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BCBS Says Bank Compliance with Risk Aggregation Principles is Unsatisfactory

The Basel Committee on Banking Supervision (BCBS) reports that the level of compliance with its principles for effective risk data aggregation and reporting is unsatisfactory at globally systematically important banks (G-SIBS). It urges the banks to step up their efforts and recommends that they should develop clear roadmaps to achieve full compliance, supervisors should communicate assessment results with individual banks to incentivise them to achieve compliance, and that the Basel Committee should continue to monitor implementation of the principles.

The report, Progress in Adopting the Principles for Effective Risk Data Aggregation and Risk Reporting (RDARR), was published in late March and discusses the progress banks identified as G-SIBS in 2011 and 2012 have made in complying with the RDARR principles set down in January 2013 and monitored by the Basel Committee.

The report acknowledges some progress on compliance, but states: “The latest assessments by supervisors show that banks’ level of compliance is unsatisfactory and the overall implementation progress remains a source of concern to supervisors . . . Based on supervisors’ assessments, only one bank fully complied with the principles, even though the implementation deadline for G-SIBs identified in 2011 and 2012 had lapsed in January 2016.”

The key challenge in achieving compliance is noted as Principle 2, data architecture and IT infrastructure. This concerns supervisors as it is a precondition, along with Principle 1 on governance, to ensure compliance with the other principles.

The report lists outstanding technical challenges faced by banks implementing the principles as: difficulties in execution and management of complex and large-scale IT and data infrastructure projects; overreliance on manual processes and interventions to produce risk reports, although some manual processes are unavoidable; incomplete integration and implementation of bank-wide data architecture and frameworks; and weaknesses in data quality controls.

Charlie Browne, head of market data and risk solutions at GoldenSource, suggests the shortfall in compliance with the BCBS principles results from banks continuing to operate silos of risk data that make it difficult to achieve fast and effective data aggregation. He says: “Multiple copies of risk data lead to performance issues such as running calculations more times than necessary and increased reconciliation. If all risk data is aggregated properly, a consistent set of calculations can be run across regulations, providing firms with efficiencies and regulators with an improved view of risk calculations.”

Considering the outcomes of the supervisors’ assessment of banks’ compliance with the BCBS principles, the report concludes that, in general, banks will take about five to six years to achieve full compliance, assuming they started implementation when the principles were published in January 2013.

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