The Finance Foundation
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President of the Finance Foundation

Risk reporting needs to be improved
October 14, 2014 , Michel Gabrysiak - Finance tech
Escalating data and evolving banking regulation
Over the last few years, strengthening rules and implementation of reforms such as Basel III, Dodd-Frank, Solvency II, etc. weighted on the financial sector. Meanwhile, the unrelenting regulations keep multiplying and vary over different jurisdictions. This creates higher regulatory risk.


Growing regulatory risk
Following the results of a survey conducted by the Bank for International Settlements, several large banks face data aggregation and reporting issues, so they fail to meet the current rules.
Consequently, the Basel Committee on Banking Supervision wants to improve risk aggregation, risk reporting practices, and speed up the reporting of risk data.
Since every new rule goes together with reporting to the authorities, financial institutions pile up escalating amounts of data.
Widespread concerns among risk managers to comply with the regulators are growing. Likely, the management of regulatory risk becomes a costly hurdle since it requires lawyers, statisticians, accountants and IT staff for the management of huge datasets.


Beyond regulatory constraints
While the banking sector is absorbed with ensuring compliance with regulations, it might miss opportunities in using their own data sets. For example, on one hand, they possess detailed socio-economic information for every costumer. On the other hand, they also have market information, payment systems, which should allow them identifying precisely their customer’s needs.
Banks require swift action, since competitors are growing at a fast pace. Paypal, the online payment system and M-PESA organizing mobile phone payments in Kenya, also known as shadow banks, provide already services such as payments, lending, trading, similar to traditional commercial banks. Also, peer-to-peer lending is growing exponentially. Those financial intermediaries have newer IT systems backed with data governance allowing quick data based decisions. They are not subject to the existing regulations and therefore can spend most of their time on creating value.
To stay competitive, banking firms should invest in data governance systems. In doing so, they are able to manage critical amounts of data that dynamically adjust to new regulations. Ensuring high data quality avoids costly regulatory audits and fines. As a result, banks will gain more competitiveness and can focus on deriving economic value.


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