UK: BCBS 239 – The "Data-Fitness" Hurdle

In May-June 2018, the European Central Bank (ECB) and the Basel Committee on Banking Supervision (BCBS) published reports on the progress of the largest, internationally active banks towards compliance with the BCBS Principles for Effective Risk Data Aggregation and Reporting – known as BCBS 239.

Whilst both reports approach the topic from different angles, the similarities in their findings are striking and paint a scenario where, two years after the original compliance deadline, gaps are still significant and widespread.

This blog discusses those findings, examines what we can learn from them and considers what may be next as banks continue to confront the challenges posed by BCBS 239.

Approach to the assessment exercise

The BCBS and the ECB adopted different approaches to assessing the "state of the nation" in relation to BCBS 239 compliance:

  • The BCBS based its assessment1 on the approach followed in previous years2 - the relevant home supervisors provided their assessments of Global Systemically Important Banks (G-SIBs) using benchmark questions marked against a four point scale. The results were then normalised and collated centrally by the BCBS.
  • The ECB document3 , on the other hand, includes both G-SIBs and other banks directly supervised by the ECB. It is based on a thematic review run in 2017 and includes a "fire drill" exercise whereby banks were asked to provide detailed information about risk reporting governance, process and methodology for two risk indicators covering credit and liquidity risk4 . The exercise was run under the Single Supervisory Mechanism's (SSM5 ) direction. Although this exercise covers a smaller geographical area, it was more intrusive and, thanks to its standardised nature, the results offer better comparability.

Despite the different methodologies applied, the results described in both documents touch on common themes.

Findings

The observations made by both the ECB and the BCBS focus mainly on two areas:

Governance

  1. Banks show weak governance arrangements around data aggregation and reporting capabilities. 
  2. Roles and responsibilities are often poorly defined and enforced between different functions.
  3. There is a lack of strategic attention to data at executive and senior management level.

IT Infrastructure

  1. Banks are still over-reliant on manual processes and siloed IT systems for risk reporting, hampering their ability to aggregate data.
  2. Cumbersome and complex reconciliation processes are used as compensating controls for poor data flows and infrastructure.
  3. Banks are often unable to generate reports in a timely manner owing to underlying infrastructure and data flow issues – especially under stress scenarios.

What do the results tell us?

Both the ECB and the BCBS acknowledge that full implementation of the BCBS 239 principles will not be achieved until at least the end of 2019 and that some of the most significant programmes are likely to extend until 2021.  

However, the fact that supervisors continue to focus on the progress banks are making tells us that BCBS 239 remains a priority for them. Indeed, this on-going focus on data as a foundation which underpins demonstrably good process and correct, traceable results is backed up by the fact that data considerations are at the heart of other significant regulatory initiatives. Basel III elements such as the P&L attribution test in the Fundamental Review of the Trading Book and the attention the Federal Reserve has devoted to data quality in CCAR both have considerations of data consistency and lineage at their heart.

The industry should therefore expect no reduction in the focus on data from supervisors until banks achieve acceptable quality standards. The finalisation of Basel III and changes across Europe around definition of default and how models need to be further strengthened highlight the importance of effective data management. In addition, with the advent of smaller, more nimble competitors, including fintech, having old and cumbersome systems will put traditional banks at risk of being left behind by a younger, more agile customer base. Banks will need to move quickly to retain their advantage in a competitive market.

Against this backdrop, it is also clear that across the industry, existing participants continue to struggle to achieve the traction on their data agenda that both they and the supervisors want, due to a variety of factors:

