BCBS 239 – One year to go

April 7, 2015

The Basel Committee published its ‘Principles for effective risk data aggregation and risk reporting’ in January 2013. The document opens with a quote from T. S. Eliot:

  • Where is the wisdom we have lost in knowledge?
  • Where is the knowledge we have lost in information?

We believe that two further questions can be added to this list:

  • Where are the funds we have lost to other projects?
  • Where has the time gone?

The 30 Globally Systemically Important Banks (G-SIBs) have been working towards delivering the three core areas of governance, data aggregation and good risk reporting practices. However, the last two years have seen a flurry of delivery across multiple regulatory projects including Dodd-Frank, EMIR and Volcker. This has progressed to the point where regulations with later compliance dates and even revenue-generating IT projects have suffered through lack of funding.  It is almost certain that BCBS 239 work in some banks has been a victim of this new approach to aggressive prioritisation of IT funds and resources. The question is, which of the 14 BCBS principles will the G-SIBs be able to meet by the end of 2015?

Principle 5 – Timeliness

Overnight batches of Front Office risk calculation have been optimised by many banks to deliver a fast and reliable process; ensuring that the batch runs successfully each day.  The projects to improve reliability in the overnight batch took multiple years to complete.  For those organisations that do not have a 100% reliable and repeatable process, there is limited time to initiate and complete the necessary service improvement programmes.

Principle 6 – Adaptability

A key requirement in BCBS 239 is the ability to generate on-demand risk management reports. The industry is expecting that a key dimension for ad-hoc reporting will be dividing risk between clients and aggregating risk data by hierarchies of ownership between legal entities. Client reference data quality is a key concern for many organisations with some using Master Data Management (MDM) tools that do not support the required hierarchical depth to create true reports. MDM upgrades are multi-year projects due to the number of downstream systems that need to be integrated into the new data source.

Principle 4 – Completeness

Many organisations have built significant post-trade databases and reporting engines to meet regulatory reporting requirements across multiple business lines and jurisdictions.  However, an organisation classed as G-SIB is likely to be involved in jurisdictions and products that are not currently covered by the reporting requirements. Expanding these databases is another area that will require significant investment in the year ahead.

It is clear that in these three principles that many organisations still have work to do. The other 11 principles are likely to raise similar concerns with the G-SIBs and generate significant activity between now and 1st January 2016. In addition, the 51 Domestic Systemically Important Banks (D-SIBs) will be watching closely as their turn is coming soon.

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