Large banks are lagging in their adoption of the Basel Committee on Banking Supervision’s principles for effective risk data aggregation and risk reporting, according to a progress report issued by the Basel Committee.
The report, published earlier this month, reviews banks' progress in 2014 and updates a 2013 "stocktaking" self-assessment survey completed by global systemically important banks(G-SIBs), other large banks and supervisors. Of the 31 participating banks, 14 reported that they will be unable to fully comply with the Principles by the 2016 deadline, compared with 10 G-SIBs in 2013.
The principles, published in 2013, aim to strengthen risk data aggregation and risk reporting at banks to improve their risk management practices and decision-making processes. Firms designated as (G-SIBs) are required to implement the Principles in full by 2016.
“Risk management has to aggressively evaluate, scrutinize and challenge the merits of new risk taking activities,” said Ziauddin Ishaq, global solutions lead for liquidity risk at Oracle Financial Services, a unit of Redwood City, California-based Oracle. “Being empowered to do so does not mean it will happen overnight, rather it will require strong board mandates to facilitate the transition.”
Compared to the 2013 results, many banks continue to encounter difficulties in establishing strong data aggregation governance, architecture and processes. Banks reported that they often rely on manual workarounds. Similar to the results of the 2013 stocktaking, many firms failed to recognize that governance/infrastructure principles are important prerequisites for facilitating compliance with the other principles.
Rating downgrades were reported in at least one principle by 16 banks. In particular, there were more downgrades in the areas of governance and infrastructure and risk data aggregation capabilities, than in risk reporting. Some banks noted delays in initiating or implementing large-scale IT infrastructure projects as well as the complexity of projects to ensure compliance with the principles.
Some have suggested that risk management should move from being a service cost center to a model where it is rewarded in limiting or mitigating the amount of downside risk that the bank may take.
“Whatever path is taken to elevate risk management to the top of the board agenda, it is essential that banks allocate resources to risk teams to enable them to keep abreast of the onerous regulatory reporting requirements plus invest in infrastructures, which bring about the establishment of an accurate and transparent view of a bank’s overall financial health,” said Ishaq.
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