Principles for effective Risk Data Aggregation and Risk Reporting

“One of the most significant lessons learned from the global financial crisis that began in 2007 was that banks’ information technology (“IT”) and data architectures were inadequate to support the broad management of financial risks.”

In response, the Basel Committee - as well as other global regulatory standard setters and national regulators - introduced a range of requirements to strengthen banks’ risk data aggregation capabilities and risk reporting practices.

Whilst most banks have projects in place to enh​ance existing ‘reporting chains’, the Principles established a high standard and further work is still required to achieve compliance with the exacting BCBS standards by 2016.

Within this Practice Note, Avantage Reply presents its recommended approach to overcoming certain practical challenges. We draw on our recent experience with some of the G-SIBs as well as a few large domestic banks with whom we enjoy the privilege of working.

Introduction to the Principles for Effective Risk Data Aggregation and Risk Reporting

As noted above, the Principles are expected to be implemented by G-SIBs by January 2016. The BCBS also recommends that national supervisors extend their application to domestic systemically important banks (“D-SIBs”). We, at Avantage Reply, believe the Principles will receive wide adoption and will eventually impact most banks in the European Union (“EU”).

The principles cover four closely related topics:

• Overarching governance and infrastructure;
• Risk data aggregation capabilities;
• Risk reporting practices; and
• Supervisory review, tools and cooperation.

“Many banks are facing difficulties in establishing strong data aggregation governance, architecture and processes, which are the initial stage of implementation. Instead they resort to extensive manual workarounds which are likely to impair risk data aggregation and reporting.” Basel Committee on Banking Supervision December 2013.