Collibra: Roundtable – BCBS 239 & CCAR Programs
Dylan Jones: Finally, what is one parting piece of advice you can share with our audience?
And that’s how & when the epiphany occurred: it’s all about data, everything else is peripheral.
Additionally, the organization should start with a couple of LOB’s or Subject Areas to roll out the operationalization that sustains success.
Such events have been made available to all LOBs so that folks across all team and management layers are able to understand and appreciate the efforts, thereby applying their learnings in BAU mode.
Data Governance programs most definitely need the vision, mission and strategy part chalked out clearly and that too, upfront.
Principles for effective aggregation and reporting of risk data
To sum it up, these principles aim at enhancing the banking procedures related to financial risk management and corresponding decision-making processes. The fundamental principles are:
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On what focus points should we base a methodology to achieve regulatory compliance?
We identify three key points:
GOVERNANCE AND IT INFRASTRUCTURE
Strengthening the current Data Quality Framework and its system of controls by:
RISK DATA AGGREGATION CAPABILITIES
Banks should be able to monitor financial risks in a reliable way via:
RISK REPORTING PRACTICES ENHANCEMENT
Ensure the data is available for the right people at the right time via:
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Despite investment, compliance levels are decreasing
In recent years, banks have invested significantly in their data and technology programs. These largely support remediation for regulatory initiatives such as BCBS 239. Survey respondents revealed that the programs are mostly led by the risk and finance functions and run centrally. Two-thirds said that they are aligning their programs with an overarching data vision and strategy. The immediate focus is on getting the basics right: improving operations and IT, enhancing risk management, and better supporting the business. Many banks are also deepening senior-management accountability to improve program governance and data-quality awareness, as these are key topics for regulators. In developing a culture of data-quality awareness in their business and support functions, banks have also begun to tackle the question of data ownership, seeking to harmonize overlapping functions and increase collaboration among risk, finance, and treasury.
Investments in fundamental data capabilities have varied. Value-added efforts such as automation are mostly in the beginning stages or are scheduled for a later date.
Despite the data and technology investments, however, overall BCBS 239 compliance levels have declined since 2015 (Exhibit 1). Our respondents’ self-assessment is supported by the latest Basel Committee progress report on risk data aggregation and risk reporting, which finds that banks’ overall level of BCBS 239 compliance remains unsatisfactory. In fact, local supervisors have concluded that only one bank can be considered in alignment with the principles. Highlighted in the Basel Committee report is the regulators’ assessment that, based on the current state of BCBS 239 remediation, banks that began the process in 2013 will need an average of five to six years to complete it. Exhibit 1
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A few factors have conspired to produce the more conservative compliance assessments. Through discussions with regulators and the sharing of industry best practices, banks now have a deeper understanding of the technical requirements for compliance. Through independent validation, many banks developed a better understanding of their own capabilities and discovered previously unknown gaps in coverage. A further contributing factor has been that banks have expanded the scope of their regulatory programs beyond risk and finance to include data for management and regulatory reporting, operational processes, and material business decisions.
Around the globe, most bank executives believe regulators will continue to increase requirements for data capabilities. The present regulatory environment is thus viewed as only the starting point (Exhibit 2). The scope of regulation is expected to widen, with thickening coverage for risk metrics, reports, data, and legal entities. One result is that some banks, especially in Europe, have chosen to be “constantly materially compliant,” a status just shy of full compliance, because of ongoing long-term remediation programs. Exhibit 2
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More frequent regulatory exams also are expected. Many regulators have already begun targeted reviews, such as the European Central Bank’s thematic review of BCBS 239 compliance for G-SIBs. They are also doing more live testing, through CCAR (in the United States) and other regulatory stress tests. Almost all G-SIBs and about 40 percent of D-SIBs across geographies have conducted an independent validation of their BCBS 239 capabilities, to meet a regulatory requirement and prepare for further discussions with regulators. Respondents indicate that US regulators have been the most assertive; in Europe regulators are issuing further standards to improve consistency, while in Asia the regulatory climate is less intense. The regulatory environment will thus continue to tighten, with a cluster of regulations relating to risk data and technology, including BCBS 239, CCAR, FRTB, GDPR, and RRP, posing capability challenges for the largest banks.
While no one expects to see global standards for risk data and technology, general approaches are emerging within regions and have been codified in some countries (such as Germany’s “MaRisk,” or minimum requirements for risk management). Regulators have helped recently with more transparent definitions of data quality. The European Central Bank, for example, has developed BIRD (Banks’ Integrated Reporting Dictionary), a database with technical guidelines for reporting data, and has issued reviews of the quality of submitted reports, findings, and resolutions covering common reporting, financial reporting, the liquidity coverage ratio, the net stable funding ratio, and others.
While self-assessed compliance levels have dipped and greater regulatory pressure is expected, banks’ spending on risk data and technology will likely vary by region (Exhibit 3). On the one hand, American G-SIBs are expected to maintain current budgets, because of either regulatory scrutiny or an appreciation of the competitive advantage these capabilities afford. European and Asian G-SIBs and American D-SIBs, however, are expected to reduce their level of investments by around 25 percent. Declining budgets pose significant challenges for many banks and may become a factor affecting compliance levels well into the future, as the impact of changes in investments may take several years to materialize. Exhibit 3
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Most surveyed banks are already facing challenges in improving their overall data quality. Most commonly, a lack of front-office controls is leading to poor data quality at the systems of origin (Exhibit 4). Many banks also struggle with inefficient data architecture, often in legacy systems, which create operational inefficiencies and make it harder to improve data quality. Addressing these twin challenges usually requires more, not less, spending. Exhibit 4
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At banks where budgets are shrinking, however, two factors may be at work. The value of the data transformation may be inadequately appreciated by the business, while board and senior-management support, which has been generally growing, is still relatively modest. With the regulatory bar still rising, many banks find themselves running in place, still fixing the basics after having made significant investments over the past several years. They may be losing the focus needed to get to the finish line.
FAQ
What are the principles of BCBS 239 and why it was critical for banks?
What are the aims of the BCBS 239 regulation?
What is data governance?
