BCBS 239 – for a better quality of regulatory reporting data

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In a regulatory context becoming more demanding…

Following the recent financial crises many regulatory developments have been implemented accompanied by increased requirements in terms of reporting, but also quality of the information presented. In this context, the Basel Committee issued on January 9, 2013, a set of principles under the BCBS 239 name whose objective is to allow banks to improve their production capacity and reliability of the regulatory reporting.

 

… new recommendations say «BCBS 239»

 

These recommendations are based on 14 principles including 11 destined for banking institutions and 3 destined for supervisory authorities. These 11 principles are divided into three streams: i / global governance and infrastructure, ii / capacity of aggregations of data and iii / reporting capabilities (see Figure 1).

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Establishments known as “G-SIBs [1]” have until 1 January 2016 to comply, and thebanks ‘ D-SIBs [2] “within three years once designated by national regulators.

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Significant impacts at the level of the banks to comply…

The results of self-evaluations of G – BB in 2013 and 2014 (cf.), sent to the controllerand associated studies have identified the weaknesses most significant around the perimeter of the G-SIBs:

Stream 1: global governance and IT Infrastructure

Setting up a real governance of the quality of data involving all levels of institutionsto improve the financial communications (regulatory reporting accurate and relevant, more reliable decision-making processes);

Improvement of the IT infrastructure for the automation and the reliability of the aggregation and reporting key chain;

Stream 2: capacity of aggregations of data on risk

Improving the quality (accuracy, completeness) and the availability of the necessarydata for the reporting must be refreshed timely especially in times of stress.

Notifications of risk practices have fewer impacts, although some work rationalization must be conducted.

Then, it should be noted that BCBS 239 primarily the quality of the data necessary for the risk reporting and related global governance.

.. .necessitant the establishment of a large-scale project

Identified developments involve:

Reliable priority data

Special attention must be given to the identification, control and management of the data from which are analysed the risks to which institutions are exposed.

So the dedicated reporting teams must agree on the choice of the sources from which the priority data will be extracted and to ensure the mastery of this information from their origination to reporting. Indeed to favour the use of a single source (DirectSourcing) for a given extraction and controlled throughout the chain of reporting toavoid its alteration by virtue of intermediate handling.

In addition, there is also that, for the same concept, different levels of an institutioncan use different granularity or BOM data. That is why work of convergence of repositories and the definitions of data priority, specific to the different lines of businessto local subsidiaries if necessary, are needed. However this process of harmonisation of data between different systems of the Bank must be able to rely on strong governance.

 

Transverse and enhanced governance

While governance concerning the quality of the data may be, it must be improved by implementation of a transverse governance, particularly as regards coordination inthe definition and use of reference data. On the other hand, it is also justified because of overlapping responsibilities and important interdependencies in the case of certain lines of business (risk/Finance).

In addition, governance must extend from the local level up to the consolidated level, including the designation of officials in charge of the coordination of the actionsof control, corrections and validation of the data transmitted.

A more flexible infrastructure

The definition of a new it infrastructure involves significant changes in the SI. They are aimed at the reliability of information (completeness, fidelity), from its extraction to its distribution, around one or more repository (common (s) and respond rapidly to requests for planning (scalability) reports not only in normal conditions, but also in times of stress?

To do this, the distribution of repositories should be optimized and automated reporting channels in order to minimize the manual actions and make the system more flexible.

 

Limitations in the ability of compliance within the required time limits…

However this type of project is of such magnitude that it does not take place without difficulty for banks, especially to meet regulatory deadlines. This issue is linked tomany work and complexity (convergence of repositories, implementation of data quality, governance at local level at the group level,…). According to a recent study, almost 80% considered sample [3] banks believe that they will not comply with 1 January 2016. On the other hand, another study conducted by Moody’s [4] showed thatmore than one third (38%) considered sample banks believe may not be compliant within the next three years. All of these involve the subdivision of such a project with a prioritization of sites to deploy for January 1, 2016, and a communication with the European regulator.

.. .but at end of the advantages in the management of risk data…

To conclude, the BCBS 239 recommendations require a significant investment by banks, involving significantly a redesign of processes and the Organization as to the quality of the data. In return, these developments will enable a quicker implementation of future reforms on reporting, better steering of the activity and cost savings in terms of production by automating many tasks now performed manually.