  • Banks' regulatory agendas are still overloaded – Banks continue to face a multitude of regulations and requests by supervisors to fix specific pressing problems or face sanction. Given this, although data as a broad enterprise-wide topic is a key enabler of many regulatory requirements, it may not be the most immediate concern in its own right. Whilst in some jurisdictions, like the UK, specific conduct rules around senior management accountability have contributed positively to reinforcing the importance of long-term data remediation, at global level the uncertainty around the consequences of potential non-compliance with broader data requirements makes it more difficult to place this at the top of priorities.
  • Addressing BCBS 239 requires "deep surgery" – Prior to the global financial crisis, the drive to expand business coverage and product capability rather than building streamlined and efficient data flows left many banks with patchy data architectures and reliance on increasingly complex end user computing tools. Disentangling this situation requires, for many banks, the need to dig deep into systems and processes – this may often necessitate fundamental "re-writes" and these re-writes come with a price tag that is hard to accommodate at a time when banks are seeing increasing margin pressure.
  • Data is everyone's problem, but no one's problem - Data spans all aspects of the Front Office, Risk, Finance and Operations within a bank and is generated, aggregated and consumed at all levels. Banks have struggled to determine who owns what data and how to fix deep-rooted data flow problems. This results in governance and oversight gaps and a lack of drive to take on the challenges posed by data flows at a fundamental level – instead, banks skirt the issues, trying to enhance existing controls and management mechanisms in lieu of addressing the base data challenge.
  • Data is an asset but is not always correctly valued – Whilst transforming the data has a cost, correct data is a valuable asset. Not only does it drive better decision making, it also increases reporting quality and reduces regulatory, reputational and operational risk. However, given that data issues are often felt downstream of those originating the data, banks struggle to value data on an end-to-end basis and instead focus on cost and quality issues within current organisational silos. This can, again, lead to a reluctance to fix data in a definitive way.

All these issues have left banks in a quandary and, faced with this, they have on occasion presented optimistic views6 on their actual level of compliance to their supervisors, giving rise to unrealistic expectations. These in turn are leading to increased pressure to deliver on those banks which continue to have deep underlying data issues.

What comes next?

Whilst the data challenge is undoubtedly a significant one, the current supervisory focus and the latest edicts themselves point to the fact that over time banks will be expected to comply. This will not be easy - there is no silver bullet offering an immediate resolution to the co-mingled issues of ownership, governance, conflicting priorities, pre-existing process and infrastructure challenges and mounting cost pressures.

Instead, banks wishing to retain their existing competitive advantage will have no choice but to learn to value their data and to place it at the heart of their next waves of organisation, process and technology developments whilst avoiding implementing changes which exacerbate rather than solve the core issues. Fixing data as a core part of "what we do" rather than as a bolt-on to the core business will be key.

Banks will adopt a range of strategies to achieve this, ranging from large-scale centralised data programs to more federated programs united by common principles, governance and purpose. How well these various approaches succeed will depend on how well they can be made to suit a given organisation and how well committed and executed they are there. Those banks that succeed will be those that find the best match between their needs, their proposed solution and their readiness and ability to execute.

Analysing some of the industry examples, banks that have had greater success in addressing their data challenges have been those which are most able to frame their data efforts within a clear ownership structure, often placing responsibility for driving data improvements at least in part on those who originate and maintain the data in question. Similarly, being able to tie specific inbound data quality issues to specific cost and downstream productivity issues, as well as understanding what business opportunities better data may bring, can enable successful banks to tie data program deliveries to "monetised" data benefits and thereby enable them to view improved data as a valuable asset. This ability to monetise the benefits of this improved data can provide a competitive advantage for front office teams to increase revenue as well as allowing support functions to work efficiently and better manage financial resources, such as RWA.

Alongside this, banks are increasingly looking to emergent technologies to help them meet their data challenges – intelligent solutions to fix, manage, store, aggregate and distribute data can offer banks some respite from the need to resolve and remove data challenges through wholesale infrastructure re-writes by providing simpler technology-based paths through them.

In the meantime, Deloitte remains committed to helping our clients however we can as they seek to tailor their own approach to their own situation and their short, medium and long term challenges.

Footnotes

1 Progress in adopting the Principles for effective risk data aggregation and risk reporting, June 2018

2 BCBS Progress in adopting the Principles for effective risk data aggregation and risk reporting, January 2015, pp. 3, Par. 1.4

3 ECB Report on the Thematic Review on effective risk data aggregation and risk reporting

4 The risk measures requested were the FINREP-based Non Performing Loans granted to SMEs and the COREP-based retail deposits outflows within the liquidity coverage ratio.

5 The SSM is the supervisory division of the ECB which since 2014 has provided a common supervisory approach across the most significant banks across the Eurozone countries.

6 See BCBS Progress in adopting the Principles for effective risk data aggregation and risk reporting, December 2015, pp. 4 par.1

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions