Are you on track to become BCBS239 compliant?

13 August 2015

Since the Basel Committee published BCBS239 (Principles for effective risk data aggregation and risk reporting) back in January 2013 there has been many challenges to overcome due to the complex nature of the organisations to achieve compliance. The 11 core principles that G-SIBs (Globally Systemically Important Banks) will need to comply with by January 2016. D-SIBs (Domestic Systemically Important Banks) three years after their designation as D-SIBs.

The BCBS239 compliance challenge for G-SIB's has an aggressive timeline which is likely to require further phased approaches before compliance is achieved. Systemically Important Banks have usually grown through acquisitions and rarely have they fully integrated legacy systems which leaves them with many systems and upgrades. The task of addressing this legacy system issue is sizable task which needs to be resolved before to trying to achieve a potential preferred end goal of a single source of risk information generating quality and consistent data.

Regulatory Update

BCBS released a Progress Report in January which confirmed that the compliance target date is 'overly ambitious' with nearly half of the G-SIB's which answered the questionnaire confirming they will not be fully compliant for 2016. The report confirmed banks reported material non-compliance on Principle 2 (data architecture/IT infrastructure), Principle 3 (accuracy/integrity) and Principle 6 (adaptability) under the Overarching Governance and Infrastructure and Risk Data Aggregation Capabilities sections.

The challenges for Overarching Governance and Infrastructure and Risk Data Aggregation are enhanced with to the number of systems banks use. Practically, there could be same traded product types in different systems, generating different risk results (even greater under stressed scenarios), which result in manual workarounds to produce aggregated risk views. The reliance on manual processes and overrides when generating risk views is a lengthy process and trying to accelerate this causes unavoidable accuracy issues, especially when constructing across business lines and entities. Enhancing current IT architecture and developing automated solutions especially in the generation of liquidity risk metrics are priority to advance in compliance.

The report also confirmed similar issues under Risk Reporting practices surrounding manual workarounds. 'More specifically, resource-intensive manual processes make it difficult to quickly provide senior management with various risk reports, particularly those on liquidity, wholesale credit risk, and other critical credit positions' and exposure to accuracy of reports are exacerbated especially in times of stress or crisis situations. Previously stress scenario reporting could take days to compile ready for distribution, therefore not only the data enhancements but the controls and procedures are priority to advance. Ultimately infrastructure and automated solutions will required phased approaches over the coming years, and the compliance gap must be addressed with strong governance framework and documentation to give full transparency on management strategy.

Independent Status Report Service

To assist and ensure our clients are on track, MThree Consulting offer an expert independent health check service to audit your current Front to Back strategy across Business, Technology and Operations. Providing a status report to management with full gap analysis upon completion which can be finalised within weeks highlighting all areas of interest. MThree Consulting has significant direct implementation experience of BCBS239 in G-SIB’s with:

  • Proven implementation methodology with key risk metric down to lowest level of measurement
  • Data model
  • Process model
  • Architectural design
  • Visualisation

This gives us deep understanding of financial services across the spectrum across all asset classes, from Front Office trading and Post Trade Operations, through to Risk and Finance.

MThree's Status Report Service can ensure you are on track and provide a clear path to compliance. Please contact me for further discussion and assistance.

Anthony Ginn

Senior Consultant at MThree Consulting