Treliant’s Post

Regulators are increasingly adopting data science techniques to enhance oversight and ensure financial stability by leveraging advanced analytics and big data. RDARR is a call to arms to ensure the banks are following suit. Read the full article here..

The European Central Bank (ECB) has recently published its final paper on Risk Data Aggregation and Risk Reporting (RDARR), a critical piece of guidance that will shape how banks manage and report risk data. This document, a culmination of extensive consultations (including feedback from three of my former customers), is aimed at improving the robustness of risk management frameworks across Europe's banking sector. Key Points of the RDARR Guide *Enhanced Data Governance: Institutions must establish robust governance frameworks to ensure data accuracy, completeness, and timeliness, addressing ongoing data quality issues that hinder effective risk management. *Management Accountability: Management bodies in banks are held explicitly accountable for enforcing RDARR standards, ensuring data integrity across all reporting and decision-making processes. *Scope and Application: The RDARR guidelines cover all significant risk data across various business areas, ensuring consistent and rigorous data handling practices across all departments. *Technical and Operational Requirements: Banks are expected to implement advanced technological frameworks that minimize manual interventions through automation, reducing the risk of errors in data processes. *Adaptability and Stress Testing: Systems must be adaptable and capable of handling stress scenarios, particularly in light of recent economic turbulences, demonstrating the ability to effectively manage and report risk data under adverse conditions. What does this mean for the Banking Industry? The RDARR guidelines will compel banks to re-evaluate and revamp their data management and reporting systems. Institutions will need to invest in technology and training, ensuring that their data infrastructures are not only compliant but also robust enough to handle the complexities of modern risk management. Moreover, with the increased accountability on management bodies, senior executives must now ensure they have a thorough understanding of their institutions' data governance frameworks and are actively involved in their operationalization. Conclusion The final RDARR paper by the ECB is a significant step toward harmonizing risk data management across Europe’s banking sector. It underscores the critical nature of high-quality data in risk management and sets a clear framework for institutions to enhance their data handling capabilities. For banking and IT professionals, understanding and implementing these guidelines will be pivotal in ensuring compliance and enhancing the overall stability of the financial system. How prepared is your institution to adapt to these changes? What strategies do you think will be most effective in meeting these enhanced requirements? #RDARR #RiskManagement #DataGovernance #FinancialRegulation #BankingIndustry #ECBGuidelines #FinTech #Compliance #RegulatoryCompliance #DataIntegrity #StressTesting

The wheel although slow turns around Two good recent reports on operational risk capital The short one https://lnkd.in/gBtEajyx The longer one https://lnkd.in/gMJ3Y87w Both quite rightly castigate the Basel rules on Operational Risk Capital "Second, the mechanism relies on a blend of income reported in financial statements and loss history as proxies for the likely size of op risk exposures. Consequently, it does not reflect banks’ actual op risk exposure or consider the quality and effectiveness of existing risk mitigating processes and activities. This provides little incentive for banks to invest in transformational risk mitigation as any improvements will not reduce the op risk capital requirement." [Damning] "In conclusion, one of the reviewers of this paper noted that because acute or high-impact operational risk losses are externalized to customers and other stakeholders, there are few business incentives to change to approaches that address the chronic levels of systemic operational losses. Thus, banks accept extraordinary levels of high-frequency low-impact operational losses, whose aggregation are, nevertheless, very significant." [Double Damning] Basel capital rules - nonsense - see https://lnkd.in/gCKZK_Pf Operational risks systemic? see https://lnkd.in/feM4Kwg The wheel turns! #operationalrisk #basel

If you are interested in recent developments in #risk #data #aggregation / #BCBS239 topic, I strongly recommend to read the article on BankingHub by zeb written by my colleagues Dorota Adamus and Dr. Frank Mrusek from zeb consulting!

The European Central Bank SSM published their guide on effective risk data aggregation and risk reporting (RDARR), https://lnkd.in/eXYyXuU6 The SSM states that this guide is a key building block of the 2023-25 work programme. The guide details ECB's minimum supervisory expectations for a set of priority topics that have been identified as necessary preconditions for effective RDARR.   Supervisory expectations are outlined under:   1) Responsibilities of the management body 2) Sufficient scope of application 3) Effective data governance framework 4) Integrated data architecture 5) Group-wide data quality management and standards 6) Timeliness of internal risk reporting 7) Effective implementation programmes #risk #data #reporting #banking #bcbs239

Volatility in the global banking industry is on the rise for many reasons, some of which include growth in digital banking, changes in where and how people work, high inflation and continued supply chain issues. Combined, these factors lead to increased operational and people-related risks such as fraud, cyber-attacks, mis-selling, potential litigation and reputational damage. Given the current environment, financial institutions would benefit from reviewing their risk management practices to ensure they are holistic and incorporate emerging human capital risks. "We are seeing a shift in our clients’ need and ability to consider financial and human capital risks holistically. While harder to measure, operational risks are more likely to have profound impacts on an organization’s very existence," says Aon's Michael Burke. Learn how financial institutions can address human capital risks in our new article: https://lnkd.in/gAgirNtv #financialinstitutions #bankingindustry #riskmanagement #peoplerisk #workforceresilience

BaaS does not automatically introduce any new risks to a bank, but it certainly amplifies the existing risks already in place. Traditional banking has three lines of defense to combat these risks: the risk managers and business units, the compliance and legal teams, and their internal auditing procedures. On the other hand, BaaS comes with only one line of defense: the bank’s risk and relationship managers.   BaaS partners intrinsically focus on the technology side of things, and they prioritize product development and customer experience above all else. Their risk management capabilities can suffer as a result.   While BaaS can do much in terms of accessing new markets and audiences, banks should take the opportunity to carefully oversee the risk management practices of their BaaS partners and address deficiencies early. With better risk and governance frameworks in place, all parties can set their sights on business success for years to come.

More than a decade ago, the #BCBS239 principles on risk data aggregation and risk reporting (RDARR) were introduced. Unfortunately, this anniversary prompts us to reflect on the progress made instead celebrating a successful rollout. Based on recent  European Central Bank publications, it’s evident that many banks are still struggling with full adoption of these principles. Despite their efforts, supervisors continue to identify significant shortcomings, making RDARR compliance a top priority. Consequently, they are intensifying their efforts, conducting on-site inspections, imposing fines, and even considering additional capital charges. After a decade, supervisors’ patience has worn thin. Given this context, it is crucial that RDARR receives high-level management attention within banks. A clear roadmap, adequate budget, and well-defined milestones are essential for compliance with these guiding principles. In response to these latest RDARR publications, Regnology has enhanced its data governance capabilities. Our improved data lineage features allow easy navigation through your data and processes. Additionally, our data catalog empowers you to maintain control over critical data elements. We have also foreseen APIs to ease the integration with your enterprise data governance platform. These are just a few of the enhancements reflecting our commitment to assisting customers on their journey toward RDARR compliance. https://lnkd.in/esQA6quN #RDARR #datagovernance #risk #datacatalog #regulatoryreporting

In July, the #ECB published for public consultation its Guide on Effective #Risk #Data #Aggregation and #Risk #Reporting (#RDAAR). This is mirroring the #BCBS_239 principles published in 2013. The #RDAAR topic has consistently been in the past years on the list of supervisory findings for SSM banks and one of the supervisory priorities. 3 observations: #1 -> Although most of the sanctions issued to SSM banks are regulatory reporting related (latest one on the use of wrong risk weights) it took us 10 years to come up with something more or less binding (although only a Guide) at European level when it comes to data aggregation & reporting #2 -> It is unclear to me why it had to be the #ECB (the supervisor) that moves first on this topic and not the #EBA (the regulator). Having a regulatory policy paper from EBA on this topic would have had positive impacts outside the SSM reach. #3 -> We will soon have #mandatory #assurance engagements for #CSRD reports for banks but still no such consistent requirement for checking #Pillar_3 disclosure reports (including RWA governance, processes, controls and calculations) To adapt a rather famous quote: #regulation without #supervision is #pointless #supervision without #regulation is #blind #riskovery #MMC

Based on the latest progress report that was issued by the Basel Committe on Banking Supervision (BCBS), Global Systemically Important Banks (G-SIBs) are still facing several challenges when it comes to implementing the BCBS 239 Principles. Given the increased scrutiny that is expected from regulators going forward, organizations need to prioritize their implementation plans and address known weaknesses now. In this latest article, Adriano Rupa and I go through the latest assessment results in detail while highlighting practical actions organizations can take to accelerate compliance.