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Latest JWG Risk Research Finds Industry Unlikely to be Ready for 2012 Regulatory Environment

JWG, the independent financial regulatory think-tank, today released their latest research entitled ‘Clearing the risk MI bar?’ The report is based on a survey of 20 risk, data and finance professionals in 16 global financial institutions which was released in March 2011 as well as discussions with international trade associations, regulators and technology vendors.

The second phase of the research has found that, while regulators are heavily scrutinising financial institutions’ risk management information (MI), firms perceive that the drivers for risk data improvement are primarily internal and the associated benefits are not being tracked to the bottom line. As such, firms have been slow to respond to new regulatory data requirements, with the research finding that:

? 100% of respondents believe that risk data is a pertinent issue, however the industry has been saying this for years
? Only 15% of those questioned could strongly agree that risk MI improvement programmes have sufficient resources and personnel assigned
? 70% of respondents could not agree that there are adequate incentives in place for proper management of risk information management
? Just 8% strongly agree that risk MI improvement is fully sponsored across their respective firms
? Nearly 40% could not agree that there is full board-level awareness of risk MI issues and, of those that could agree, only 15% could do so strongly.

The ‘Clearing the risk MI bar?’ research shows that, without industry corroborated standards for data policy, most firms are in severe danger of hitting the bar that regulators have set for them to clear by 2012. The disconnect between regulators’ expectation for management of data and the reality of firms’ general ‘business as usual’ mindset is growing apace:

? Regulators are putting in place rules that require data policy ownership, and firms have not yet clearly assigned it
? Regulators will be requiring up-to-the-minute aggregation analysis of ‘raw data’ and firms do not have the infrastructure to produce timely and accurate reports
? Without industry-wide understanding of what ‘good enough’ looks like, firms are hesitating to pull the trigger on serious risk MI investment.

In addition the report explains why the board should be worried now about regulatory plans to tap directly into their data feeds in order to examine and run independent analysis, thereby denying firms the opportunity to massage data into a final ‘pressed and laminated’ report.

PJ Di Giammarino, CEO of JWG, commented: “Although the bar may be set high, it is not in a firm’s best interest to wait to see if it lowers. Between increasing buffers and fines, regulatory consequences for ‘bad’ data will have a material effect on firms’ businesses. We cannot afford to ignore these challenges in 2011. Serious industry-wide discussion is required to determine the scenarios, use cases, operating procedures and standards that will define how to manage this difficult regulatory ‘high jump.’”

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