Banks Burdened by Basel

Terry Flanagan

In January 2015, the Basel Committee on Banking Supervision published the second progress report on banks’ adoption of the Committee’s principles for effective risk data aggregation and risk reporting, known as BCBS 239.

Of the 31 participating banks, 14 reported that they would be unable to fully comply with the Principles by the 2016 deadline.

“At the enterprise level, it means being able to take all of the data that exists within the organization and bring it together in a way that the risks can be aggregated in dimensions and in quantities that are meaningful and relevant to the way the bank is measured and managed,” said Don Mumma, managing director at AxiomSL, a provider of regulatory reporting and risk management systems.

Organizations are dealing with a slew of regulatory mandates in various stages of implementation, including Basel III reporting rules, BCBS 239 principles, CCAR, liquidity, stress testing, net capital calculations for broker dealers and Fatca. BCBS 239 is to come into force in January 2016

“People have been very consumed with being able to comply with CCAR and other regulatory initiatives like the Volcker rule and LCR, and there may not have been enough bandwidth for these institutions to dedicate to complying with these principles,” said Mumma.

BCBS 239 has two dimensions, aggregation and reporting, and those two functions have traditionally been treated separately.

“One of the sea changes of regulatory and reporting compliance is the change in the parlance of reporting from an accounting convention to a risk convention,” said Mumma. “So, finance teams that used to talk in ledger terms now are having to talk in risk terms and there’s a process now of trying to marry the general ledger data to the risk data. It’s not an insubstantial task to connect the risk data to the general ledger data.”

Some of the BCBS 239 principles that are related to accuracy and completeness will be particularly difficult to comply with because of definitional ambiguities. “In statistical terms, if out of millions of records that are all accurate you have ten of them that are wrong, does that mean that you’re not in compliance?” said Mumma. “So you get the statistical ‘six-sigma’ type of questions of what constitutes compliance, and that’s going to be something that will evolve.”

Featured image by dimakarlov/Dollar Photo Club

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