BCBS 239: The game changer in risk and regulatory change

Risk and regulatory change

Among the plethora of risk and regulatory changes currently hounding the financial services sector, there's one that has been slowly inching its way through the pack and is now leading the chase. That is the Basel Committee on Banking Supervision’s Principles for effective risk data aggregation and risk reporting, better known as BCBS 239.

Thanks in part to Basel III, banks have already been recruiting professionals to work on improving their capital adequacy and risk aggregation for some time now; and there is a consensus among those in the industry that BCBS 239 is an undoubtedly positive change for the industry. It will not only assist regulators, provide increased consumer protection and help to strengthen the market, but it will actually improve the bottom line for individual banks.

What is causing the alarm bells to ring is the looming deadline of January 2016 for the implementation of BCBS 239 and the sheer complexity of the work remaining to make the principles of BCBS a reality.

Data managed means minimised risk

Despite the willingness of the industry to change, banks don’t often handle data particularly well in the context of the current environment unless they have skilled, technical professionals on hand. The volume of management and risk data that banks are currently managing is unwieldy beyond comprehension and the way banks are often structured in departmental silos does not sit well with the 14 data governance principles of BCBS 239. Those principles include the requirement for banks to be able to generate accurate and reliable risk data on an automated basis across the entire banking group. It also means a finance now has to rise out of its silo and partner across a business to provide strategic understanding and guidance about the data at hand and what level of risk accompanies it.

Such monumental changes will require complex aggregation of multiple data sources from often widely varying platforms and processes, working across many different areas of the bank. And, most importantly, it must be communicated and completed in a meaningful way. Not only is that going to take a lot of investment in technology, but also a great deal of time. Time is something that banks are simply running short of.

Despite the added incentive that these adaptations, unlike many regulatory imposed changes, will actually increase efficiencies, the 2016 timeline is looming over risk and management information departments across the country.

Overcoming challenges to meet regulation requirements

As banks try to overcome the challenge of meeting the BCBS timeline for implementation, it’s important that they are hiring technical professionals who can partner across the business and analyse data in a meaningful way. However, unlike the traditional concept of finance and IT departments working at a distance from one another, with their own language of technical jargon and unquestioned expertise, they will need to communicate effectively to produce a greater understanding of how risk data is compiled in order to bring these changes to fruition successfully.

With the deadline only getting closely, a solution could be to hire interim professionals to lighten the load of existing employees. Highly skilled interims are able to hit the ground running on projects with the ability to communicate between all divisions. With the deadline looming for BCBS 239, those who do not implement capital adequacy and risk aggregation procedures now are putting their businesses at risk.