About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

Fed’s Tarullo Once Again Champions Resolution Plans, BCBS Publishes New Recommendations on Subject: Data Challenges in Spotlight

Subscribe to our newsletter

Regular readers of Reference Data Review should be no strangers to the data and practical implementation challenges of resolution, or living wills, regulations that are the talk of the town at the moment. After all, US Federal Reserve governor Daniel Tarullo is just one of the high profile regulators that has been grandstanding about them for some time and this month has been no different. Adding to Tarullo’s recent speech in New York (more on which later), however, has been the publication of the Basel Committee on Banking Supervision’s (BCBS) report on the subject, including various case studies to highlight the data challenges further.

The Cross-border Bank Resolution Group (CBRG) of the BCBS has produced a new report and recommendations aimed at helping the financial services industry move forward with living wills regulations. The 10 recommendations highlight what the group feels could be used as a framework for the winding down of financial institutions in a cross border environment. Recommendation 6 in particular highlights the data management challenges for systemically important firms inherent in planning in advance for their “orderly resolution”.

The report notes: “The contingency plans for such institutions should address the practical and concrete steps that could be taken in a crisis or wind-down to preserve functional resiliency of essential business operations. A crucial part of such planning is how to ensure access by supervisors to critical information systems with the data necessary to implement those steps.”

This could avoid the regulators and investigators being forced to go through the rigmarole that faced appointed examiner Jenner & Block during the winding down and examination of Lehman Brothers. The examiner was faced with three perabytes, or 350 billion pages, of electronically stored data, which was held across a “patchwork” of “arcane” systems, to process in order to judge the risk management system failings of the investment bank. The Lehman investigation certainly gives the proposals to determine a list of key data for unwinding purposes legs.

The BCBS report also notes that regulators must ensure the “timely production and sharing of needed information both for purposes of contingency planning during normal times and for crisis management and resolution during times of stress”. This lack of proper joined up regulatory data sharing is highlighted as one of the main complications in dealing with the failure of Icelandic bank Kaupthing by the BCBS group.

However, in the case of Fortis, which had to be bailed out by the Dutch government during the crisis, data was shared effectively but different assessments were made by Dutch and Belgian authorities, notes the BCBS report. “Differences in the assessment of available information and the sense of urgency complicated the resolution,” it states. So, not only must data be shared, but communication around what this data means should be stronger between regulators.

One of the foundations of effective resolution is therefore having greater data standardisation of entity and instrument data across the industry. Regulators and market participants alike would then have the ability to better track risk exposure while a firm is still functioning and be better able to carry out funeral arrangements if the worst happens. This has been one of the main points of discussion for the Fed’s Tarullo, who once again this month took the stage at a symposium in New York to champion the data standardisation cause.

Tarullo referred to the recent second anniversary of Bear Stearns’ collapse as a reference point for lessons to be learnt, as well as making the usual references to Lehman’s failure. He spoke again about his goal of a resolution regime for large, interconnected firms, which he called “one of the most important financial regulatory reforms for every country that does not already have such a mechanism in place”. Central to the success of such a plan, however, is the “quality of information” available about these firms, hence data standards come into play.

“A firm would have to inventory all of its legal entities, along with the legal regimes applicable to each one, and map its business lines into legal entities. A firm also would have to document interaffiliate guarantees, funding, hedging, and provision of information technology and other key services. This information would be needed to deal with any crisis, no matter what its specific form,” noted Tarullo.

“Once the centrality of accurate, comprehensive information is understood, it becomes apparent that a very significant upgrade of management information systems (MIS) may be the only way for the firm to satisfy living will requirements, just as we at the Federal Reserve found when we led the Supervisory Capital Assessment Program – popularly known as the bank stress tests – that improved MIS are needed for ongoing risk management at the institution,” he concluded.

Tarullo’s continued championing of this area and the BCBS report are great news for data managers seeking to attain top level buy in to data quality improvement projects. Real challenges exist and the regulatory community is making sure the industry appreciates the seriousness with which they should be dealt with.

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: Best practices for eComms and multi-channel surveillance

Surveillance of multi-channel communications is a moving target as financial institutions continue to add conversational streams, in many cases mobile applications previously banned from the trading environment. With more eComms channels comes more data that must be managed, retained, and ready for regulatory compliance. For many firms, the changing shape of surveillance is a complex...

BLOG

Confluence Partners Manaos to Provide SFDR Reporting Solution

Confluence Technologies, a solutions provider helping investment managers solve complex data challenges, has partnered Manaos, the investment data management platform designed and incubated by the securities services business of BNP Paribas, to provide a reporting solution for Sustainable Finance Disclosures Regulation (SFDR). The partnership allows Confluence to provide an end-to-end SFDR solution to asset managers...

EVENT

Data Management Summit London

Now in its 14th year, the Data Management Summit (DMS) in London brings together the European capital markets enterprise data management community, to explore how data strategy is evolving to drive business outcomes and speed to market in changing times.

GUIDE

Regulatory Reporting Handbook – First Edition

Welcome to the inaugural edition of A-Team Group’s Regulatory Reporting Handbook, a comprehensive guide to reporting obligations that must be fulfilled by financial institutions on a global basis. The handbook reviews not only the current state of play within the regulatory reporting space, but also looks ahead to identify how institutions should be preparing for...