Firms increasingly see potential of risk and data governance requirements as important business strategy tools
Regulatory reporting requirements in the financial services industry are proliferating. In addition to a growing number of reports, regulators seek more detailed information from financial institutions as well as more frequent submissions and faster turnarounds. Oracle Financial Services and The Center for Financial Professionals conducted a study to understand how financial institutions are faring with expanded regulatory and compliance requirements, including Basel Committee on Banking Supervision 239 (BCBS 239): Principles for Effective Risk Data Aggregation and Risk Reporting.
The study, which surveyed 272 financial risk- and data-management professionals as well as C-level financial services executives, found that banks – even global systemically important banks (GâSIBs) – have significant work to do. According to the study, inconsistent data and poor data quality resulting from siloed systems are two of the barriers to achieving BCBS 239 compliance. BCBS 239 seeks, specifically, to strengthen risk-aggregation and risk reporting at banks through appropriate risk-aggregation infrastructure capabilities and reporting practices.
“The path forward is crystal clear. Data governance can no longer be viewed as a one-off exercise for the purpose of compliance. Instead, it must be embraced as a fundamental business principle,” said Sultan Khan, Group Vice President, Oracle Financial Services Analytical Applications. “To achieve this paradigm shift, financial institutions require a unified platform that eliminates siloes to create a single source of risk and finance truth and delivers visibility into diverse risk areas to gain a complete and real-time view of a firm’s global exposure. Organizational change is also essential. With leading FIs naming a chief data officer and centralized data governance office they can go a long way toward laying a sound foundation for improved data quality, integrity, and transparency for compliance and beyond.”
The study, “Risk and Reward: Why Getting Your Risk Data into Shape Will Yield Business Rewards,” revealed significant lingering hurdles that are fundamental to BCBS compliance, including data availability, data quality and collection, as well as consistency across the organization. Specific findings include:
- 83 percent of respondents who claim better viewing and managing risk have inconsistent and siloed data – affecting their ability to make confident, beneficial risk decisions
- 53 percent of respondents who say they are prepared for BCBS 239 are not confident that their data is defined, harmonized, and appropriately aligned to critical risk and business operations
- 61 percent of firms that say they are prepared for BCBS 239 and 61 percent of organizations that say they were more effective in viewing and managing risk since 2008 do not use a data platform to represent a single point of truth
- 25 percent of financial institutions that say they are prepared for BCBS 239 do not have an effective IT/data infrastructure to support the new risk-management requirements
- Only 20 percent of firms that say they are prepared for BCBS 239 have consistent data usage across the organization
The study also revealed several positive trends with regard to financial institutions’ data initiatives. In general, firms say:
- They are more effective today in viewing risk data
- They have strong support from senior management for data initiatives
- They have implemented proper access and control for monitoring data
- They can identify data-quality issues at the element-source level
- They have a solid IT infrastructure in place to meet basic regulatory requirements
An important revelation was that largely, firms view data governance not just as a mandate but as an organizational strategy and effective business tool. Specifically, most of the large financial institutions in the study say they seek to comply with BCBS 239, not out of regulatory obligation, but instead because it makes good business sense.
The study pinpoints three hot-button issues preventing banks from achieving compliance, and more importantly, unlocking the additional benefits associated with improved data availability, insight, and governance:
- Siloed data
- Legacy systems
- Organizational inertia