Anyone who’s ever worked on a technical standard knows it can be thankless, unrecognized effort.
But David Saul, chief scientist at State Street, believes what he and his bank are doing with a little-known data standard called Financial Industry Business Ontology could change much about the way risk management, financial product pricing and even marketing are handled today, and make blockchain technology feasible for banks.
“The work we’re doing on FIBO is a prerequisite to doing anything with algorithms,” said Saul, who was one of American Banker’s Innovators of the Year in 2013. “First you have to get the data right, and that’s the whole point of FIBO and what we’re doing with our proof of concept.”
FIBO provides a description of the structure and contractual obligations of financial instruments, legal entities and financial processes. It’s used to harmonize data across repositories, kind of like a Rosetta Stone for banks’ databases. It’s expressed in machine- and people-readable language. It allows for the consistent tagging and formatting of data across an organization and an industry and could allow many things to be automated that today must be done by humans.
“Every bank has master files that define the terms, conditions and characteristics of their financial instruments,” explained Michael Atkin, managing director of the EDM Council, a trade association that’s been the main driver of the standard. (That stands for “enterprise data management,” by the way, not “electronic dance music.”) “The first requirement is to map it to common meaning, so we’re all calling things the same names. That’s our part, the humble ontology.”
Some of the goals Saul and others have for FIBO echo what’s hoped from blockchain technology: the ability to reframe financial transactions as self-executing “smart contracts”; the ability to execute transactions between banks without a need for middlemen or a clearinghouse; the ability to completely automate complex products like mortgages and over-the-counter derivatives; and the possibility that all parties could have complete transparency around deals. Indeed, FIBO and blockchain may eventually be interdependent: For distributed ledgers to work, the parties involved have to agree on a common language; for smart contracts to be completely hands-free, some kind of shared database would be required.