Given the exponential growth of reporting requirements since the crisis, firms often ask: ‘Where does all this data go and who has the time to look through it all?’ In fact, recent statements by regulators have made this question all the more valid given that regulators’ data systems, it is increasingly apparent, often suffer from the same problems as the institutions they track.
Ultimately, standards for risk data aggregation are needed at both ends of the reporting channel. In the past, we have given substantial airtime to the BCBS’ Principles for Risk Data Aggregation and Risk Reporting, which set out objective standards for the aggregation of risk data. Under the Principles, which are due for implementation by Q1 2016, G-SIFIs must define a firm-wide data dictionary, move to single sources per type of risk data and measure their data for a number of quality indicators, among other things.
In an article for Thomson Reuters’ Complinet, JWG’s CEO, PJ Di Giammarino, was recently quoted as saying: “There is a fair amount of concern within regulatory circles that the regulators themselves can’t adhere to those BCBS principles. What we’re actually talking about is 10 times worse at the centre for a central bank or a regulator than it is for every other participant, because the regulator is on the receiving end of that non-standardised data flow. In addition, regulators tend to work in a federated manner and have lots of methods of collecting and analysing data.”
In terms of what architectural solutions might be required, Di Giammarino had this to say: “If one starts with aspirations to solve these problems in large, holistic ways, the solutions have a tendency to fall over. They are solvable, but not all at once and not in aggregate. To get to a place where everyone understands the parameters of the problem, you have to narrow the scope and start with pilot exercises that address specific-use cases for the information we are meant to be aggregating. For example: what does it mean to assign CVA charges correctly across a set of counterparties in the scope of EMIR and CRD IV and how do we roll the risk up appropriately? With a few short, sharp successes, it is possible to define what the rules of the road are for the rest of the population.”
In order to provide greater clarity to the industry, we are in discussions with trade associations and regulators to develop/endorse industry guidance that will assist banks. As such, there will be a meeting on 8 August, looking at how to manage counterparty data for CRD IV and other regulatory requirements and how implementing the BCBS Risk Data Principles can help. Firms that attend will be able to raise their own issues and these will be collected and taken to UK and European regulators for clarification.