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“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 enhance 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.
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:
“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.
In January 2013, the Basel Committee on Banking Supervision (“BCBS”) issued a set of Principles to improve banks’ risk management practices, decision-making processes and resolvability (BCBS 239). Drawing on the lessons learned with their clients in Belgium, France, Germany Italy, Luxembourg, the Netherlands, and in the UK, Avantage Reply set out pragmatic solutions to address implementation issues faced by institutions.
Avantage Reply will in turn address:
• The bank’s understanding of the data lifecycle • The flexibility of the data architecture • The adequacy of the architecture • The efficiency of the reporting framework
and discuss how innovative, pragmatic and technology-enabled solutions can make the journey to BCBS 239 compliance less daunting.