Representing a sea-change for the financial sector, The Basel Committee on Banking Supervision (BCBS) has focused on strengthening risk data aggregation and reporting capabilities at key financial institutions. The resulting paper, Principles for effective and risk reporting presents fourteen principles designed to enhance risk management and decision making processes at banks. The ultimate objective is to enhance their ability to identify and manage enterprise-wide risks quickly and accurately.
The BCBS acknowledges that risk management cannot function without proper data management. Data aggregation and reporting are no longer being seen as isolated processes, but as part of an intertwined framework. With a centralized data management platform at the center of this framework, financial institutions are well positioned to address each of the BCBS mandated requirements for risk data aggregation and reporting.
Governance and infrastructure
The BCBS paper states that banks should have strong governance in place for risk data aggregation, risk reporting, and key internal risk models. Senior management should promote the identification and remediation of data quality risks and should review and approve the risk aggregation and reporting framework. As such, the banks aggregation and reporting capabilities should be fully transparent.
A bank’s senior management and its board should be fully aware of limitations in the aggregation and reporting of risk data. Reliance on manual processes is a limitation. A data management system can ensure that sourcing, validation, cleansing, deriving and reporting of all pricing and reference data firm-wide is tightly controlled. Roles and responsibilities can easily be defined and assigned. Ownership and workflow capabilities ensure that adequate controls are in place to cover the entire lifecycle of the data.
A bank should have infrastructure in place that fully supports its risk data aggregation and reporting, especially during times of stress or crisis. Integrated data taxonomies and architecture should be established that include metadata, single identifiers and unified naming conventions that enable grouping and/or aggregation of data for counterparties, legal entities, and group level.
Accuracy and integrity
A bank should be able to generate accurate and reliable risk data. Banks should measure and monitor data quality and have remediation processes and procedures to rectify poor data quality. Risk data controls must be as robust as those of accounting data.
Aggregation of data should also be performed largely on an automated basis. Manual processes and desktop applications require effective mitigation and controls. Using an automated, secure and transparent system with full controls can relieve the efforts needed to make manual processes compliant.
Completeness and timeliness
A bank should be able to capture and aggregate all material risk data across the banking group. Data should be available by business line, legal entity, region and other groupings so that risk exposures and concentrations can be identified.
If legal entities manage and process their own market and reference data, inconsistencies are likely to occur. Not only is there duplication of efforts at the legal entity level, resolving resulting inconsistencies at the Group level becomes cumbersome, if not impossible. The likely result is that exposures will not be measured correctly and reporting will be inaccurate. Installing a data management platform can help to maintain a single repository of all pricing and reference data, as well as increase the accuracy of measuring exposures and concentrations.
A bank should also be able to generate aggregate and up-to-date risk data in a timely manner, while also meeting other principles relating to accuracy and integrity, completeness and adaptability.
A bank’s risk data aggregation capabilities should be flexible and adaptable to meet ad hoc data requests, and to assess emerging risks. Supervisors expect banks to be able to generate subsets of data based on requested scenarios or resulting from economic events.
In addition, risk data reporting and aggregation requirements will continue to be analysed, tested and changed in coming years. When investing in a data management system, firms need to have confidence that it is flexible and adaptable enough to keep up with unknown business requirements and future regulations.
In this new vision from the Basel Committee on Banking Supervision, the dynamic, centralized data management platform is paramount. It delivers the integrity, accuracy, timeliness and flexibility that today’s financial markets demand from risk data governance, aggregation and reporting.
About Asset Control
Asset Control was the original, and still is the leader in providing supremely reliable, high performance systems for the management of financial data.
With proven software and operational expertise, Asset Control make it possible to get reference, price and risk data to the people and systems that need it. On time, all the time. So processing and reporting can get done sooner, with absolute accuracy, and total consistency.
Asset Control track every data element from the point of capture to final delivery, which makes it easy for banks and asset managers to manage costs and achieve the highest standards of data governance. Whether it’s for regulatory compliance, portfolio valuation, or risk management, data is delivered with unequalled efficiency, transparency and integrity.