With the financial services industry facing disruption from Fintech startups, a single source of data for finance, risk and regulatory reporting can dramatically improve firms’ insight, ultimately delivering meaningful change and driving profitability. In fact, this ability to adapt is crucial according to a new Wolters Kluwer white paper, “In Search of a Single Version of the Truth: Adopting a Universal Data Model.”
Financial institutions now require access to unprecedented volumes of data to meet growing demands for transparency and integrity across all their business activities, the white paper notes. Operational needs and regulatory requirements are driving rigorous data sourcing, collection and integration efforts that are designed to reap substantial operational benefits in terms of fewer manual tasks, reduced duplication of data and improved reconciliation rates.
Regulators, however, have different views of risk weightings, and afford varying levels of discretion on credit, market and other risk types. And the sheer variety of regulations firms are facing also compounds the problem. The Basel Committee for Banking Supervision’s set of principles for risk aggregation (BCBS 239), Basel’s Fundamental Review of the Trading Book (FRTB) and other regulations impacting accounting (such as BCBS 311), liquidity and capital allocations are posing reporting challenges for banks across multiple functional areas. These regulations and others like them require action from the risk department, but also the finance and compliance areas of the business.
“The absence of a unified, consistent data model that underpins all data used for regulatory reporting purposes makes it difficult to achieve consistency in reporting, and in supply of data to disparate business lines,” says Richard Bennett, co-author of the report and vice president, Regulatory Reporting for EMEA at Wolters Kluwer. “By understanding their data and quickly accessing required information, ensuring consistency of assumptions, structure and calculations, firms can shift toward a common analysis approach, ultimately creating a ‘single version of the truth’ across the enterprise. This, in particular, will be key for requirements related to risk data aggregation – such as BCBS 239.”
Financial institutions can also establish a direct link between the regulatory requirement and business data, by ensuring that reporting accurately reflects their business activities. A finance, risk and regulatory hub, for example gives institutions more control over different data sets, opening the door for more detailed and complete performance reporting, the white paper notes.
Notably, by adopting a universal data model a bank is able to visualize the data under different scenarios comfortable in the knowledge that the data is sourced from a single consistent data model that serves all departments, even as business lines are allocating, analyzing or classifying the underlying data model differently. This makes it possible to conduct enterprise-wide stress testing, and enterprise risk management, and gain a true understanding of enterprise risk-adjusted performance.
“What’s clear is that reconciliation of data used for risk, finance and reporting necessarily requires a data model that solves both regulatory and business needs of the bank,” adds Richard Reeves, co-author of the white paper and vice president of Strategy for OneSumX at Wolters Kluwer. “From an operational standpoint, a universal data model and corresponding reporting mechanism improves business agility. Achieving greater responsiveness in dealing with external supervisory requests, while attaining agility in internal decision-making processes, is a double-win that enables financial institutions to embrace best practices and realize the benefits of improved decision making and competitiveness.”