The recent introduction of new banking regulations and supervision had a substantial impact on business as well as a significant operational effect on institutions. Going forward, responding appropriately to the financial and risk information needs of stakeholders with respect to banking products, operations and risks will be critical for maintaining a license to operate. Given the limitations of the existing environment wherein those involved in financial and risk reporting operate, today’s ability to meet information requests can be considered a remarkable result from great efforts. However, this does not guarantee the sustainability of the operating model in the long run. This requires that banks make a fundamental change in their overall information infrastructure in order to meet today’s expectations and information demands, and avoid administrative deadlock.
Over the past few years, the banking industry has witnessed an unprecedented shift in the information demands from stakeholders on numerous financial and risk concepts. Expectations with regard to availability of information have been catching up with the pace of the current era, where information is always readily available. The introduction of harmonised supervisory reporting in the European Union, which implies an exponential increase in the number of templates, tables and items, and recent-balance sheet assessment is a clear sign of how the information requirements of stakeholders have drastically changed.
In our recently published White Paper, we explore how the existing information infrastructure is causing banks to face ever-increasing challenges in adapting to the change in information demands. We also explore how banks can prepare themselves to fit into a data-driven information environment, where information shifts are bound to ongoing change and are to a less extent predetermined.
Looking at banks across the industry, it can be agreed that their current informational infrastructure is generally one directional and report-driven, which is not in line with the hyper-flexible concepts that characterise the current information collection process. Information used in this type of informational infrastructure is usually highly contextual (specific to accounting or other reporting frameworks) from an early stage in the reporting chain, leaving ample room to modify, change or crosslink between complex concepts such as those in the risk domain. Reshaping and adapting these highly contextualised sets of information often requires substantial effort.
When storing information, it is essential to decide on the level of data contextualisation to facilitate future usability. Future changes in definitions, contexts and levels of aggregation should be easy to accommodate. To avoid all resources being spent on workarounds and database redesign, generic and specific information (highly contextualised information) should be differentiated within the organisation. Generic information is generally used for a broad range of information requests, whereas specific information is used for a particular information goal and comprises several pieces of generic information.
In order to be able to respond to data-driven information demands, wherein information formats are prescribed outside the organisation and determined in the present, banks must redesign their organisations and infrastructure for flexible information collection. By redesigning their information infrastructure using generic data separated from data-independent logical models to obtain a broader set of specific information, banks will be able to equip themselves to deal with the constantly changing regulatory landscape and the data-driven supervisory approach.
In an environment with continuing data-driven information requests, banks should establish a clear data management foundation that includes data quality-management as soon as possible. Once such a foundation is established, it is required to develop a strategy that helps data analysts across the organisation in the process of managing generically-structured data and modelling different contextual frameworks, and subsequently combining the two. For this, institutions need to formulate a strategy that is focused on a fundamentally new infrastructure so as to:
- Store generic data, which is much more flexible for different contexts
- Facilitate modelling of logical structures (i.e. context modelling) through taxonomies across domains. This allows linking regulations, deriving interpretations and discussions based on the (data-independent) ‘context models’
- Equip a substantial number of staff members across various departments to link context models to generic data provided by domain experts (that is, clarify interpretations and logical structures).
As first-movers, supervisors are becoming ever more demanding with respect to reporting requirements due to reasons such as increased scrutiny and benchmarking capabilities. Banks, now more than ever, must ensure adequate responsiveness to information demands in order to provide sufficient quality at a high frequency. All external and internal stakeholders expect similar high standards of information infrastructure to be at their disposal. Banks may have already initiated the comprehensive process of developing strategies for reshaping their informational infrastructure. If not, ongoing changes in stakeholder expectations are bound to drive them to do so.
About the authors:
Mark Muyres is a manager within KPMG Risk Consulting Financial Services. As a regulatory expert working with banks and supervisors across Europe, Mark has built up expertise in regulatory risk while supporting banks in their effort to meet prudential reporting requirements and implement regulatory treatment.
Chee Kin Poon is a consultant within KPMG Risk Consulting Financial Services. As a consultant working in the financial services industry, Chee Kin has knowledge of and expertise in regulatory reporting processes and reporting IT infrastructures.
For the full version of this White Paper, please visit: