Reporting risk to regulators hampered by separate systems, inflexible sources

Increasing regulatory pressure requires banks to improve risk aggregation and reporting. Yet a majority struggle with data inconsistencies, says a recent Lepus Research and SAS survey. This technical hurdle was pinpointed by 81 percent of banks surveyed. More than half also face difficulties from separate risk systems and inflexible sources.

Lepus surveyed 27 global financial institutions about the Basel Committee’s Principles for Effective Risk Data Aggregation and Risk Reporting. Also known as BCBS 239, the principles aim to increase transparency and reduce operational risks. Adherence to these principles allows banks to improve stress testing and anticipate future problems.

“The survey clearly shows that firms are struggling with the legacy of their separate, siloed risk systems,” said Geoff Kates, CEO of Lepus. “That makes it extremely difficult to combine high-quality data for regulatory reporting, risk and capital management, and stress testing.”

An overwhelming majority of firms seemed skeptical of their ability to prove data origin – a requirement of BCBS 239. Some 67 percent saw room for improvement and 22 percent identified a need for significant investment.

The institutions were also asked if they expected BCBS 239 compliance initiatives to deliver ancillary business benefit. Many anticipated achieving a more holistic organizational view of risks, with 22 percent citing improved stress testing capabilities and 30 percent needing a more holistic view of firm-wide risks.

“Rather than deploy a single platform to manage and analyse risk, many banks are approaching risk management in a siloed approach  Down the line this could create further headaches and siloes mean banks will continue to have serious issues with data quality,” said Vincent Kilcoyne, Capital Markets Lead, SAS UK & Ireland. “BCBS presents banks with a unique opportunity to re-engage with one of their most valuable assets, data. While some banks will treat compliance as the goal, it is the strategic forward thinkers that will take the opportunity to view compliance as a step towards improved risk management, stress testing and ultimately better capital management.”

SAS provides a range of solutions to help firms meet the BCBS 239 principles from risk data quality and management, data lineage, risk aggregation, visualization and reporting, and stress testing.

To compare your firm’s readiness for BCBS 239 to the Lepus survey results, read the report paper Industry Challenges: Implementing Effective Risk Data Solutions.