Risk management solution vendor Fiserv has been engaging in an educational outreach programme with the financial services community regarding incoming regulatory developments such as Basel III. Reference Data Review speaks to Orlando Hanselman, education programmes director for risk and compliance solutions at Fiserv, about some of this work with board level execs
“There is a great degree of interest from firms’ boards in better understanding the compliance requirements of incoming regulation such as Basel III,” explains Hanselman. “They are keen to understand where they as a firm sit within the industry with regards to compliance and where they need to be further down the line, when deadlines roll around.”
This understanding comes with education about not just the requirements of incoming regulation, but also how to better identify and measure risk, and that is where Fiserv is looking to come in. This interest from the business side of the equation, rather than the risk function alone, also means greater investment in any kind of technology solution to enable compliance.
Hanselman notes that although Basel III may seem a long way off in terms of ultimate deadlines and there may be some pushback from the industry in certain areas in the meantime (especially in the US), the new capital framework is “here to stay” and early adoption could create a competitive advantage for firms that choose to take a lead. Some of the details around what are deemed to be “high quality assets” under the rules may change, but the framework as a whole is not likely to alter significantly, including the much more prescriptive approach.
It is this approach that has caused much of the controversy in the US and elsewhere, due to the move from principles-based rules towards what Hanselman describes as a much more rigid, “one size fits all” approach to financial institutions’ management of capital and liquidity. In such an environment, making smarter decisions and using risk data and collateral management techniques to keep ahead of the rest of the market is therefore particularly important. “Up until now, the top tier financial institutions have been blessed by the status quo as a result of their size, but regulatory change has lent tier two and three firms the opportunity to be much more progressive,” he explains.
This opportunity comes in the form of these firms embracing all aspects of incoming regulation, right from ticking off all the items on the compliance checklist through to using these new tools to strategic advantage. This includes the ability to conduct enhanced risk assessments, to better manage economic capital, benefit from risk adjusted return on capital and stress testing.
Hanselman indicates that many firms are “kicking the tyres” of software and solutions that may allow them to meet Basel III requirements at the moment and he expects to see much more uptake and rollouts over the next 12 to 18 months. Enterprise risk management platforms will form a large part of this push and this is where smaller and less siloed firms will come into their own. “These firms have fewer legacy applications to contend with and can therefore enable the executive suite to get much better visibility of risk data more quickly,” he explains.
For now, the vendor is focused on educating the firms out there on what Basel III will entail and how Fiserv can play a part in that picture.