Mar 29, 2017

BCBS 239 Progress Report: Is Risk Data Aggregation and Reporting a One-time Compliance Exercise or a Dynamic, Ongoing Process?

James Jockle, Chief Marketing Officer

A brief look at the Basel Committee’s Progress Report on the Implementation of Principles for Effective Risk Data Aggregation and Risk Reporting

In January 2013, the Basel Committee published the Principles for effective risk data aggregation and risk reporting, which was meant to serve as a guide for how banks can strengthen risk data aggregation and risk reporting practices. Since its distribution, only one bank had attained full compliance with the principles by the January 2016 deadline, and only one other bank was expected to achieve full compliance by the March 28 publication date of the progress report. If the headway the banking industry was making were graded, it would certainly receive a well-below-average mark.

The progress report cited the following technical issues banks faced:

  • Difficulties in execution and management of complex and large-scale IT and data infrastructure projects, such as resources and funding issues, deficiencies in project management, and coordination with other ongoing strategic programs.
  • Overreliance on manual processes and interventions to produce risk reports, although some manual processes are unavoidable.
  • Incomplete integration and implementation of bank-wide data architecture and frameworks (e.g., data taxonomies, data dictionaries, risk data policies).
  • Weaknesses in data quality controls (e.g., reconciliation, validation checks, data quality standards).

One particular comment that stood out to me was the following:

“Some banks view implementing the Principles as a one-time compliance exercise rather than a dynamic and ongoing process….  some banks did not have due consideration of RDARR (risk data aggregation and risk reporting) requirements when pursuing new business initiatives... Any changes in banks’ business models and risk profiles as well as new strategic initiatives (eg mergers and acquisitions) are likely to bring about new implementation challenges. It is also observed that some banks faced challenges in detecting and monitoring emerging trends through forward-looking forecasts and stress tests.”

The Basel Committee offered this summary statement:

“In this regard, banks need to periodically assess and make needed improvements to IT systems, policies and processes to effectively implement the Principles.”

What is clear is that this progress report highlights the fact that certain regulations (e.g., BCBS 239, Basel IV, FRTB, SA-CCR, etc.) will result in significant changes to the way risk analytics are managed today.  In my view, the key challenge is that big banks are still federated, and therefore, IT transformation teams need to design globally and implement locally—and in many ways establishing a data governance framework is as important as a technology rollout.

The rationale why so many consulting firms and fintech companies are lighting up LinkedIn and the Internet with blogs, reports and infographics on digital transformation and disruption is that they know that 20-year-old legacy technology underpinning many mission critical business functions in financial institutions are not up to the task of meeting today’s regulatory compliance requirements.

While Deutsche Bank has been no stranger in the news cycle lately, John Cryan, Co-Chief Executive Officer, has announced his strategy for the future of DB. As part of his Strategy 2020 plan, he outlined a core effort for the firm “to become less risky by modernizing our outdated and fragmented technology and withdrawing from higher-risk relationships and locations.”

Sounds to me like a significant—and necessary—change and a right vision for a more profitable future. That alone should serve as motivation for banks to get their own initiatives in place now. And it all begins with creating an organization-wide culture of technology innovation and risk management—one that is as ongoing as the as the ongoing need to comply with the principles.

Basel Committee on Banking Supervision: Progress in adopting the Principles for effective risk data aggregation and risk reporting, March 2017
Press Release: Deutsche Bank announces details of Strategy 2020


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