Risk Data Framework

The increasing changes in the regulatory framework and strict control from the regulators is imposing more demanding approaches to risk reporting and data collection. There is an increasing pressure on financial institutions to enhance risk management processes, supporting them on more reliable data, and to provide detailed reports to regulators on the risks and their impact on their capital and liquidity positions.

The increased use of new technologies for data analysis and collection, the growing volumes of data being produced and the increasing demand for financial and risk data, is pushing risk data management to the front line as a critical component of conducting business in the financial industry.

Picking up the example of BCBS 239 that comprises a set of principles intended to assure that the aggregation of data allows banks to monitor risks accordingly and importantly, report on them accurately in a timely fashion. Although not applicable to all organizations, I passionately believe that a successful adherence to the BCBS 239 principles results in an increased business value of an organization.

These are 14 principles that highlight the increasing importance of a data governance and data management and data quality, covering the different areas that are key to correct decision making. The principles themselves are common sense and should be followed by any organization as a best practice.

Some of the points to considering when embarking on this journey to compliance, that are simultaneously critical when implementing a data strategy, are the following:

• The driver for this process must be the business, assuring full integration between all the stakeholders (risk, IT, finance, etc.)

• The focus on data consistency drives the pressure to create a single source of truth, opposed to a siloed vision.

• C-level sponsorship is essential to emphasize the importance of the process and to make clear that this is a process needed for the business by the business.

• This is a continuous process, there are no one-shot approaches.

Risk data framework

The implementation of a risk and compliance solution, within a bank, is costly, time and resource consuming, frequently jeopardized by the lack of a previously implemented risk data strategy, impacting on the quality of these solutions outputs, due to the uncertainty of the quality and consistency of the data being used.

Having a risk data framework in place, governing data related with risk and compliance, allows that all risk and compliance related data elements are properly identified and governed, the quality of data properly addressed and key pain points in the data flow identified, enhancing the results of institutional risk management solutions and flexible, scalable and adaptable to new requirements.

The implementation of the framework ensures that all risk and compliance data, provided from all the available sources, structured or unstructured, is managed.

This holistic vision, a single version of the truth of risk and compliance data, is a central requirement for the success of any initiative or solution in this area. This vision minimizes errors, assures that the quality data is the necessary, supports the data flows for all these processes and can eventually act as a provider of quality data for other business needs.

The governance and the centralized view of all the risk and compliance data enables full traceability, auditability, and transparency across all the organization.

All the critical data elements identified and included in the framework processes are systematically monitored, assuring their compliance with data standards, polices and business rules, with data cleansing and enrichment processes in place.

The bottom line is that with the overall improvement in the quality and a consistent governance of all these data elements the organization has a clearer picture of how close their data is to the regulatory requirements.