Four themes running through the BCBS 239 principles

By Waynette Tubbs, Risk & Fraud Insights Editor

For large global banks, adherence to the Basel Committee’s principles offers clear benefits, but implementation can present major technology and governance challenges. Originally released for comment in June 2012, the 14 principles of BCBS 239 cover a lot of ground, addressing areas ranging from IT infrastructure and governance arrangements, to the way that risk management departments generate ad hoc reports.

Donna Howe, Professor of Finance at the Brandies International Business School, and Renzo Traversini, Director of SAS’ EMEA Risk Management Center of Excellence, spoke on the subject at a webinar last year. When they studied the principles, they found four themes that may help you more successfully tackle compliance.

Let's break it down:

Completeness. Banks should be able to capture and aggregate all of the material risk data across business lines and be able to measure and monitor the comprehensiveness of that data. But the aggregate view may not surface the nuances in the data. Banks may need to restructure their reporting so that the top-level view is tied to the more granular levels.

... we need to start thinking about current and forward-looking risk management curve.

Donna Howe
Professor of Finance, Brandies International Business School

A comprehensive view of risk should take into account your exposure today and down the road as well. “Just as we have a yield curve or forward curves, we need to start thinking about current and forward-looking risk management curves,” says Howe.

Timeliness. In 2008 and 2009, it usually took about a month to produce and manually adjust a bank’s monthly risk-weighted asset (RWA) estimates. For quarterly reports it took even longer. Timeliness is critical to preventing another financial crisis, but the delivery of real-time data may not enhance the decision-making process, if that data isn’t being converted into actionable information.

Accuracy. Most big banks still struggle with data quality issues, Traversini points out. What’s more, large global banks often are the product of complex mergers, something that involves its own set of technology challenges. In Deloitte’s 2013 global risk management survey, only 31 percent of respondents said that their data quality efforts were effective and only 20 percent were confident in their data management and maintenance efforts. Their advice? Automation.

Adaptability. “We need adaptable data to get us adaptable information so we can make the best possible decisions,” says Howe. But producing ad hoc reports can be a difficult and time consuming task – dependent on how different the request is from a currently available report. Instead of granting every request - and to reduce resource expenditure - focus on enhancing the standard reports.

Think of BCBS 239 as a roadmap. Following that roadmap, will require an investment in your IT architecture – a great opportunity to modernize systems, procedures and approaches to risk data. “It gives people a way to take principles and actually turn them into deliverables,” says Howe.

To get more information about the four themes, read Basel, the big picture: Tackling risk aggregation and reporting.


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