The Standards Paradox: The Argument for Multiple Standards

Standards exist across industries and create efficiencies and cost savings for many. But the world of standards is not as simple as it initially appears. In this series, we’ll examine why standards matter, what kinds of questions to ask when standards are being created, and what this all means for the financial services industry.

Given the advocacy to promote adoption and promulgation of standards, there is a reality to address. Theoretically, a single overarching standard for everything – how and what we trade, buy, sell, execute and identify – would create a homogenous and equal society. But in reality, there needs to be recognition of a few important points.

Legacy exists. For example, it would be wonderful if the entire world decided on a single electrical system, unifying and standardizing outlets and power types. However, the cost of replacing billions of outlets around the world would not just be cost prohibitive, but also unrealistic. Interoperability has been addressed as travel power adapters are fairly ubiquitous. And by adding USB ports to new installations, interoperability and standardization are further served. Interoperability – not adoption of a single standard – is more realistic, practical, and impactful.

Further, trying to standardize everything using an existing standard can institutionalize the limitations of that standard, adding to the costs of trying to retrofit legacy installations. Adopting an existing single electrical system standard instead of focusing on integrating future USB-based powered solutions would prevent the ability to integrate and adopt future innovations.

Things change and sometimes that means creating a new standard is better than continuing to revise an existing one – like adopting DVD over high definition tape. But care should be taken when deciding to create a brand new standard. A new standard comes with its own limitations and should not be viewed as the end-all-be-all. It may be more flexible in design, last longer or be more extensible. But it will have limits, and those need to be recognized.

All standards are not created equal. One technique for solving a problem is probably not appropriate for solving a slightly different problem. As we have discussed in this series, what works for one community may have a certain use-case focus. And a broad homogenous standard solution may not be nuanced enough for a highly heterogeneous environment. Look at the simple screw – they all do the same thing, but thread types are slightly different based on target material (metal, wood, etc) and environment (indoor, outdoor, load, water, etc).

Standards organizations and those that support them have their bias and self-interests. Understanding this, the limitations of individual standards in context of problems being addressed, and knock-on effects of relying too heavily on the term ‘standard’ in lieu of proper analysis are key to using the right solution for the right problem.

There is great opportunity for industry, regulatory and consumer benefit through proper use of standards. There is also risk of co-opting of standards by commercial interests through lobbying, misdirection and de facto monopolies that would reduce choice, introduce significant costs and reduce efficiencies, which has the potential to negatively affect the industry and consumers as some exploit the system of volunteers that work with the public good in mind. Regulators particularly need to be wary of specific mandates that will be difficult to change or create a non-competitive, anti-consumer environment.

Guidance (i.e. “use open standards”) versus specific mandates (“use standard XYZ only”) should be the approach. Regulatory institutionalization of a specific standard can have a significant negative impact on an industry, especially through lock-in and discouraging innovation.

Semantics, as always, are key. Shared understanding of what ‘standard’ means is the first step. You also must grasp the meaning of ‘open standards’ or ‘open data’. Being ‘free’ is not enough; it is the implementation and unfettered access and use that provides usability. Understanding the difference between proprietary and industry players – and their relationship to any standard will also help ensure proper standards are being enacted.

In the end, just because something is called a ‘standard’ doesn’t mean it can solve everything, or that it should be held in some sort of reverence over other practical solutions.

Takeaways;

1. Standards exist to support and enable specific communities. Those standards should not be created in a vacuum, and should be widely adopted.
2. One standard may not be appropriate for addressing another related problem that is similar, either due to function, end user community or impact on current use.
3. Standards can evolve. But in some cases, new standards need to be created and adopted instead of revising current standards.
4. There are multiple standards organizations. No one organization is ‘more important’ than another. There are also multiple organizations (private, public and associations) that provide support for these ‘standards organizations’ by promoting, refining, maintaining and using standards.
5. Commercial interests play a role in standards. Standards can be co-opted to create commercial monopolies under the guise of ‘promoting standardization.’ However, just because a commercial firm created a standard doesn’t invalidate it or make it suspect.
6. Interoperability of standards that have related functionality is critical for legacy integration and reduction of costs. Restricted, nonstandard and prolific symbology stands as one of the most significant barriers to increased efficiency and innovation.
7. Open standards – those that do not have restrictions or costs related to obtaining them or using them – are key to leading the financial industry to a more efficient and transparent system.

In the end, common sense needs to rule, which sometimes proves difficult. Religious fervor on sides supporting one standard or another, or one organization versus another can lead us down a well-intentioned but incorrect path. Getting a solution for solution’s sake serves no one.

This is why Open Symbology supports standards efforts – through expert resources committed to participating in standards working groups and efforts around the globe, supporting public trusts and open data like FIGI, and working towards being a LOU issuer for the LEI standard. These efforts help the entire industry, create more opportunity, and enable innovation into the future.

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http://www.bloomberg.com/enterprise/blog/the-standards-paradox-the-argument-for-multiple-standards/