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

A-Team Insight Blogs

Independent Report Recommends Rethink of Information Highway to Spot the Next Financial Crisis

Subscribe to our newsletter

Two years after Lehman slipped into bankruptcy, the Achieving Supervisory Control of Systemic Risk report, released today by JWG and Paradigm Risk, has found that, while regulatory progress has been made, the infrastructure required to spot the next financial crisis has yet to be effectively implemented. The report, which was commissioned by the Financial Services Knowledge Transfer Network and funded by the UK’s Technology Strategy Board, concludes that in order to tackle systemic risk, improved engagement is required between regulators, the industry and academia.

Following over 30 interviews with representatives from central banks, regulators, supervisors, major investment firms and their trade bodies, standards organisations, technology suppliers and academics, the report identifies sizable barriers and constraints to controlling systemic risk that have yet to be prioritised and resourced by both the regulatory community and the financial institutions that it oversees. This means that the new systemic risk control infrastructure, that would prevent another Lehman-like event, is far from a reality.

Sally Scutt, deputy chief executive of the British Bankers’ Association, commented: “The need to enhance supervisory understanding of systemic risk is one of the big lessons to come from the financial crisis. This report provides a careful evaluation of what went wrong and an invaluable analysis of the much overlooked need to establish efficient and flexible mechanisms to collect and analyse data for systemic risk purposes.”

The report identifies the requirements to secure an appropriate mandate, resource, forum and funding mechanisms for an effective global systemic risk ‘information highway’, which will need to be in place for both the US Office of Financial Research, signed into law 15 July 2010, and the European Financial Services Act, due to pass later this month, to be effective.

David Bennett, chairman of the UK’s Financial Services Knowledge Transfer Network, commented: “To succeed, approaches must be inclusive of the views of central bankers, regulators, international agencies and the academic community. Equally, they must also be capable of being implemented in practice.”

The report proposes a complete rethink, redesign and retooling of the way both supervisors and industry manage and share their risk information and advocates a blueprint for good systemic risk control including:

? The design principles required for a new information road system

? A supervisory information inventory and gap assessment

? An adaptable and future-proof target operating model

? A clear migration path, timeline and governance models

? A transparent assessment of costs, commercial models and tariff measures.

PJ Di Giammarino, CEO of the regulatory think-tank JWG, added: “The central regulatory bodies that are operating with limited resource have not yet been able to engage meaningfully with firm practitioners who face limited incentives to devote the resources required to participate effectively. Not only will the current situation cost billions and distract firms and their supervisors from controlling new risks, it will lead to the development of a control infrastructure that incurs the risk of ‘Garbage In, Gospel Out’ – creating the illusion, but not the reality, of control.”

Peter Bonisch, MD of Paradigm Risk, concluded: “While there is a lot of attention at the moment on the topic of systemic risk following the UK Treasury’s proposals for regulatory reform, the critical issues around information infrastructure are being brought to the table late and there is a risk they will be left behind. Academics, policy makers and supervisors need to engage in meaningful strategy and action planning discussions now – before disconnected approaches are too far down the track to integrate at a global level.”

Subscribe to our newsletter

Related content

WEBINAR

Upcoming Webinar: Taking a holistic approach to buy-side data management

Date: 7 February 2023 Time: 10:00am ET / 3:00pm London / 4:00pm CET Duration: 50 minutes As data volumes and complexity continue to increase, buy-side data management is at an inflection point. Manual processes and data siloes are no longer fit for purpose, and firms need to take a more holistic approach to data management...

BLOG

LSEG Expands Digital Identity Capability with Acquisition of Global Data Consortium

London Stock Exchange Group (LSEG) has signed a definitive agreement to acquire Global Data Consortium, a provider of high-quality identity verification data to support clients Know Your Customer (KYC) requirements. LSEG says the acquisition is aligned to the group’s vision of becoming a market leading global digital identity and fraud solutions provider. GDC, combined with...

EVENT

Data Management Summit London

Now in its 13th year, the Data Management Summit (DMS) in London brings together the European capital markets enterprise data management community, to explore the evolution of data strategy and how to leverage data to drive compliance and business insight.

GUIDE

Dealing with Reality – How to Ensure Data Quality in the Changing Entity Identifier Landscape

“The Global LEI will be a marathon, not a sprint” is a phrase heard more than once during our series of Hot Topic webinars that’s charted the emergence of a standard identifier for entity data. Doubtless, it will be heard again. But if we’re not exactly sprinting, we are moving pretty swiftly. Every time I...