A significant number of banks are unlikely to meet the Basel regulations for effective risk data aggregation and risk reporting which come into force in January 2016.

John Barclay, managing principal in risk consulting at GFT, told Markets Media that the 14 principles in BCBS239 will cause the greatest change in risk management practices in banking history.

KPMG summarised the principles under main themes including boards exercising strong governance over a bank’s risk data aggregation capabilities, risk reporting practices and IT capabilities; the accuracy, integrity, completeness, timeliness and adaptability of aggregated risk data; the accuracy, comprehensiveness, clarity, usefulness, frequency and distribution of risk management reports.

In June this year a KPMG report, Managing the Data Challenge in Banking, cited a progress report from the Basel Committee in December 2013 which asked global systemically important banks to complete a self-assessment questionnaire. Basel found that the average rating was 2.8. where four was the best and one the worst.

The KPMG report said many banks face difficulties in establishing strong data aggregation governance, architecture and processes, which comprise the initial stage of implementation.  

“Instead they resort to extensive manual workarounds which are likely to impair risk data aggregation and reporting,” added KPMG. “More importantly, 10 banks, 33% of the population, mentioned that they currently expect to not fully comply with at least one principle by the deadline. Some of these banks noted that the reason is large, ongoing, multi-year, in-flight IT and data-related projects.”

Barclay said that as the BCBS239 regulation are principles-based there are no prescriptive rules. So banks cannot simply tick a list but instead, need to change their culture by breaking down internal silos over ownership of data.

“In the last six months, banks have become utterly focused on the issue and I have personally been involved in discussions with clients which have involved senior managing directors across the firm,” Barclay added.

KPMG said risk data aggregation will bring new strategic opportunities. The report said: “The identification, aggregation, modelling, analysis and management of all material data necessary for the bank to manage the risks it faces and to exploit the opportunities open to it: to reduce costs, increase sales, increase efficiency and improve profits. In this sense, risk data aggregation is merely a part of the structure of broad data collection, information management and analysis which a bank needs to put in place to manage its business properly. “

Barclay agreed. “A growing minority of banks are looking at the whole of the Basel 3 regulatory regime as it becomes harder to make money in investment banking,” he added. “They are looking to find more efficiencies in capital, funding and their use of risk-weighted assets which will come from better information and more clarity on risk.”