Staying Ahead via ERM in Today’s Compliance Landscape

Indeed, the crisis was a lesson that left us with a key takeaway – that many banks face data and reporting issues which prevent them from attaining a clear and comprehensive view of their risk exposure. This, in turn, highlights the dire need for radical improvements to be made to existing risk management systems.

Recognising that many banks lacked the ability to aggregate risk exposures, as well as identify their concentrations quickly and accurately, the Basel Committee on Banking Supervision (BCBS) released an updated set of
requirements for liquidity coverage ratios (LCRs)
in January 2013. Targeted at ensuring effective risk data aggregation and reporting, the guidelines sought to aid organisations in attaining a
comprehensive view of risk exposures
, via the development of global, aggregated risk data management and data governance framework.

In addition, for those based in Asia the Singapore government’s latest signal of intent to comply with the US Foreign Account Tax Compliance Act (FATCA), it also presents an additional set of challenges for financial services institutions. The new regulation essentially strengthens
Singapore’s framework for international tax cooperation
, by requiring banks and other sectors to ascertain which clients are subject to the US tax system.

Nonetheless, apart from being a new set of obligations to abide by, the Basel and FATCA regulations also pose an opportunity for banks to either start new programmes or strengthen existing initiatives, in a bid to address shortcomings in the areas of risk data management.

Of course, meeting these requirements is no small task. To successfully implement such a transformation, banks need to have in place sound ERM programmes that comply with these requirements and effectively address the following four areas:

1. Developing a ‘single source of truth’

The data model is a complete, unified platform that is built from years of experience in the field of risk applications, and covers all areas of banks’ risk management needs. This enables the establishment of a ‘single source of truth’ for risk data that all can trust and rely on. It also covers critical risk areas as identified by the Basel Committee, such as credit exposures and trading exposures, and thus provides a complete overview of all data.

2. Attaining data accuracy and integrity

Having a practice of running data quality checks is key to attaining data accuracy and integrity. By putting in place robust controls that are aligned with the requirements of the Basel Committee, it enables banks to ensure the quality of input data in a systematic manner. They can then proceed to perform general ledger reconciliation. By jointly using these two tools, the bank can thus acquire the capability to measure and monitor the accuracy of data.

3. A transparent, secure and auditable framework

All transformations and risk calculations should be fully documented so as to ensure traceability and auditability of all data movements. Role-based security, which grants users access to data segments and functions depending on their respective roles, responsibilities and business needs, can be introduced as a means to establish ownership of risk data. This, in turn, enables financial services institutions to develop a more transparent, secure and auditable framework.

4. Enable extreme performance

Banks face the challenge of having to deal with high volumes of data due to the sheer traffic of transactions processed on a daily basis. It is therefore essential for them to be able to generate aggregate and up-to-date risk data in a timely manner, both under normal circumstances and in times of stress. In times of market duress, the speed at which banks assess their global risk exposures can potentially make the difference between the ones that succeed and those that fail. As such, being able to deliver the highest levels of performance available allows banks to better understand their business, and thus enhance decision-making speed.

These areas are fundamental pillars of an effective ERM programme, and are necessary in order for financial services institutions to stay relevant in the light of today’s increasingly stringent compliance standards. With the lessons of the latest global economic crisis still fresh in our minds, the need for stronger and more reliable risk management frameworks has also become all the more pressing. It is therefore essential for banks to act now, so as to prevent such crises from occurring once again.


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