for consideration when you start thinking about how regulation and how data works together and how the use and capture of data works, is also the ideas about data sovereignty.

And so what does that mean? Often we’re thinking today about who owns the data and who is able to make use of it? And where is it that value and price and cost can be derived from the usage and the movement of that data through a value chain. And there are different perceptions around the world. I think if we’re going to sort of make some sweeping statements, overall, if we see from, for example, GDPR regulation, some of the general positioning across Europe has been very much that the data should be the property of the individual. Whereas perhaps you could sort of make a general view that in the US, data is often sort of seen as the property of a company who has mined it and put it into its context.

Whereas in Asia, we’re also seeing perhaps a trend towards data being the property or the sovereignty of the state. So again, those very, very high level, I mean, a 30,000 foot view of perhaps where data sovereignty might sit, also have an impact on regulation, usage and sort of where this is going in the future. So it’s something that, again, we’re having a look at it from a Refinitiv perspective, because essentially where it comes down to is data moving across borders, data being used for transparency and efficiency. That’s really sort of the goal here.

So, being able to try and promote that in the context of the different cultures is really important for us. We do business, as you say, in 190 countries around the world. So there’s a very big variety of what we see and how that data is being used and governed.

Nicolas Mackel: Let’s talk about data localisation rules, which are playing a significant role as they obviously make it more costly for global firms to effectively run their business and hamper efforts relating to fighting fraud, money laundering, terrorist finance, and so on. They have also played a central role in the discussions around Brexit and as well, Britain has in its negotiations of trade agreements with third countries included these, obviously something that is high on the agenda of governments.

Do you see data localisation playing a significant role in the future financial services relationship between the EU and the UK, and what are the sort of ramifications we could see, should we not agree to a free flow of data between the UK and the EU?

Sherry Madera. – “Well, I mean, as soon as we bring up Brexit, Nicolas, we need to think about how relevant this podcast is going to be going forward. We’re right in the heat of a lot of that negotiation. So perhaps I can speak slightly more generally to make this applicable for a bit longer. In terms of when we talk about data localisation, it’s often we think about privacy data, and that is a big gap in the Brexit discussions at the moment. The FCA just last week in the middle of November recognised and called out one of the cliff edges for Brexit, is the ability for private data to move across the border between the UK and the EU, and for financial services. And the reason why the FCA would be weighing in on commentary is because this really does go to a ability for financial institutions to be compliant with their AML obligations, their anti-money laundering obligations, which come from a lot of KYC rules, another acronym, Know Your Client rules.

And the reality is that if you’re not able to access data for security purposes, for analysing purposes, for complying with your AML, you’re going to end up increasing your risk of fraud, increasing your risk of propagating financial crime, the proceeds thereof, and moving that around the world. And this is top of the regulatory agenda globally.

When you talk about data localisation, it really does impact the financial services space quite significantly. So we would certainly hope that the UK and the EU comes to a reasonable agreement so that there isn’t any impediment to privacy data moving across borders with security. There are already very strong provisions as to what data can be transferred and why for these purposes. I think that we should all applaud the recent UK-Japan trade agreement, because explicitly in that agreement, there’s a ban on data localisation and for the purposes of security and whatnot, there are very strong rationale for how governments and how regulators can share information.

But as a base case, there isn’t need for localising data in order to move forward. This is something that is very clear, very transparent, and very welcome in the industry. And one might say, ‘Well, this is a small factor in a free trade agreement.’ Sure, it does, when you think about all the goods and services that are passing through between two countries. However, as the costs of compliance to anti- money laundering obligations is already above $25 billion annually, and going up rapidly. So data localisation might mean that companies, big multinational banks, asset managers, need to actually create a separate data repository in-country where data localisation is applicable.

And can you imagine the amount of more cost that goes into that in terms of being able to serve as separate pots of data that are unfungible with each other? But actually the cost almost pales in comparison to the fact that this is creating inherent inefficiency and the efficacy of the use of data goes rapidly down. If you’re not able, even within your own banking system, if you’re a multinational bank, to share data about risk elements for your clients, for who they’re related to, frankly, your ability to comply to very important anti-money laundering legislation falls off a cliff.

Nicolas Mackel: Another area where data has been playing an increasingly important role, of course, because the area itself is playing an increasingly important role, is sustainable finance. But still some gaps and barriers exist. And could you give our listeners an idea of what these barriers and gaps are that are still hampering the development of sustainability data in financial services, and what needs to be done in order to overcome them?

