Global systemically important banks, or G-SIBs, are having a tough time complying with principles laid down by the Basel Committee on Banking Supervision for risk data aggregation and risk reporting.
G-SIBs are required to implement the principles in full by the beginning of 2016, and the Committee is monitoring their progress towards meeting this deadline. In addition, the Committee strongly suggests that national supervisors apply these principles to institutions identified as domestic systemically important banks three years after their designation as such.
“This is a different type of regulation,” said Peter Serenita, chief data officer at HSBC, during a webinar on Wednesday. “Other types of regulations that we've seen are much more targeted to a specific reporting requirement. This is about the approach you take to risk aggregation and risk reporting.”
Many banks are facing difficulties in establishing strong data aggregation governance, architecture and processes, which collectively represent the initial stage of implementation. Instead, they resort to extensive manual workarounds.
Of the 30 banks that were identified as G-SIBs during 2011 and 2012, 10 reported that they will not be able to fully comply with the Basel principles by the 2016 deadline. The main reason reported is large, ongoing, multi-year IT and data-related projects, the Committee said.
“The Committee was surprised to see that most firms considered their risk capabilities at sufficient levels, but their infrastructure and data governance as not, and that struck them as odd,” said John Bottega, chairman of the board of directors of the Enterprise Data Management Council. “How could you be good at risk and not at infrastructure?”
Bottega added, “If you think of the real objective of the principles, of course it's to build your infrastructure but it's also to be prepared for a crisis, and to be prepared for contagion. The risk is if we push to get things done by a certain date, you're going to see things done tactically. You're going to see things done with a very thin veneer and not be changed within organizations.”
To facilitate consistent and effective implementation of the principles among G-SIBs, the Basel Committee decided to use a coordinated approach for national supervisors to monitor and assess banks' progress. The first step of this approach was to issue a "stocktaking" self-assessment survey completed by G-SIBs, other large banks and supervisors during 2013.
“The GSIBs are viewing it in a very strategic way, and I think that's the right approach,” Serenita said. “You could address individual things tactically but that's not the intent. The intent is how you strategically change the way things are done.”
As to how banks are organizing the risk aggregation project, “some will park it under their risk function, and some will park it under their data function. There’s no right or wrong answer,” Serenita said.
Implementation of the principles will strengthen risk management at banks - in particular, G-SIBs - thereby enhancing their ability to cope with stress and crisis situations.
Featured image via Orlando Florin Ros/Dollar Stock Photo