Risk data management is extremely important for banks, especially in times of financial crisis – and an efficient system for this task certainly has benefits.
Unfortunately, the global financial crisis of 2008 and 2009 proved that many banks’ data and IT infrastructures weren’t really ready to handle risk data properly. In response to this, the Basel Committee on Banking Supervision released their Principles for Effective Risk Data Aggregation and Risk Reporting (BCBS 239). The intention is to enhance the ability of financial institutions to cope with periods of economic downturn. They even made it mandatory for global and domestic systemically important banks (SIBs) to ensure its adoption. The Basel Committee also released three progress reports over the past three years to support banks with the development of their risk information management systems.
Why then have so many banks missed that deadline? Why is BCBS 239 so challenging?
BCBS 239 consists of 14 principles that need to be adopted for full compliance. Analyses of the original publication and the progress reports as well as the state of global banks’ risk information management systems, it is clear that there is a lack of clarity on some of the principles and how they interact. Furthermore, there is a concern that many banks are assigning the task of changing the data infrastructure and policies to program teams that don’t have access to all the information and functions they need for success.
Adhering to these principles of risk data aggregation and reporting is a complex, enterprise-wide exercise that requires the consolidation of information across a range of functions and legal entities. It requires appropriate technology and high-level decisions. It should not be seen as a hindrance, because, as the Basel Committee has stated, compliance with BCBS 239 will help to safeguard the financial services industry.
For an in-depth look at our analyses of the challenges of complying with BCBS 239, download our new Industry Insights article. It outlines the three areas that have proven particularly challenging and suggests some approaches to overcome these challenges.