Sherry Madera. – “Yeah, so this is something quite near and dear to my heart, Nicolas. Since I’m also the chair of the Future of Sustainable Data Alliance. This was an Alliance that was launched earlier this year in January, and includes the likes of the World Economic Forum, the International Institute of finance, GFMA, a number of other players that are looking at this issue specifically, which is about data and sustainability. And frankly, the question being asked at the very top level of this Alliance is what data do we need in order to be able to deploy capital sustainably going forward?

Because we hear a lot about the fact that the data isn’t there. That the data gaps are huge. And so addressing that actually is absolutely essential in order to be able to get things flowing. So let me try and answer your question, which is going to be a journey.

There are things called data gaps, and there are things called data holes, in our opinion, from an alliance perspective. Data gaps are when you can define a dataset that is meaningful and material for investment purposes, but perhaps it’s not completed. It doesn’t have every company that’s disclosing. It doesn’t have every industry that has the depth of information within that dataset. And those gaps need to be filled in order to be able to build a comparability table and a usability for financial institutions. And that really is a journey that the whole entire world is on. It’s geographical, but it’s also industry-specific and types and sizes of businesses.

I said there was data holes. Data holes are areas where there’s absolutely really no meaningful amounts of data available to the financial community. And I’ll give you an example. So in Europe, there is currently some investigation as to how to regulate and create some framework and principles to invest along biodiversity principles. This is really taking from the Do No Material Harm or Do No Significant Harm principles. And biodiversity is obviously the impacts on nature.

And actually, Refinitiv data in the universe of companies that already disclose ESG data, only 13% of those disclose any data about their impacts on biodiversity or nature. And so we consider that a data hole that also needs filling. It’s one example. But even within the core ESG data that’s being collected and more and more of that is happening by the day. Even that data needs to be more granular.

So I’ll give you an example there. Often it’s a radio button. Does your company have a water renewables policy? Yes or no? Does your company have a climate policy? Yes or no? I mean, the ability to really adjudicate how good some of these policies are, or indeed the impact, and compare against others within either an industry, a product set, a country, it becomes very limited with that type of data. And so I think that there are holes in various parts that do need to be filled.

Going a tiny bit further, the retrospective data that I’ve almost outlined here, disclosures from issuers, that by its nature is looking back. It’s quite accurate. It’s able to be fact-checked, but actually a lot of what we need going forward is forward-looking data. Thinking about a transition, thinking about scenario impacts as our world changes, and that becomes more tricky. And so if we look at data that is going to assist financial analysts looking forward, again, we need more of that. And I think regulators have also indicated that they’re looking for more data in which they can look at how are scenario’s going to impact portfolios, investment decisions, and how is it that they can regulate that for a green future?

Nicolas Mackel: In your previous career and your two previous jobs at least, you have been closely involved also in the success Britain has had where with China, including what was at the time referred to as the Golden Era. but since those glory days, tensions, trade tensions between the United States and China, as well as the Huawei case in several Western countries, have soured the mood. Nevertheless investments still flow towards China’s equities and bonds, and the other way around. What is your view on these recent developments as an old China hand, and how will this, in your opinion evolve and what is the role of data and the flow of investments to China’s capital markets?

Sherry Madera. – “Oh, Nicolas, this is where you and I first met. So certainly sort of looking at China, looking at Asia, not that Asia’s a place, and difficult to define. This is some of the areas where we shared views for for many, many years. Right now it’s a tricky geopolitical situation. I don’t think that anyone would doubt that. And it’s not bilateral in its nature. I think everyone that’s listening is very aware of the US-China tensions and where we’re sitting at the moment with a President-Elect Biden. That’s still on the cards, in my opinion. Tough talk on China is a bipartisan issue, Republican or Democrat. So we’ll see how that plays out going forward.

But it does have ramifications when two of the biggest countries in the world have that tense relationship and that’s being played out in the form of various legislation, including sanctions, and companies being added to entity lists, et cetera, but that is politics and business is business. And the reality is that China is opening up its financial services sector. I think that you can remember with me in 2017, Yi Gang, the governor of the PBOC, announced a series of measures that were very specific about opening China up and opening up, not only in terms of foreign ownership to a domestic space, but also opening up the ability for foreign investment to flow into China.

And if we track that since 2017, there has been a real drum beat of opening up in across the sectors, asset management, securities banking, credit rating agencies, insurance. And so when you look at that, there are most of the multinational banks, be they American, British, European, other Asian nations, have applied for licenses and across all of these different areas, and have been granted them and are in the process, or have already established domestic operations in China.

Now, I think that this is something not to be forgotten, that the Chinese market for financial services is massive. Refinitiv data is also showing that the money is flowing as well. So since 2015, there’s been a six-times increase in the domestic assets held by overseas entities. And that’s not just in equities, that’s also in bonds. So that increase has obviously been driven as well by the fact that Chinese A-shares and bonds have started to be included into global indexes.

So the passive investor is also getting access via those structures into the Chinese market. And even just a few weeks ago, beginning of November, we’ve seen that the Qfii and the RQfii systems, which are an ingress mechanism for funds to flow into China, have been significantly overhauled. The quota was scrapped earlier this year. And the scope by which foreign investors can invest into China has been broadened significantly.

With all that being said, creating the balance, outflows from China are still very limited. And so the idea of an open capital account is still not what we’re talking about here, but the ability for foreign investors to access Chinese markets has significantly increased and seems to be rapidly doing so in that direction, the fact that there hasn’t been a significant ability for funds to flow out into international equities and bonds and instruments is still one to watch.

Nicolas Mackel: We have seen in the European Union, quite a number of different regulatory initiatives over the last couple of years and an alphabet soup of GDPR and MiFiD II and PSD II and so on, have tried to create or contributed to create a framework for regulation of data in financial services. Is the European union through that becoming a true global standards centre, or are other continents such as the US doing their own show, and we will ultimately either follow theirs or the different standards will be merged into one global standard?

Sherry Madera. – “Wow, that one’s a tough one Nicolas, because I think Europe sees itself as a exporter of regulations. Its GDPR has been used, changed, and generally been relatively similar to many other privacy legislations around the world. And MiFiD, MiFIDII has had implications outside the borders of the EU for multinational firms who aren’t working in various places and having to make sure that they adhere to those standards. So in some ways, we have evidence that that is the case.

However, when you look at the US as another massive financial services market, the Trump administration has been on a deregulation plan during his stay in the White House. And so with that sort of our overarching theme, we haven’t seen much aggressive regulation coming out of there. We’re now in a flux point in terms of potentially a new resident of the White House, in which case there may be a reimplementation of some of that desire for regulation and control.

So, I think that we’re at a pivot point to understand what happens there. However, I think that Europe is now moving forward on other fronts. So for example, the Digital Operational Resilience Act, which is moving very swiftly through Europe, is looking at trying to understand cybersecurity, data, how the systems behind digital finance are being monitored, regulated, etc. And I think that that’s something to consider, how other jurisdictions around the world will pick up on that point.

And then I think we’ve talked a lot about sustainable finance, but sustainable finance in Europe, the taxonomy that’s been created has very much made ripples across the world, and frankly created a little bit of taxomania, which is many of the jurisdictions coming up with other taxonomies, including Malaysia, Russia’s working on a taxonomy. China already had a taxonomy in place, and Canada’s looking at more of a transition-based taxonomy. So again, there’s a proliferation that’s going on, but it doesn’t show sort of a clear Europe lead that there will be a deference to that.

But what’s very encouraging is that Europe is looking on the sustainable taxonomy front at least, to look at how to map the taxonomy against others. So that at least we can perhaps not get all the way to harmonisation, but at least a clarity as to what those regulations mean in different jurisdictions. And I think that that’s where we all should hope that regulators go in a multinational world. The funds are flowing, the companies are flowing, the regulation needs to be efficient and transparent.

Nicolas Mackel: And before we conclude, let me ask you one last question, which is a question we have traditionally now asked at this stage of the podcast. Namely, if you have time to read, what book have you read recently that you would want to recommend to our audience?

Sherry Madera. – “So I read a lot, and I’m actually only happiest when I’m reading a novel, but I usually have a novel and something non-fiction going at the same time. In terms of the non-fiction, actually, during this troubled times, during COVID, during everyone working virtually, it’s time for a reflection. So the book that I’d recommend on that front is called The Element by Ken Robinson. It’s really sort of trying to … the point is, what is it that fires you up as a person? How can you bring that to your day job? How is it that you can make sure that that is central to what you’re doing?

I found, personally, that that’s very inspiring. Certain days are tough these days. I think everyone would agree with that. And just trying to get a little bit of perspective when you can has helped me.”

Nicolas Mackel: Thank you very much, Sherry, for this fascinating discussion on data. And I’m certainly not the only one who has learned a lot from what you have explained. Thank you also to our listeners who have tuned in again to our podcast and in our next episode, I will be joined by Laurence Boone, the Chief Economist of the OECD.

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