In this post-crisis landscape banks are facing a litany of new regulations and their risk management processes have come under increasing regulatory screening.

Earlier this year the on Basel Committee on Banking Supervision (BCBS) published a consultative document, 'Principles for Effective Risk Data Aggregation and Risk Reporting' setting a clear expectation that banks will quantify their risk appetite and have robust infrastructure, process and controls in place to monitor risks within the appropriate thresholds across credit, market, liquidity and operational risk.  Yet many banks lack the ability to timely and accurately aggregate risk exposures and concentrations at bank group level, across business lines and between legal entities.

The BCBS Consultative document paper presents 14 principles to strengthen the capability and the status of risk functions to make judgements. These principles cover four broad areas: governance and infrastructure, risk data aggregation capabilities, risk reporting practices and supervisory review. Taken together, the principles are expected to deliver gains in efficiency, reduced probability of losses and enhanced strategic decision-making, and ultimately increased profitability.

National supervisors expect Global Systematically Important Banks (G-SIBs) to implement these principles by 2016 and will assess their implementation starting in 2013 and begin to share with the FSB from the end of 2013.

The key aspects of the consultative paper include:

  • Enhancing the infrastructure for reporting key information to identify, monitor and manage risks;
  • Improving the decision-making process throughout the banking organisation;
  • Enhancing the management of information across legal entities, while facilitating a comprehensive assessment of risk exposures at the global consolidated level;
  • Reducing the probability and severity of losses resulting from risk management weaknesses;
  • Improving the speed at which information is available and hence decisions can be made; and
  • Improving the organisation's quality of strategic planning and the ability to manage the risk of new products and services.

The paper cites an ambition to expand the legislation to encompass risk governance alongside more stringent technical requirements, particularly data. The aim of the data agenda is two-fold; firstly to address the perceived inadequacies of banks' data capabilities during the financial crisis, particularly with regard to risk management.

Secondly to ensure that firms can meet the ever growing data capture and reporting requirements that have sprung up as a result of initiatives aimed at improving the resilience and transparency of the financial system. 

Whilst sceptics of this revamped focus have argued that supervisors have often talked tough on data before and question their resolve to follow-through, on balance it appears that this time it is quite different. There are ample indications that firms who fail to move data to the centre stage will be in for a shock.

The BCBS has clearly stated its intention by allowing supervisors to limit a firm's ability to take on new risks or expand its business operations where weakness in data aggregation capabilities are considered serious enough to significantly impede risk management. 

Are you ready to meet the 2013 deadline and embrace this opportunity to deliver strategic change?

To find out more read our Risk, data and the supervisor financial services white paper.

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